Ball State assumes $12.6 million loss in fraud

The chairman of the Ball State University board of trustees has told the State Budget Committee the school is operating under the assumption it won't be able to recover $12.6 million in fraudulent investments.

Rick Hall told the committee during a meeting Friday in Richmond that the school doesn't expect to recover any more than a half-million dollars it already has recovered of the $13.17 million it lost in separate fraud schemes, The Star Press reported.

Hall told lawmakers the reason for the loss is that the school's director of cash and investments, who has been fired, intentionally circumvented the school's internal controls.

"She knowingly entered into investment contracts outside the scope of the investment policy, and subsequently proceeded to try to cover up those efforts," said Hall, an Indianapolis attorney.

The university first learned in September 2011 it had been the victim of an $8.1 million securities fraud, although officials say it began in 2008, but kept it quiet for more than two years at the request of federal law enforcement authorities. A week after the scheme became public in June, the university announced it had been victim of another scheme.

The university hired former U.S. attorney Deborah Daniels to review the handling of fraudulent investments. Hall said the university will provide information it finds two prosecutors.

Two out-of-state men have already been prosecuted in New York and sentenced to federal prison for their roles in the schemes. One of the men, Seth Beoku Betts, who was sentenced to four years in prison for wire fraud in June, has forfeited to federal authorities a $1.2-million waterfront house in Palm Beach County, Fla., that he had purchased with the money from Ball State University. The university hasn't received any restitution from that forfeiture.

Paul Ferguson, who took over as university president in August, told the lawmakers that the university has a healthy portfolio and internal controls "are contemporary and best practice."

"In other words, there's not another $5 million shoe that's going to drop," he said.

He said among the most profound changes have been stronger oversight of investments by the board of trustees and the president and expanding the role of the director of internal auditing, who now collaborates directly with the president and the board of trustees, not just the university treasurer.