Sonoma State U. Foundation May Lose $350,000 on Loan to Former Board Member

A Sonoma State University foundation that provides scholarships to students stands to lose hundreds of thousands of dollars because it lent $1.25-million to a financier and former board member who is facing bankruptcy, a newspaper reported.

The Sonoma State University Academic Foundation issued more than two dozen loans to individuals and businesses during the 1990s and earlier this decade, according to the newspaper, The Press Democrat, in Santa Rosa, Calif. One of the recipients, Clem Carinalli, told the nonprofit foundation that he would stop making interest payments on his loan because the real-estate crash had ruined his financial position. He said he might be able to repay the principal in three to four years. That means the foundation stands to lose up to $350,000 in interest payments, and more if Mr. Carinalli is unable to repay the principal in full.

In addition to being a former board member of the foundation and the largest landowner in Sonoma County, Mr. Carinalli leads a business that arranged more than two-thirds of the foundation’s loans, the newspaper reported. The organization will be forced to issue fewer scholarships in the 2010-11 academic year because of a diminished endowment, said Patricia McNeill, Sonoma State’s vice president for development.

News of the loan prompted the leader of Cal State’s systemwide faculty association to call for clamping down on auxiliary organizations, which she said hold 20 percent of the university’s budget and operate largely outside of public view. Lillian Taiz, president of the California Faculty Association, urged passage of legislation that would apply state public-record laws to university foundations.

“The irony is not lost on the CSU faculty that in the same week Bernie Madoff is sentenced to jail, we learn that money meant to help students get a college education is being lost to an insider scheme, supported by executives who hold the public trust,” Ms. Taiz said in a written statement. —Josh Keller