Hershey Trust probe pits Corbett vs. ally

The campus of the Milton Hershey School, established for children from families of low income, limited resources, and social need, its website says. Money from the trust is to "be spent directly on the care and education of children."
The campus of the Milton Hershey School, established for children from families of low income, limited resources, and social need, its website says. Money from the trust is to "be spent directly on the care and education of children."
Posted: December 19, 2010

They are longtime friends and close political allies, Tom Corbett and LeRoy S. Zimmerman, one about to become Pennsylvania's governor and the other a Republican elder who helped the younger man on his long climb from Allegheny County to the pinnacle of the state's political power.

Now that relationship has an added dimension: Gov.-elect Corbett remains, for now, Attorney General Corbett, and his office has confirmed that it is investigating the $7.5 billion Hershey Trust, overseen by Zimmerman, himself a former two-term attorney general.

The issue is the trust's $12 million purchase in 2006 of a money-losing golf course north of Hershey with funds intended to educate impoverished children and increase the enrollment at the acclaimed Milton S. Hershey School. After acquiring the golf course, the charity embellished the Wren Dale course with the construction of a Scottish-style clubhouse and restaurant/bar, at a price of $5 million, again with funds meant for the Hershey School.

Trust officials say the acquisitions of the Wren Dale golf course and the nearby Pumpkin World USA roadside market, even at prices significantly higher than fair-market value, will allow expansion of the school's housing and a larger enrollment. The institution paid the prices at the height of the real estate market boom to gain ownership of the real estate for the institution.

If the attorney general finds the Hershey Trust was not prudent, or did not act in the interest of the beneficiaries, it could remove trustees, seek to have them reimburse the trust fund, or reduce their compensation, trust attorneys say. One former board member may have to return profit from the sale of the Wren Dale course to the Hershey Trust.

Zimmerman declined to be interviewed, but he responded to questions e-mailed to him and has released a public statement saying he believed the Hershey Trust acted properly.

"We have managed the Hershey Trust to be a thriving philanthropy that is growing its fulfillment of its mission," he said in a written response to The Inquirer.

Sources, who requested anonymity because they were not authorized to discuss the case, say Zimmerman lobbied to characterize the scrutiny into the Wren Dale golf course as a "review" rather than a noncriminal investigation. Zimmerman said: "I did not in any way or at any time protest the Attorney General's review of the Wren Dale purchase, nor did anyone on my behalf."

The investigation is being conducted through the attorney general's charitable trusts and organizations section, though Corbett's influence in the Hershey investigation doesn't necessarily end with the start of his governorship Jan. 18.

Corbett will manage the process of appointing an attorney general to complete his second term. That selection process is under way, and one name that has been mentioned is David J. Freed, district attorney of Cumberland County and Zimmerman's son-in-law. Zimmerman said he has not "advocated" for Freed to be appointed.

Freed said in a phone interview Dec. 8 that he was "flattered" if he was being considered but that no one has contacted him about it. He said he would have reservations about accepting the position because it is customary that the appointed attorney general does not then run for a full term when the interim term expires.

Two other candidates mentioned for Corbett's unexpired term are Dauphin County District Attorney Edward M. Marsico Jr. and First Deputy Attorney General William H. Ryan Jr.

The attorney general's investigation into the Hershey Trust is complicated beyond the friendship between Corbett and Zimmerman. Those complexities include:

The Office of Attorney General has virtually exclusive regulatory oversight of charities in Pennsylvania, including the Hershey Trust. Yet it was not until September - four years after the actual purchase of the golf course and in the wake of stories by The Inquirer regarding spending at the Hershey School - that the attorney general began an investigation. The Inquirer reported on the Wren Dale deal in early October. One of the expenditures reported by the newspaper was the quiet payoff of $3 million to former students or their families for sexual abuse by a serial pedophile who was the son of a part-time live-in house parent at the school.

The purchase of the golf course includes an apparent conflict of interest involving a former high-ranking Hershey Co. executive and raises questions about the board's conduct in upholding its fiduciary responsibilities for managing the philanthropic legacy of Milton S. Hershey, founder of the candy company and the school for poor children.

The Attorney General's Office was a driving force in placing Zimmerman, who remains one of Pennsylvania's most prominent Republicans, on the Hershey Trust board after a crisis-driven and sweeping leadership change at Hershey in 2002. A change in proposed governance rules of the trust, allowed by former Attorney General D. Michael Fisher in 2003, cleared the way for Zimmerman to have a seat on all four of the boards that oversee the sprawling Hershey empire, which includes the candy company, the company that operates Hersheypark and other amusements, and the trust that funds and manages the Hershey School. Those positions provided the 75-year-old Zimmerman extended influence and compensation in 2009 of $499,996.

The Attorney General's Office has been a bastion of Republican control since 1981. Only Republicans have been elected to the office since Zimmerman's first victory, and the Hershey-related paying boards include a number of notable Republicans, among them former Gov. Tom Ridge, former GOP gubernatorial candidate and Steeler hall-of-famer Lynn Swann, and former Ridge administration official James Sheehan.

Both Zimmerman and the Attorney General's Office assure that those relationships will have no influence on the investigation of the purchase of the golf course.

"Tom Corbett has been very clear that if there are violations, they will be investigated and they will be addressed," said Nils Frederiksen, a spokesman for Corbett. "Outside activities don't have any influence on investigations, no matter what section," he said.

"Mr. Zimmerman is a private citizen, just like any other private citizen out there," he added.

