PhillyDeals: Penn State's outsider investigator worked for contract firm

Former FBI director Louis Freeh , speaking, has been chosen to lead Pennsylvania State University's investigation of the Sandusky situation. He earned millions working for a firm that did business with the school.
Former FBI director Louis Freeh , speaking, has been chosen to lead Pennsylvania State University's investigation of the Sandusky situation. He earned millions working for a firm that did business with the school. (TOM GRALISH / Staff Photographer)
Posted: November 22, 2011

Louis Freeh, the former Federal Bureau of Investigation boss hired by Pennsylvania State University to run "an independent investigative review into all aspects of the university's actions with regard to the allegations of child abuse" by Jerry Sandusky, collected millions of dollars as a senior executive of a financial company that enjoyed a long-running business relationship with Penn State.

Freeh, who headed the FBI for eight years until 2001, spent the next five years as vice chairman at MBNA Corp., where his titles included general counsel.

Penn State's announcement of his appointment noted Freeh's earlier FBI service, and his previous two-year service as a federal judge, but didn't mention his later years at MBNA, where his Penn State connections included the alumni association and head football coach Joe Paterno, Sandusky's boss.

"Judge Freeh has no previous personal connection to Penn State University," said Jeremy Fielding, of Kekst & Co., the New York public relations company hired by the university's special committee examining the scandal.

"Prior to its acquisition by Bank of America Corp. in 2006, MBNA entered into many commercial agreements with third parties. In his role as general counsel of MBNA, Judge Freeh had no role in negotiating the company's agreement with Penn State University, which was entered into many years before Judge Freeh joined MBNA," Fielding added. "The investigation will be completely independent."

The bank paid the Penn State alumni association more than $30 million for its mailing lists and other marketing aid in its credit card solicitation campaigns from 1994 to 2010. From 1998 to 2002, MBNA also agreed to pay Penn State an additional $500,000 a year to ensure that it didn't make deals with other banks, and that Paterno would comply with another MBNA marketing agreement, whose details weren't made public. I noted the payments in a column last year, after a new federal law required their public disclosure.

Freeh left the credit-card company in 2006 as it was acquired by Bank of America, and cashed out stock options worth more than $20 million, not counting his annual compensation, according to an MBNA document filed with the Securities and Exchange Commission.

MBNA became the largest independent credit card issuer by paying colleges and other groups for their mailing lists, letterheads, logos, and direct access to students, alumni, and other group members in marketing campaigns. Penn State, along with the National Football League and the National Education Association, was one of MBNA's leading sources for credit-card users, company executives said at the time.

Freeh's other financial experience includes a stint on the board of troubled mortgage finance giant Fannie Mae, before it was taken over by the federal government in 2008. He was also on the board of Wilmington Trust Corp. before it was sold in 2010 after its share price fell due to rising losses from its Delaware development loans.

Freeh currently serves as a member of the audit committee of Bristol-Myers Squibb, the drugmaker.

Freeh is not the only former MBNA official with an important role at an institution trying to cope with the Penn State scandal.

One of his former bosses at MBNA, Ric Struthers, is the most prominent national business figure on the board of the Second Mile Foundation, the children's charity started and formerly directed by Sandusky.

Struthers, a Penn State graduate, played a key role in managing the business relationship between the Penn State Alumni Association and MBNA. He was paid more than $10 million a year in cash and stock in the bank's final years. Struthers donated $2 million to Penn State's capital campaign in the early 2000s. The bank hired hundreds of Penn State students for a call center in State College, and Penn State named its job-placement center for the bank.

Struthers initially was the highest-ranking MBNA official to survive the Bank of America deal and was, for a time, chief executive officer of the combined credit-card operation, the largest in the United States. His job was eliminated last year.

Fielding, the New York PR specialist, said Freeh and Struthers "have not discussed any of the matters related to the investigation."

Conflict?

If Harrisburg, currently the most extreme case among the dozens of Pennsylvania local governments having a tough time paying the bills, needs a rescuer with long experience in helping cities borrow money, it will have found the right man in David Unkovic, the state lawyer and former municipal bond adviser nominated by Gov. Corbett to serve as Harrisburg's receiver.

But if you agree with Harrisburg's City Council majority that the real issue facing local government is too much questionable borrowing, aided and abetted by well-paid experts, Unkovic begins to look like part of the problem.

Unkovic, a Harvard and Penn Law School graduate, "has multiple connections to city creditors," Harrisburg Patriot-News reporter Eric Veronikis wrote last Saturday.

"One of [Unkovic's] past employers - for 27 years - was the Philadelphia-based law firm Saul Ewing, which represents bond-insurer Assured Guarantee Municipal Corp., Harrisburg's largest creditor."

The Patriot-News report also said Unkovic worked for the law firm Cozen O'Connor, which is fighting Harrisburg's bankruptcy petition on behalf of the state, and for the Philadelphia- based financial adviser, Public Finance Management Inc., which represents other Harrisburg creditors.

Harrisburg filed for Chapter 9 federal bankruptcy protection and wants to get bond insurers and other paid experts to eat some of the city's losses stemming from financing renovation of an incinerator. Otherwise, selling city parks and other assets and laying off workers will be required by the city.

Unkovic pledged his "great determination to come up with the best possible plan for the city."


Contact columnist Joseph N. DiStefano at 215-854-5194, JoeD@phillynews.com, or @PhillyJoeD on Twitter.

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