Letters to the Editor

Poly, return Moriarty funds, it’s only right

The scoreboard at Alex G. Spanos Stadium sports a Moriarty Enterprises advertisement at the top.
The scoreboard at Alex G. Spanos Stadium sports a Moriarty Enterprises advertisement at the top. jjohnston@thetribunenews.com

I would like to clear up a few matters regarding the bankruptcy of Albert Moriarty Jr.

Mr. Moriarty is a convicted felon and has been sentenced to five years in jail for his conviction on seven felony fraud charges for the operation of a Ponzi scheme.

Ponzi schemes are commonly used by well-spoken, educated con artists to defraud unsuspecting victims into handing over cash to be “invested.” Instead of actually investing the funds, the fraudster uses the victim’s money to keep the scheme going by paying “dividends” and “interest” to other victims.

Typically, the Ponzi scheme operator also uses the victim’s money to finance an extravagant lifestyle, often including high-profile “charitable” donations to public and private educational institutions. Over the last several years, universities such as Yale, Penn State, the University of Miami, Harvard and Princeton have all returned funds to the bankruptcy estates of Ponzi scheme operators who had donated large amounts of their victims’ money to the schools.

The funds Mr. Moriarty donated in 2009 were monies he defrauded out of his victims, often representing their life savings. As the chapter 7 bankruptcy trustee of Mr. Moriarty’s bankruptcy estate, one of my duties is to recover such funds so that some of that money can be returned to the creditors of the estate — which primarily consist of his victims.

On Aug. 26, The Tribune published a letter to the editor from Cal Poly’s president, Jeffrey D. Armstrong. In the letter, Mr. Armstrong suggests that the “contribution” from Mr. Moriarty was in fact part of a contract in which Mr. Moriarty received at least $590,000 worth of consideration.

He went on to state that since the funds have been spent by Cal Poly, any repayment would have to come out of Cal Poly’s student programs. Mr. Armstrong’s comments raise a number of concerns and inaccuracies.

As an initial matter, the $625,000 that came from Mr. Moriarty was not paid to Cal Poly itself, but was in fact paid to the California Polytechnic State University Foundation (the “Foundation”).

The Cal Poly Foundation is a separate California corporation established under Section 501(c)(3) of the Internal Revenue Code to handle donations, contributions and endowments for the benefit of the university. The advantage Cal Poly obtains from the existence of the foundation is the ability for donors to take tax deductions for donations made to the foundation. In order for such donations to maintain tax exempt status, they cannot be for a “like-kind” exchange of goods or services between the donor and the nonprofit organization.

In his tax returns, Mr. Moriarty has taken a $625,000 charitable deduction based on the scoreboard donation to the foundation. Furthermore, the donation from Mr. Moriarty is specifically reflected on the foundation’s 2009 tax return as a contribution received by the foundation.

The foundation’s involvement in this process is also relevant to Cal Poly’s ability to return the funds. The foundation’s financial records are publicly available on the foundation’s website.

In 2009, when the foundation received the funds from Mr. Moriarty, the foundation’s tax return showed total assets as of June 30, 2010, worth $206,695,624.

By the end of the fiscal year — June 30, 2013 — the foundation’s audited financial statements show assets worth $243,683,119, with donations received for that fiscal year alone of over $20 million. Thus, it would appear that the foundation’s quarter-of-a-billion dollar endowment could withstand returning the victim’s money to the Moriarty bankruptcy estate for distribution to the Moriarty creditors.

Finally, Mr. Armstrong suggests that the university is guided by “a strong tradition of integrity and character.” However, despite such representations, Cal Poly is now attempting to use the same evasive tactics Mr. Moriarty employed in his bankruptcy filing. Mr. Moriarty filed his bankruptcy petition in the state of Washington based on his ownership of a house in Bremerton, Wash. As the vast majority of his victims reside in and around San Luis Obispo, filing bankruptcy in Washington offered Mr. Moriarty geographical protection from his victims who reside hundreds of miles away in California. Mr. Moriarty knew his choice of venue lessened the likelihood of his victims actively participating in the bankruptcy process.

Surprisingly, Cal Poly is now employing the same tactic in the litigation that I filed in San Luis Obispo Superior Court to seek recovery of the funds they received from Mr. Moriarty. Cal Poly has removed the case to the Bankruptcy Court for the Central District of California, and has filed a motion to have the case transferred to the Washington Bankruptcy Court. The only logical explanation for having the case transferred is to have the case removed from the local media spotlight so that the headlines fade away and the public forgets about the fact that Cal Poly and the foundation received money stolen from Mr. Moriarty’s victims.

Mr. Armstrong has specifically stated that Cal Poly’s donors expect the university to “do what is right — even if it is not popular.”

It should be clear to everyone involved in this matter that doing what is right means returning the funds to the bankruptcy estate so that Al Moriarty’s victims might receive at least a portion of the their savings fraudulently stolen from them by Mr. Moriarty.