The Oregon Department of Justice is investigating Concordia University Portland, the private college that suddenly closed down earlier this year and left thousands of students in the lurch.
The justice department’s charitable activities arm is leading the probe into the Northeast Portland school. It recently sent civil investigative demands seeking additional information from Concordia. The department sent similar letters to Moss Adams, Concordia’s former auditing firm, as well at HotChalk Inc., a key private-sector partner of Concordia’s that helped run its online education program.
The department informed Concordia that “the purpose of this investigation is to determine whether there has been a violation of the Oregon Nonprofit Corporations Act” or any other laws.
State investigators are asking for an enormous volume of documents from the university and HotChalk. Clearly, they have done considerable homework on the questions that persist about the long relationship. The state is also demanding records detailing Concordia’s dealings with its parent organization, the Lutheran Church Missouri Synod.
Concordia worked with HotChalk for more than 10 years. It stood by HotChalk even through a federal investigation of their relationship. At various times, Concordia was paying to HotChalk nearly half its total revenue.
The two parties entered into a new 20-year contract in 2018.
State investigators are demanding from HotChalk “all documents reflecting payments the organization made to or received from Concordia University and the purposes of any such payments, including any payments made to any individual directors or employees of Concordia University.”
Of Moss Adams, the investigators’ scope of interest seems much more limited. The state asks the firm for “all documents evidencing communications between your organization and Concordia University related to Concordia University’s ability to continue as a going concern.”
A key task facing any auditor is to assess whether the company or nonprofit in question has the financial wherewithal to continue doing business. Moss Adams did raise the red flag about Concordia’s increasing weakness in its 2019 audit. But it wasn’t exactly going out on a limb. The audit is dated Feb. 28, 2020, eight months after the end of Concordia’s 2019 fiscal year and several days after the school itself announced it was quitting business.
Concordia was among more than 21,000 so-called 501(c)(3) nonprofits in Oregon. They are granted enormous tax breaks -- near-complete exemptions from income, sales and property taxes. But, in turn, they must devote the bulk of their time and money to a charitable cause.
With annual revenue of more than $100 million, Concordia was one of the largest nonprofits in the state. But it was also plagued by enrollment declines and a big debt load which were draining its treasury.
Those financial issues worsened until February, when Concordia Portland announced it would close in May.
Oregon nonprofits have to file a dissolution plan with the department of justice that explains what it intends to do with its remaining assets. “You can’t just start giving things away,” said Jim White, executive director of the Nonprofit Association of Oregon.
It’s unclear whether Concordia filed such a plan.
A nonprofit also cannot extend preferential treatment to its officers or other insiders.
“There are generally two reasons nonprofits get in trouble,” said White, speaking generally and not about the Concordia case in particular. “The first is poor record keeping, the second is when they’ve created a conflict of interest, when an insider they’re working with gets beneficial treatment.”
Concordia University Portland is one of several Concordia colleges around the country controlled by the Lutheran Church Missouri Synod. As Concordia Portland began to falter, it relied on the St. Louis-based synod for additional financial support.
In November 2019, the church’s financial arm agreed to throw Concordia Portland a $4 million lifeline and then, just weeks later, it reneged on the offer. The university’s leadership voted in February to shut it down.
A group of students filed a class-action suit demanding the return of their tuition for the spring quarter. They claimed they’d been misled about the true state of the university’s financial condition.
HotChalk also went to court claiming that Concordia owes it more than $300 million. It alleges Concordia Portland gave away valuable assets to insiders while it stiffed HotChalk for tens of millions of dollars
On Feb. 7, the same day the Concordia board voted to shut down, it also granted to the synod new property deeds giving the synod a security interest in Concordia’s land in Northeast Portland and in Boise, Idaho, where Concordia’s law school is based, HotChalk argues.
Concordia Portland also transferred its law school and nursing program to a sister Concordia university in St. Paul, Minn.
HotChalk argues the new property deeds gives the synod the first legal right to take possession of the land if Concordia were to default on the debt payments it owed to its parent organization. As Concordia was already in default, HotChalk argues it amounted to a preferential and fraudulent transfer.
A preferential transfer, a term out of bankruptcy law, is when a debtor pays one creditor, often an insider, but doesn’t pay others, shortly before seeking bankruptcy court protection.
Jim McDermott, the Portland lawyer representing HotChalk, declined comment. University officials had not responded to requests for comment by press time and state officials likewise declined to talk about their investigation.
Jeff Manning
971-263-5164
jmanning@oregonian.com