A.G. Schneiderman Obtains $5.5 Million Settlement For Self-Dealing At Leading Not-For-Profit Provider Of NYC Student Housing

George Scott, Founder And Former President Of Educational Housing Services, Forced To Surrender Millions Of Ill-Gotten Gains

EHS' Board Of Directors Also Held Accountable For Their Lack Of Oversight; Barred From Future Service On Not-For-Profit Boards

Settlement Proceeds Will Be Used To Reduce Student Rents And Upgrade Facilities

 

NEW YORK – Attorney General Eric T. Schneiderman announced today that his office has obtained a $5.5 million settlement to resolve an investigation into self-dealing and excessive executive compensation at Educational Housing Services, Inc. (EHS), a not-for-profit corporation that provides more housing for students in New York City than any entity other than the colleges themselves. Settlement funds will be used to reduce student rents and improve the conditions of the students' rooms. Attorney General Schneiderman’s investigation found that George Scott, EHS's President until he was removed last month, misused EHS as a vehicle to generate personal wealth and subsidize his lavish lifestyle.

"The breakdown in corporate governance at Educational Housing Services was stunning," said Attorney General Schneiderman. "Siphoning millions of dollars at the expense of college students is deplorable. Mr. Scott's conduct and the role of the EHS board in enabling his abuses represent the complete opposite of what is expected from the leadership of not-for-profit organizations in New York State. We have no tolerance for officers and directors who treat a not-for-profit organization as a vehicle for personal enrichment, and we will hold them accountable for breaking the law.”

The Charities Bureau’s investigation determined that, beginning in 2003, Scott and his wife siphoned off millions of dollars from EHS through a company, Student Services, Inc. (SSI), that Scott set up to provide cable, internet and phone service to EHS' dorm rooms. SSI was not a genuine telecom company, however, but just a shell Scott created to serve as a middleman between EHS and legitimate cable companies. The shell company offered EHS nothing that EHS could not have done on its own; yet for these unnecessary services, SSI made millions of dollars in profits that otherwise would have remained with EHS.

The Attorney General’s investigation also found that the directors on EHS's board breached their fiduciary responsibilities by approving Scott's self-dealing activity without proper diligence or oversight. In addition, throughout the period that Scott was siphoning off millions of dollars, the Board rewarded Scott with high executive compensation as well as numerous other expensive perks, including the cost of his travel between New York and the Scotts' second home in Aspen, Colorado and a housing allowance to pay for a luxury Brooklyn Heights penthouse.

Under the settlement obtained by Attorney General Schneiderman's office, Scott and his company, SSI, will make restitution of $4.5 million and the directors on EHS's board will pay another $1,000,000 for their breaches of fiduciary duty. Settlement funds will be used by EHS to reduce students' rent payments and upgrade the services and amenities EHS provides to students, all pursuant to guidelines to be approved by the Attorney General's office.

Attorney General Schneiderman's settlement also requires a complete changeover in EHS's board of directors. In addition, Scott and the five EHS director parties to the settlement are permanently barred from serving as an officer, director, or trustee at any New York not-for-profit organization.

The investigation of this matter was conducted by Charities Bureau Enforcement Section Chief David Nachman and Assistant Attorneys General Yael Fuchs, Steven Shiffman and Andrew Davis, under the supervision of Jason Lilien, Charities Bureau Chief, and Janet Sabel, Executive Deputy Attorney General for Social Justice.

A copy of today’s settlement can be found at: www.ag.ny.gov/pdfs/EHS_AOD.pdf

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