Former Dorm Landlord Accused of Siphoning Funds Settles for $5.5M
NEW YORK CITY — The founder of a nonprofit that provides housing for thousands of students at city schools including Baruch College, FIT, and Pace University agreed to pay a massive settlement for siphoning cash through a shell company to fund his lavish lifestyle, state Attorney General Eric Schneiderman announced Sunday.
George Scott, founder and former president of Educational Housing Services, and his wife gouged money from the nonprofit to pay for their travel between their luxury Brooklyn penthouse and their second home in Aspen, Colo., from 2003 to 2009, according to an investigation by Schneiderman's office.
"Siphoning millions of dollars at the expense of college students is deplorable," Schneiderman said in a statement. "We have no tolerance for officers and directors who treat a not-for-profit organization as a vehicle for personal enrichment."
The attorney general’s office said it doesn't expect criminal charges to be brought in the case, but Scott and the nonprofit’s board of directors have agreed to pay $5.5 million.
The amount that was misappropriated was not clear and Scott's attorney Robert Wolf took issue with the attorney general's characterization of the case, saying his client never admitted to any wrongdoing.
"No monies were siphoned from EHS and in fact all relevant decisions were ratified by EHS's board of directors," Wolf said in a statement. He also said that the Brooklyn apartment was in a "student residence building."
The housing agency, founded by Scott in 1987, runs five residences in Manhattan and Brooklyn that students and sometimes institutions can temporarily lease.
Scott then created Student Services, Inc. in 2002 and positioned it as a middleman between EHS and various telecommunication companies like Time Warner Cable and RCN, according to the attorney general’s office.
The company aggregated telecom contracts and sold them to the nonprofit at a high mark-up, which Scott then pocketed. The housing agency didn’t need the overly expensive services, the attorney general’s office said.
Scott intentionally misled the board about his other company, but the attorney general’s office said the board had known he would profit from Student Services’s business and failed to do their due diligence.
On top of that, Scott brazenly requested additional perks from the nonprofit’s board “that exceeded the reasonable value of his services,” according to Schniederman’s office.
The board granted Scott bonuses, luxury housing, travel expenses, and fully paid premiums on his life insurance policies.
"The breakdown in corporate governance at Educational Housing Services was stunning," Schneiderman said.
Each of the nonprofit's five directors have agreed to resign and will be responsible for $1 million of the settlement for failing to oversee Scott.
The money will go towards reducing student rents and upgrading the services the company provides.
Scott stepped down as president last month and as part of the settlement, neither he nor any board member may ever again serve in a leadership position at a New York nonprofit.