ENE & Harvard

Doug Henwood dhenwood at panix.com
Fri Feb 1 08:08:52 PST 2002


[I've always wondered how Yale maanges to get markedly superior returns on its endowment year after year. Do alums thrown them sweet deals?]

Chronicle of Higher Education - web daily - February 1, 2002

Harvard Watchdog Group Calls for Inquiry Into Ties Among Endowment Overseers, Enron, and Fund Manager By JOHN L. PULLEY

Citing an intimate web of relationships connecting the Enron Corporation, Harvard University's endowment, and a star hedge-fund manager who invests money for the university, a student group has raised suspicions of insider trading that may have brought the endowment tens of millions of dollars in illegal profits.

The accusations came from HarvardWatch, a coalition of students and alumni that advocates a more open and inclusive system of governance at the university. The group's investigation of Harvard's ties to Enron resulted in the release Thursday of "Trading Truth: A Report on Harvard's Enron Entanglements."

The 20-page report recommends a "credible investigation into alleged financial improprieties regarding the management of the university's endowment," as well as the immediate suspension of Herbert (Pug) Winokur, an Enron director who has been a member of the Harvard Corporation, the university's governing board, since early 2000, and on the board of the Harvard Management Company, which oversees the endowment, since 1995.

"Mr. Winokur is a valued member of the Harvard Corporation," said Joe Wrinn, a Harvard spokesman.

Mr. Winokur has served on Enron's Board of Directors since the energy-trading company's founding, in 1985. He sat on the Finance Committee of Enron, which grew into America's seventh-largest company, in terms of revenue, before imploding last fall amid allegations of fraudulent bookkeeping. Mr. Winokur, as a member of Enron's Finance Committee, was in a position to oversee the creation of limited partnerships and subsidiaries that were used by the company to hide debt and create an illusion of profitability.

Enron declared bankruptcy in December, the largest such corporate filing in American history. Its stock, once valued above $80 per share, is now valued at less than $1 per share. Investors lost billions.

At the center of HarvardWatch's allegations are stock trades made by Highfields Capital Management, a hedge fund that manages approximately $2-billion of Harvard's $18-billion endowment, the largest in the country by far. Mandatory financial reports filed by Highfields with the U.S. Securities and Exchange Commission last summer and fall reveal that Highfields bought financial instruments known as "put options" -- contracts to sell a security at a certain price within a certain period of time -- on at least 3.5 million shares of Enron stock. The fund was essentially short-selling the stock, an investment strategy that generates profits when the value of an equity declines.

The put options held by Highfields generated profits of $50-million, according to the report by HarvardWatch. The windfall begs the question: Were the analysts at Highfields smart enough to independently predict the collapse of Enron, a debacle whose untangling is occupying the resources of 10 Congressional committees, or did they have help? An investigation into the matter, says HarvardWatch, is needed to determine whether illegal insider information was involved.

Harvard appeared to distance itself from the hedge fund on Thursday.

"Highfields Capital is one of several outside firms engaged by Harvard Management Company ... and is legally independent of HMC," said Mr. Wrinn, the university spokesman. "The HMC board does not participate in the investment decisions of Highfields, including its Enron investments."

Highfields was founded in 1998 by Jonathon S. Jacobson, who left the Harvard Management Company to open his own shop. Mr. Jacobson's investments before and after leaving Harvard have generated hundreds of millions of dollars for Harvard's endowment, and millions for himself, including a $10-million bonus he received shortly before his departure. Mr. Jacobson essentially worked for Mr. Winokur at the Harvard Management Company.

In addition to Harvard's "profiteering" from the Enron debacle, HarvardWatch charged that the university's reputation has been compromised by unethical alliances and quid-pro-quo agreements among its scholars and Enron. The energy company and its directors have given millions to the university, the report notes. Meanwhile, the Harvard Business School and Harvard's John F. Kennedy School of Government have produced research and case studies that bolstered Enron's effort to promote the deregulation of the energy sector, contends HarvardWatch.

Said Mr. Wrinn: "The university is reviewing the situation for any developments that have a genuine bearing on Harvard."



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