Oshkosh — Former University of Wisconsin-Oshkosh Chancellor Richard Wells is accused of overseeing the illegal transfer of more than $11 million in university funds to support five Oshkosh-area building projects.
A lawsuit filed Wednesday in Dane County by the UW System claims Wells and Tom Sonnleitner, retired UWO vice chancellor of administrative services, made illegal financial guarantees between 2010 and 2014 to secure backing for high-profile building projects on and around the Oshkosh campus and later used university funds to support foundation projects, which is prohibited by state law.
The lawsuit stems from a state Department of Justice investigation into the financial relationship between the university and the foundation. The investigation was launched in June, after current Chancellor Andrew Leavitt raised questions about funding arrangements for the $12.5 million UWO Alumni Welcome and Conference Center.
The UWO Foundation is a nonprofit organization that raises, manages, invests and distributes funds to support the university's programs and initiatives. State law requires a one-way financial relationship between the entities that prohibits using state funds to support a private entity such as the foundation.
The lawsuit seeks unspecified damages from Wells and Sonnleitner and for them to repay the costs of the investigation and any future court action. Wells retired in 2014. Sonnleitner was suspended in May 2016 and retired three weeks later.
"I certainly see this as a setback and one that we will work through and move forward," said Leavitt, who succeeded Wells as chancellor. "This university holds tremendous promise for the future of our students and this region, and I know that we'll persevere and get through this."
Neither Wells nor Sonnleitner could be reached for comment.
When contacted Wednesday by a USA TODAY NETWORK-Wisconsin reporter, UWO Foundation Board Chairman Timothy Mulloy declined to comment about the situation, saying the publicly available documents speak for themselves.
Digesters among projects questioned
The lawsuit claims five projects, including four built by corporate entities created by the foundation for specific building projects, were improperly funded by the university.
Wells and Sonnleitner are accused of authorizing multiple transfers to the projects between 2010 and 2016. They included $1.46 million for the Alumni Welcome and Conference Center; $2.17 million for Best Western Premier Waterfront Hotel and Conference Center in downtown Oshkosh; $4.14 million for a biodigester in Rosendale that converts waste to energy; $2.33 million for a second biodigester on Witzel Avenue; and $806,000 for the Oshkosh Sports Complex, which includes Titan Stadium, according to the civil complaint.
Sonnleitner also authorized transfers to the foundation that were not tied to a specific project, one of which occurred a week after he was suspended by the university. Those transfers totaled an additional $344,000, according to the complaint.
In October 2014, Sonnleitner also entered the university into a lease agreement with the foundation that obligated the university to pay $700,000 a year to use the biodigester. The university payments required by the lease were unconstitutional, the lawsuit claims.
None of those transfers were properly recorded in the university's financial records.
Memorandums of understanding
Sonnleitner and Wells also used memorandums in which the university promised to cover the foundation's debts, if necessary, to quell unease about the building projects among banks and the foundation's board of directors, according to an investigative report prepared for UWO and the UW System.
Wells and Sonnleitner sent the memorandums to the foundation to reassure board members, and similar agreements, called "comfort letters," were sent to banks financing the Best Western Premier Waterfront Hotel & Conference Center, the biodigesters and the Oshkosh Sports Complex.
A fifth memorandum also blessed all "foundation-sponsored projects," a "catch-all" phrase to refer to all of the foundation's enterprises, the report states. Investigators were not able to find such an agreement for the Alumni Welcome and Conference Center.
Sonnleitner told investigators he knew he did not have the authority to guarantee the university would pay the foundation's debts.
Some members of the foundation board doubted that the charity could pay for two new biodigesters, a hotel and a visitor's center, foundation board member Tom Kell told investigators.
Board member Craig Culver told investigators he was among those concerned that the foundation might overextend itself if it took on too many projects at once. He was skeptical, too, of the university's plan to back the foundation's debt. Ultimately, Wells and Sonnleitner swayed him.
"I was a critic, but was assured that everything would be OK," he told investigators.
Regent Michael Grebe, speaking on behalf of the Board of Regents, called Wells and Sonnleitner's actions "unacceptable and appalling."
"They had no right to make these promises or sign these documents," Grebe said in a statement. "They created a mess, which we are acting swiftly and decisively to clean up and show our citizens this will not be tolerated."
The university fired UWO Foundation Board President Arthur Rathjen on Tuesday, Jan. 17 and has put a foundation accountant on administrative leave. That employee was not identified as officials conduct an internal review, said Stephanie Marquis, a spokeswoman for the UW System.
The university's relationship with its foundation dismayed lawmakers Wednesday and sparked new calls for increased financial accountability throughout the university system.
UW System President Ray Cross has directed chancellors to examine deals with their foundations and to add language to existing agreements that allows only foundation board members to initiate deals and requires an annual audit of foundations. Leavitt, meanwhile, plans to create a new position at UWO to comply with state rules.
A spokesman for Gov. Scott Walker called the case "troubling" and said Walker "believes further accountability measures need to be taken by the UW System," but he did not elaborate further on what measures the governor has in mind.
Assembly Republicans signaled they might deploy auditors to further review the relationships between Wisconsin universities and their foundations.
"This situation is alarming on so many levels as it threatens to undermine the integrity of UW-Oshkosh and the UW System as a whole," Assembly Speaker Robin Vos, Majority Leader Jim Steineke and Rep. John Nygren said in a joint statement. "The misuse of funds, whether it pertains to taxpayer dollars, student fees or foundation money, should never be tolerated."
Vos said the issue wouldn't affect his thinking on funding for the overall UW System in the upcoming state budget, saying he gives UW-Oshkosh credit for trying to address the problem.
Speaking to reporters Wednesday in Madison, Vos said he was open to strengthening the law or ordering a legislative audit of the issue, but only if that is needed.
"First of all they discovered the problem, they investigated it, they've been working with DOJ and it sounds like the chancellor and some people who worked with him made a huge mistake," Vos said. "If they've already identified the problem and it was somebody not following the current law, I don't know what an audit is going to show."
Senate Minority Leader Jennifer Shilling said she was glad the situation and UW policies are being reviewed.
Local lawmakers, likewise, signaled more tacit support for UWO amid the investigation.
"These unconstitutional actions should never have happened, and I will continue to monitor the situation as we work to find out why and how this was allowed to happen, and to make sure it never happens again," Rep. Michael Schraa (R-Oshkosh) said in a statement. "It is unfortunate that these irresponsible actions bring negative attention to the University, and I look forward to getting this resolved and moving forward with the business of educating our students."
Rep. Gordon Hintz (D-Oshkosh) said he was briefed on at least some of the projects as a member of the state Building Commission. Hintz said the state did not have oversight of the foundation's projects, as the completed projects were essentially to be gifts from the foundation to the university.
Hintz said universities across the state have relied more heavily on their foundations to pay for building projects as the state cut UW System funding.
"I've been supportive of many of the UW-Oshkosh Foundation (projects in the past)," Hintz said in an interview Wednesday. "I'm disappointed to discover the improper financial transactions that took place."