Fort Worth seminary, Baylor University file suit over attempted takeover of charity
Trustees of a charitable foundation awaited the death of their benefactor before beginning an attempt to take over assets set aside for two Christian institutions dedicated to educating the state’s faith leaders, according to a lawsuit filed this week by Baylor University and Southwestern Baptist Theological Seminary.
Before he died, Harold Riley set aside insurance company stock from the business he established that is valued at more than $10 million to support the operations of Southwestern Baptist Theological Seminary in Fort Worth and Baylor University in Waco.
Riley died in 2017, and a year later trustees of the foundation Riley created conspired to change its rules of operation, stripping control from the foundation’s beneficiaries and siphoning off more than $4 million in stock value, the lawsuit alleges.
“It is the strong desire of both Southwestern Seminary and Baylor University that this matter be resolved without the necessity of a trial,” Adam W. Greenway, president of Southwestern Baptist Theological Seminary, said in an emailed statement. “It is our further hope that we can settle this issue in the spirit of Christian charity by returning direction and control of the foundation to its beneficiaries and restoring the member status of both Southwestern and Baylor.
“Absent such action, we are left with no other alternative than to pursue our legal remedies, and Southwestern Baptist Theological Seminary and Baylor University are united in the simple goal of honoring the late Harold Riley’s wishes that his gifts be used for precisely that which he set forth and nothing else.”
As a tribute to his father, Ray I. Riley, and to benefit future generations of students like him, Riley generously contributed major gifts to Southwestern, including the lead gift for the Ray I. Riley Alumni Center. Riley also gave $16 million for the lead gift to build the Jack MacGorman Chapel and Performing Arts Center to commemorate the influence and impact the venerable New Testament professor had on the Riley family, Greenway said.
Linda A. Livingstone, Baylor University president, communicated similar remembrances in an emailed statement.
“For Baylor, Mr. Riley’s philanthropy primarily has benefited students directly through endowed scholarships in the Hankamer School of Business, as well as through gifts for the George W. Truett Theological Seminary, Baylor Libraries and Baylor Athletics,” she said. “It is frankly disheartening to have discovered that Mr. Riley’s legacy and the educational funding for future generations of Christian leaders appear to have been misused for purposes other than those identified by Mr. Riley.
“Baylor has an ethical, moral and legal obligation to ensure that Mr. Riley’s wishes are carried out to their fullest intent. This legal action by Baylor and Southwestern Baptist Theological Seminary unfortunately is necessary to return Mr. Riley’s gift to his original donative intent. We stand beside our colleagues at Southwestern Baptist Theological Seminary as Baylor seeks to remedy this unfortunate and ill-timed sequence of events.”
Some of the money was allegedly used to purchase a new vehicle and some was used to hire attorneys to aid in the effort to pursue what the lawsuit characterizes as an “attempted coup” by foundation trustees. According to the lawsuit, the foundation spent more than $50,000 on an SUV and more than $350,000 on legal fees in 2018.
The Harold E. Riley Foundation and foundation president and foundation chief operating officer, Mike C. Hughes, named in the lawsuit as defendants, conspired in secret to remove the two schools as foundation beneficiaries and strip them from having any input in the governance of the foundation while restructuring the charity’s original intent, the lawsuit alleges.
“The secret coup appears to be an attempt to seize control of the foundation and its assets,” the lawsuit says.
The original bylaws gave the two schools the power to each appoint three members to the 11-member board of trustees, giving Baylor and Southwestern a majority of the board’s seats, according to the lawsuit.
Around July 11, 2018, while Southwestern officials were involved in a scandal that precipitated the removal of Paige Patterson, former Southwestern Seminary president, foundation trustees tried to remove the two institutions as the foundation’s beneficiaries and strip them of their power to appoint trustees to the foundation, the lawsuit alleges.
Patterson, former seminary president and then former seminary president emeritus, was fired in May 2018 after he was criticized for comments on abused women and his handling of a sexual abuse case at another institution, according to a statement from seminary officials.
Patterson was later sued by a former student who alleged that Patterson ignored and belittled her reports of sexual assaults that had taken place on campus.
According to the lawsuit, foundation trustees also used their positions to appoint themselves and their friends to paid insurance corporation director positions at Citizens Inc., with substantial compensation packages, only one of several activities undertaken by the Riley foundation board which the suit alleges are void. The lawsuit also alleges that foundation insurance director appointees have not shown themselves to be qualified for the positions to which they were appointed, which are accompanied by six-figure salaries.
In its 2019 annual report, Citizens Inc., which is publicly traded on the New York Stock Exchange, claimed assets of $1.7 billion.
Patterson, and Riley Foundation trustees Hughes, Augie Boto and Charles Hott, are among the five new directors the Riley Foundation wanted to place on the Citizens board, according to a lawsuit seeking to change the insurance corporation’s board which was filed in Colorado earlier in September.
The attorneys listed on the Citizens lawsuit, for Wheeler Trigg O’Donnell LLP, did not immediately respond to a request for comment. Hughes, who served as vice chancellor for advancement for Southwestern under Patterson, also did not immediately respond to a request for comment.
The July 11 attempts at changing the foundation structure are invalid due to a lack of a quorum, another way of saying that meeting did not have enough members present for any decisions made to be valid, the lawsuit argues.
The universities’ lawsuit also alleges that the foundation is involved in costly litigation against the insurance corporation that Riley founded, Citizens Inc. based in Austin, to force directors off that board and replace them with members and friends from the Riley foundation board. The lawsuit alleges that $4.3 million in proceeds from stock sales are funding the litigation activity against Citizens and that Southwestern and Baylor have received very little funding from the stock sale.
Southwestern received or was approved for $198,800 in grants or contributions in 2018 while Baylor received or was approved for $100,000 in grants or contributions in 2018, according to Form 990s filed with the Internal Revenue Service by the Harold Riley Foundation.
“In light of Citizens’ fundamental duty and responsibility to safeguard the rights of our public shareholders we are closely monitoring recent legal action taken by Baylor and Southwestern to protect themselves and Riley’s charitable intentions,” an emailed statement from Citizens said.
The lawsuit claims damages of more than $ 1 million, seeks a temporary restraining order freezing any of the Harold Riley foundation’s trustees attempted changes in restructuring the board as well as attorneys fees, and asks that the court prohibit the defendants from destroying or hiding any records.
This story was originally published September 10, 2020 at 5:42 PM.
