Thursday, October 30, 2014
Inquirer Daily News

Penn State investigator is ex-exec at firm with PSU ties

Louis Freeh, tapped to investigate the Penn State scandal, spent five years as a top executive at MBNA, which counted Penn State among its biggest customers

Penn State investigator is ex-exec at firm with PSU ties

Louis Freeh, the man hired by Penn 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, spent five years and collected millions of dollars as a senior executive of a big financial company that enjoyed a long-running business relationship with Penn State, its alumni association and Sandusky's boss, former football coach Joe Paterno.

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 notes his earlier FBI service, and his previous, short stint as a federal judge, but does not mention his years spent working for MBNA, which paid the school millions of dollars for access to students and alumni. Freeh journeyed to Penn State in 2005 as featured speaker at a Penn State assembly where his colleague Ric Struthers, who managed the lucrative relationship between bank and school was guest of honor.

Struthers, later head of Bank of America's credit card unit, is the highest-profile national businessman on the board of Sandusky's Second Mile Foundation, which a Pennsylvania grand jury report alleged Sandusky used to find abuse victims. A Penn State spokeswoman referred questions to the board's special committee for the investigation.

"Judge Freeh has no previous personal connection to Penn State University," says Jeremy Fielding of Kekst & Co., the New York public relations company hired by the board and its special committee examining the scandal. "Prior to its acquisition by Bank of America 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. The investigation will be completely independent.”

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

Freeh also served on the board of Fannie Mae before it was taken over by the federal government due to its insolvency in 2008, and on the board of Wilmington Trust Corp. until it was sold in 2010 after its share price collapsed due to bad real estate development loans in Delaware. Freeh currently serves as a member of the audit committee of Bristol-Myers Squibb Co., the drugmaker.

MBNA became the largest independent credit card issuer by landing college alumni and other group members as customers through lucrative arrangements that included giving the company access to alumni and student addresses and using college letterheads and mascots in marketing campaigns. Penn State, along with the National Football League and the National Education Association, was one of MBNA's biggest sources of profitable credit card debtors, company executives said at the time. Freeh didn't immediately return a call left at his Wilmington office.

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

One of his former superiors at MBNA, Ric Struthers, is the most prominent national business figure on the board of the Second Mile Foundation, the charity started and formerly run by coach Sandusky. (Fielding notes Freeh knew Struthers, but didn't report to him; he reported to MBNA's top boss, who at the time was company founder Charles Cawley. Struthers held the top job after Cawley's retirement. Freeh's duties at MBNA included lobbying Congress to make it harder for bankrupt consumers to write off their unpaid credit card bills, and marketing credit cards to police and other law enforcement groups.)

Struthers, a 1977 Penn State graduate, played a key role in managing the business relationship between the Penn State Alumni Association and MBNA. The bank paid the alumni more than $30 million for its mailing lists and other marketing aid in its credit card solicitation campaigns from 1994-2010, as I reported in this space last year after the university was forced to disclose the payments by a change in federal law.

"Freeh, who served as MBNA's general counsel from 2001-06, gave a speech in 2005 at a dedication of a new Penn State business building that Struthers and his wife supported through a $2 million gift. Struthers attended the event," reported the Wilmington News-Journal here.

Struthers collected more than $10 million a year in stock and cash pay from MBNA in the bank's final years; he donated $2 million to Penn State's 2002-05 capital campaign. He held a series of executive jobs at MBNA and ran it with other operations as chief executive officer of the nation's largest credit card operation, after its purchase by Bank of America, until his job was eliminated last year.

Besides paying the alumni group $30 million, "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 football coach Joe Paterno kept up his end of another MBNA marketing agreement. Terms of Paterno’s deal weren’t disclosed," as I noted in my Philadelphia Inquirer column last year.  Struthers didn't return a call to his home. 

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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