• September 2, 2015

Lawsuit Suggests Oklahoma State's Insurance-Based Fund-Raising Plan Was Too Good to Be True

Oklahoma State University is suing a life-insurance company that promised to raise hundreds of millions for the university's athletics programs through life-insurance policies on about 27 leading donors.

In the lawsuit, filed in the District Court of Payne County, Okla., university officials allege that the Lincoln National Life Insurance Company and John Ridings Lee, a Texas-based agent for the company, predicted they could raise $350-million in 20 to 25 years and charged the university inflated premiums. Oklahoma State seeks to recover $33-million in premiums. The university is also suing a handful of other Lincoln National agents who were involved in the deal.

The fund-raising plan, called "The Gift of a Lifetime," got considerable attention when it was announced, in 2007, not least because it was backed by the billionaire oilman T. Boone Pickens, who has been a major donor and sports booster at Oklahoma State. Mr. Pickens joined the university as a plaintiff in the lawsuit. He had contributed $10-million to guarantee the university's line of credit to pay premiums.

Oklahoma State paid two $16-million premiums before it even saw the terms of the policies, in March 2009. At that point, the university decided to cancel the deal.

Interest From Other Colleges

According to the complaint, Mr. Lee and the other agents had proposed setting up policies to cover at least 25 donors age 65 to 85 for $10-million each in death benefits, at no cost to the donors. Under the deal, when the donors died, the university would receive the proceeds.

But the complaint alleges that Mr. Lee and the other agents misrepresented details of the deal and even forged signatures on documents that they were required to show to university officials and the donors.

Mr. Lee did not respond to telephone calls on Thursday. A statement issued by the Lincoln National Life Insurance Company did not comment on the litigation, but it noted that the company had filed its own lawsuit, in the U.S. District Court for the Northern District of Texas, alleging breach of contract and seeking a summary judgment validating the policies.

Larry Reece, a fund raiser for athletics at Oklahoma State, would not comment on the case. But he did note that, over the past few years, he had fielded calls from 40 to 50 colleges that were interested in Oklahoma State's plan.

"I don't know of any that actually got it done," he said.

Mark Mullady, executive vice president of Collegiate Financial Services, a company in Lexington, S.C., that provides financial services to colleges, said he had met with representatives of some 50 colleges — including Duke University and the University of Notre Dame — that were interested in setting up fund-raising deals through life-insurance policies like Oklahoma State's.

But, he said, the colleges discovered that if they sank the money into their endowments, they would get the same rate of return — but with less risk. The insurance idea "kind of died on the vine," he said.


1. drkaj - February 04, 2010 at 04:28 pm

As P. T. Barnum is alleged to have said, "There's a sucker born every minute." With such grossly irresponsible lapses of fiduciary oversight on the parts of those who--we all would assume--should have known better, is it any wonder American higher education leadership comes increasingly under fire these days. Or was it simply a combination of greed and naivete?

Incomprehensibly, "Oklahoma State paid two $16-million premiums before it even saw the terms of the policies, in March 2009." Didn't any of their parents teach them that if something is too good to be true, it probably is?

My school has made some bonehead decisions in the past, but nothing even close to this!

2. akprof - February 04, 2010 at 05:40 pm

This is ghoulish. Had I been a donor who became aware of such a policy, I would have ceased being a donor in a very publis manner

3. jleahey - February 04, 2010 at 05:53 pm

I hate to say it, but this is not really a surprise, never was. Most folks in the world of philanthropy, fundraising, and investments knew this was a pig in a poke and avoided all notions of considering it.

4. athibo - February 05, 2010 at 09:34 am

I would hope that some University administrators would be held responsible for such a debacle. If I was an alumni, current student or donor, I would be expecting a couple of resignations, starting with the CFO and the head of the athletics department.

5. commentarius - February 05, 2010 at 11:33 am

There's probably a needy widow of an assassinated Nigerian official who's eager to share $100 million or so in ill gotten gains with OSU if they're willing to pay a few bribes and fees. Or maybe OSU can invest in a hoard of uncirculated nickels from the National Collector's Mint! That'll pay off someday! Seriously, fund raisers this naive or stupid almost deserve to lose the money. But hey, what's more important than athletics anyway?

6. johntoradze - February 05, 2010 at 12:01 pm

Actually, folks, packaging these policies as financial instruments has become the latest thing on Wall Street. It has been a practice for a long time. Many companies have secretly insured their employees lives with themselves as beneficiaries and made money at it.

It is ghoulish. But you know, it does provide for some truly wonderful fundraising opportunities!

I have a little list! They never will be missed!

7. kcissna - February 06, 2010 at 09:13 am

Why would anyone think that a life insurance company is going to pay out more in benefits than they receive in premiums (plus whatever rate of return they receive on the invested premiums). At best, it is a macabre bet against the lives of the donors, without enough people in the pot to get to actuarial averages. I'm with drkaj above--if it sounds to good to be true.... and they should have known better.

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