Tuesday, February 17, 2015

The Kroll Report on UT-Austin and the Limits of Internal Investigations

Any internal white collar invesitgation is limited by the nature and scope of the investigation and the power of the entity conducting it. And those are just the tangible, objective limiting factors. Are you reporting to the Audit Committee or directly to the Board? Does your law firm (or audit firm or private investigation firm) have other business, or seek further business, with the company or governmental unit that has ordered the investigation? Are subtle signals being sent your way?

Last week the University of Texas System released the Kroll Final Report on Admissions Practices and Allegations of Undue Influence at University of Texas at Austin. The Kroll Report was commissioned by the Chancellor and Vice Chanchellor of the U.T. System after a former U.T.-Austin Admissions Office official came forward alleging that the office of U.T.-Austin President William Powers had "at times exerted pressure on the [Admissions Office] to admit some applicants of lesser qualifications in response to external influences." This official came forward after an earlier, strictly internal, investigation was completed, with its attendant report released to the public. The earlier investigation included interviews of Powers and his top assistant.

As I wrote here last June, this is all part of a long-running battle between former U.T. System Regent Wallace Hall (plus some of his colleagues) and President Powers. Hall started snooping around, which is actually his duty as a Regent, and found several things that troubled him, including:

Admission of students to the University of Texas School of Law who had LSAT scores below the average for entering U.T. Freshlaws. Some of the admitted students were related or connected to powerful state legislators with key roles in funding the university and law school.

 

That last revelation was apparently too much for the legislature (or "the leg" as we called it in my day) and impeachment hearings were commenced by the House Select Committee on Transparency in State Agency Operations ("Transparency Committee").

 

As I said, the controversy has had its comic moments. The Transparency Committee voted to recommend impeachment of Hall before deigning to draft any Articles of Impeachment. And Transparency Committee Co-Chair Dan Flynn wrote a public letter stating that: 1) there were insufficient grounds to impeach Hall; 2) Hall should resign anyway; and 3) Hall should be impeached if he did not resign. When Hall refused to resign, Flynn voted to impeach him. (The Texas Tribune has a good story here on Flynn's remarkable letter and the response he received from Representative Eric Johnson. Both letters are attached to the story in PDF format.)

 

The fight between Hall and the legislature is apparently part of a larger years-long battle between th Board of Regents and UT President Bill Powers. The Regents have Governor Perry and company on their side and Powers has legislative allies on his. I'm not concerned about that. I have reviewed Hall's purportedly impeachable offenses and find the allegations against him unpersuasive, but I would not be writing about these things on a white collar blog if impeachment hearings were the only thing going on. Unfortunately, there's more.

 

The Transparency Committee's Co-Chairs also referred Hall to the Travis County District Attorney's Public Integrity Unit, which has opened an investigation into possible criminal wrongdoing by Hall. This is the same office that brought dubious charges against former U.S. House Speaker Tom DeLay and has a long history of questionable public corruption prosecutions. The Public Integrity Unit is an odd creature of Texas law, housed in the Travis County DA's Office with statewide jurisdiction to investigate and prosecute state officials. The old Travis County DA was Ronnie Earle. The current Travis County DA is Rosemary Lehmberg, an Earle disciple, who refused to resign from office after pleading guilty to Driving While Intoxicated.

The Kroll Report found no violation of law, but did not, and apparently was not asked to, consider any state or federal criminal laws.

The Kroll Report found no proof of a quid pro quo, but did not directly investigate, and with few exceptions did not question, individuals who did not work within the university system.

The Kroll Report found no lies by President Powers when he was questioned as part of the earlier inquiry, noting that he "answered specific questions with technical precision." But Kroll also found that Powers, through material omissions, apparently misled that inquiry, and that Powers "failed to speak with the candor and forthrightness" expected of someone in his position "of trust and leadership."

A Wall Street Journal editorial on the Kroll Report characterizes it as a vindication of Wallace Hall and calls for an "end to the campaign to punish Mr. Hall." But the Journal speaks only of Hall's censure by the legislature and the effort to impeach him, never mentioning the still active criminal investigation hanging over Hall's head.

Holding a press conference after the Kroll Report was issued, Powers called the Report "thorough, accurate and fair" and said that he thinks it clears him. Powers, however, denied being evasive in his answers to the earlier inquiry, noting that the lawyers conducting that inquiry had stressed its limited nature. Powers, after initially refusing to discuss individual regents or donors, also claimed that Hall himself "has exerted influence over the admissions process." But Powers declined to comment on whether the Report exonerated Hall, noting that "there is an investigation going on about his conduct." I find Powers' statement quite chilling. It serves as a reminder that this is Texas and Hall is not out of the woods.

(wisenberg)

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