- Associated Press - Thursday, June 12, 2014

MUNCIE, Ind. (AP) - In September 2011, Ball State University officials learned their institution was the victim of an $8.1 million securities fraud.

But for more than two years, only a select group of people knew about the loss - top administrators, trustees, law enforcement authorities and the state board of accounts.

Ball State’s silence came at the request of federal law enforcement authorities, whose investigation led to the sentencing last Friday of the investor convicted of using much of the money to buy luxury items, including a Maserati and a Ferrari.

The events that led to the loss began unfolding in 2008, when a university employee responsible for overseeing the money mischaracterized to her supervisors the investment in collateralized mortgage obligations. The woman, who is not believed to have benefited from the scam, placed the money with Florida-based Betts and Gambles Global Equities.

Prosecutors say Seth Beoku Betts told the employee “fabulous tales” about how he would achieve significant profits for the university within weeks. When no returns materialized, the Ball State employee sent emails trying to find out what had happened to the money, but Betts always put her off.

The woman was fired in 2011 for violating university policy. Betts was sentenced last week to four years in prison on wire fraud charges by a federal judge in New York City.

Until Betts’ sentencing, few knew about the loss of the money, which Ball State says came from long-term reserves for future projects that are invested in order to garner returns. President Jo Ann Gora said the loss is less than one percent of the university’s total assets and “will not negatively affect university operations.” None of the stolen money involved donor funds, she told The Star Press (https://tspne.ws/1pM0whg ).

Ball State was asked by federal law enforcement not to disclose the fraud because it could have compromised the investigation, Ball State Treasurer Randy Howard said.

“If the responsible parties became aware that the scam had been discovered, they could have taken flight or disposed of or hidden assets that might otherwise be recovered,” he said.

Indiana University law professor Antony Page said the case shows Ball State lacked adequate internal controls over investment decisions.

The investment involved a type of mortgage-backed security that represents claims to specific cash flows from large pools of home mortgages, according to the U.S. Securities and Exchange Commission.

“It’s easy to say in hindsight it was foolish to invest in CMOs, but at the time, lots of very intelligent people were doing it,” Page said. “The real problem here was failure to do adequate due diligence: investing in some company you’ve never heard of in Florida that was formed by just one person as an LLC six months ago.”

Howard said all Ball State investment and wire transactions were subject to review and approval in 2008 but noted that those procedures could be circumvented if investments are misrepresented.

He said the university has since changed its investment procedures to strengthen the review and approval processes. Now, investments can be placed only with firms on a list that he has vetted and pre-approved.

___

Information from: The Star Press, https://www.thestarpress.com

LOAD COMMENTS ()

 

Click to Read More

Click to Hide