March 9, 2000 | Read Time: 3 minutes
The Pennsylvania attorney general’s office has sued former top officials of the Allegheny Health Education and Research Foundation in an effort to recover nearly $80-million in charitable donations that the state says were spent improperly.
Allegheny was the non-profit parent company of a chain of hospitals in Philadelphia and Pittsburgh that filed for bankruptcy in July 1998. Joining the attorney general in the lawsuit is Tenet HealthSystem Philadelphia, which bought the foundation’s Philadelphia hospitals in October of that year.
The following month, Tenet and Attorney General Michael Fisher negotiated an agreement under which $190-million in charitable assets owned by Allegheny would be transferred to two new charities — the Philadelphia Health and Education Corporation and the Philadelphia Health and Research Corporation. Those non-profit organizations operate to make sure the money is spent for purposes donors to Allegheny originally intended. That includes paying for medical research, providing care for indigent patients, financing medical education, and purchasing supplies and equipment.
In the lawsuit, the state and Tenet charge that during 1997 and 1998, officials and trustees of Allegheny improperly took $78.5-million from those charitable funds and used them for operating expenses, including salaries and benefits, debts owed to Mellon Bank, and “over $1-million for private golf-club memberships and for tickets to sporting events.”
The lawsuit cites a memo from one of the defendants — former Allegheny chief executive officer Sherif S. Abdelhak — instructing senior foundation officers to borrow from the charitable endowment to pay employee benefits. The memo, according to the lawsuit, was sent to David McConnell, then Allegheny’s executive vice president and chief financial officer; Nancy Ann Wynstra, then the executive vice president, secretary, and general counsel; and J. David Barnes, a member of the board. They are also defendants in the case, along with former board chairman William P. Snyder III and former board members Frank V. Cahouet, Robert L. Fletcher, and Ira Gumberg.
The payments were made during a time when, according to the lawsuit, the foundation “had defaulted on paying its medical-malpractice-insurance premiums, was having trouble paying for essential supplies such as blood, and was stalling on other overdue bills.”
The foundation “is still in bankruptcy, with creditors lining up,” said Sean Connolly, a spokesman for Mr. Fisher, in explaining why the attorney general decided to sue the individual officers and board members. “We’re asking the court to hold them personally liable, because they may have assets which could be used to repay the charitable funds.”
James J. Restivo Jr., a lawyer for Mr. Cahouet, insisted that his client was not involved in any wrongdoing that may have occurred at the foundation.
While Mr. Cahouet was chief executive of Mellon Bank, his lawyer added, “he did not encourage, influence, participate, or even know about any decision by [the foundation] to repay any bank loans to a bank group led by Mellon Bank, and he did absolutely nothing improper with respect to the alleged restricted or endowment funds.”
Lawyers for the other Allegheny officials either declined to comment or did not return phone calls seeking their comments.