The Wren Dale Golf Club was founded by a group of local businessmen and doctors in 2001. The Hershey Trust Board paid $12 million for the struggling club, a figure that was two to three times higher than the charity's own appraisal for the property.

The price erased financial losses of the original investors, which included Richard Lenny, then the chief executive officer of the Hershey candy company. Lenny, in fact, sat on the charity board that approved the acquisition.

The board said it had no idea Lenny was one of Wren Dale's owners. In his open letter to the school and alumni on Oct. 18, Zimmerman said, "Like any good board, we have safeguards in place to ensure that any potential conflicts of interest are highlighted and resolved satisfactorily. As in most organizations, our safeguards rely on self-disclosure by directors of any potential conflicts of interest. The Attorney General's Office will make its own assessment of whether those worked properly here."

Lenny, who now lives in Illinois, has not responded to requests for an interview.

The Inquirer separately reported that the Hershey charity purchased the Pumpkin World USA roadside market for $8.6 million, or nine times its tax-assessed, fair-market value.

Through spokeswoman Connie McNamara, the Hershey Trust defended the purchases of Wren Dale and Pumpkin World as the costs necessary to secure "buffer land" next to the Hershey School campus, parcels that also could allow for planned expansion of the school and its enrollment.

Zimmerman, in his response to The Inquirer, said he believed the newspaper's coverage of the trust has been unfair. "I want to respond to the questions you have posed. But I do not agree to sit with you for an interview. To do so would validate the recurring unfairness of your coverage."

In articles, the trust's "important contextual and contrary points are omitted completely, or tacked on in a cursory, limited and throwaway fashion" and their publication at times on the front page "is inexplicable and is a compelling indicator of The Inquirer's bias," he said.

He said that one of the reasons he was considered a good candidate for the Hershey Trust in 2002 was because of his understanding of the "regulatory framework and obligations of the Trust Company's most prominent regulator" - a result of his two terms as attorney general in the 1980s.

Fisher, now a judge with the U.S. Court of Appeals for the Third Circuit in Philadelphia, said he did not agree to changes in proposed governance rules in 2003 to benefit Zimmerman after he joined the board in late 2002. Zimmerman was one of four new leaders on the trust board.

"We had no knowledge that Roy would have become chairman of the Hershey Trust," Fisher said. "Those were decisions by the trust after I left office."

Besides long-standing ties to the agency, Zimmerman has a personal and professional relationship with Corbett.

This July, Zimmerman had Corbett and nine others to his suburban Harrisburg home for a private dinner. Corbett aide Kevin Harley said Corbett has known Zimmerman for "years and years and years."

The dinner event was social and unrelated to fund-raising for Corbett's gubernatorial campaign, Harley said. Zimmerman confirmed the dinner with Corbett and others and said he has known Corbett for more than 20 years.

Zimmerman, who served as attorney general from 1981 to 1989, is senior counsel at the Pittsburgh-based Eckert Seamans firm, whose lawyers contributed $765,000 to state candidates or committees between 2000 and 2010, according to state and Inquirer data. Zimmerman is one of the lawyers representing the Foxwoods casino project in Philadelphia, court records show.

Experts were of differing opinions on whether Corbett is the right person to investigate the Hershey Trust.

James E. Tierney, director of the National State Attorneys General Program at the Columbia University law school, said he believed Corbett could investigate Zimmerman.

The attorney general is an important person in the state and he knows other important people, some of whom the attorney general could investigate, Tierney said. "How can you investigate someone you know? It happens all the time," he said.

Geoffrey Hazard, a law professor at the Hastings College of Law in California, said perceptions of fairness and lack of bias were important in an investigation.

"The question is not whether it is unethical or illegal, the question is whether it is inappropriate," Hazard said. "The investigation is destined to be suspect because we can predict that lots of people will be skeptical of it, so why are you doing it?" Corbett could appoint an independent district attorney or a retired judge for the investigation, Hazard said.

Randall Roth, a leading national trust expert at the University of Hawaii who has followed the Hershey Trust, observed: "Human nature is such that you tend to more closely scrutinize someone you don't have connections to. Under the circumstances, somebody else should be doing the investigation."

There is a tension between expenditures made by the Hershey Trust and its mandate to direct trust money to increasing the number of impoverished children being educated at the Hershey School.

Trust officials say that Milton Hershey's Deed of Trust expressly allows for the charity to buy land adjoining or near the school campus.

Regarding land acquisitions, the deed states: "The Trustee may from time to time, and at any time, but only with the approval of the managers, purchase any additional land adjoining the School property, or conveniently near to it . . . if they consider such land necessary or convenient for the purposes of the School."

But the 15-page deed also explicitly restricts the use of the trust "to lodge, board, and instruct, as many children as . . . the revenue and other sources of income . . . will provide for."

The Hershey Trust itself notes this in its IRS 990, explaining that, "All revenues must be spent directly on the care and education of children. No monies are allowed to be or are spent for any other purpose; there are no grants to other organizations or non-MHS spending."

The institution has not said how it arrived at the $12 million price for Wren Dale. Its independent appraisal of the property valued it at $4 million as a golf course and $6.2 million as a housing subdivision.

Hershey Trust officials have pointed out that other property along Route 39 sold for higher than their fair-market values because it was a growing area.

Anthony Colistra, the president of the Hershey School and former trust chairman, said in a statement that the golf course was strategically essential to the growth of the school.

The trust said it constructed the clubhouse and restaurant/bar to enhance its investment in the Wren Dale course, now called Hershey Links.


Contact staff writer Bob Fernandez at 215-854-5897 or bob.fernandez@phillynews.com.

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