AG wants to remove 3 leaders of Hershey Trust

05012016-John-Estey
John Estey, a former top political aide to Gov. Ed Rendell, continued to move in high-level circles while cooperating with the FBI.

In a sign of the continuing chaos at the top of the $12 billion Hershey charity, the Pennsylvania Attorney General's Office is seeking the resignation of three long-standing board members at the Hershey School for poor children, according to a letter from the office obtained by the Inquirer.

The resignations would amount to an overhaul of the 10-member board that runs one of the nation's richest charities.

The letter asks the Hershey Trust directors to reduce board compensation, which it said exceeds its own rules, and asks members to personally bear the cost related to an internal conflict-of-interest investigation.

The office also expressed concerns about "apparent violations" of a reform agreement reached between the attorney general and the Hershey charity in 2013 over the purchase of a luxury golf course with school funds.

Spokesmen for the Attorney General's Office and the Hershey Trust confirmed the authenticity of the Feb. 8 letter, which reveals turmoil at the charity's highest level.

The Hershey School, the sole beneficiary of the trust's $12 billion in assets, enrolls 2,000 impoverished students, mostly from Pennsylvania. The charity owns HersheyPark as well as a controlling interest in the Hershey chocolate-manufacturing company.

Democratic insider John Estey, a top official at the Hershey Trust Co., which manages the charity's finances, was charged on Friday by federal prosecutors with pocketing $13,000 that was to be used for lobbying state lawmakers as part of a sting.

The Hershey Trust Co. board fired Estey on Friday evening after learning of the charge, which is unrelated to the charity.

Hershey Trust spokesman Kent Jarrell said in a statement that the group's boards - one to manage finances and one to administer the school - "have a long history of voluntarily and constructively working with" the attorney general and "are fully cooperating." He said the Hershey charity expects to "appropriately resolve outstanding concerns."

Chuck Ardo, the spokesman for the Attorney General's Office, said Monday that "we have not heard a satisfactory response from" the Hershey Trust.

Ardo called the letter "a continuation of our original investigation and terms under which we agreed to settle" a two-year probe into soaring board compensation and the $12 million purchase of the Wren Dale golf course.

Then-Attorney General Tom Corbett launched the investigation into Wren Dale, which the charity later closed as a money-loser, after its highly irregular purchase was disclosed in the Inquirer as Corbett ran for governor.

The Hershey charity agreed to a laundry list of changes. But Mark Pacella, the chief deputy attorney general who oversees charitable organizations, wrote that his agency had "serious concerns regarding the apparent violations of the 2013 agreement."

Before the 2013 agreement, there was no limit on board compensation. The 2013 agreement limited compensation to a base pay of $30,000 a year, but also includes more pay for attending meetings and heading committees.

Pacella seeks a "reduction in board compensation to the parameters set forth in the 2013 agreement" and the "reimbursement of all excess compensation." The most recent pay has not been disclosed in tax filings with the IRS.

Pacella also alleges the Hershey board's apparent "failure to exercise its best efforts in a timely manner to secure new board members" with experience in early childhood education and working with at-risk children.

Pacella asked about the resignations of board members John Fry, the president of Drexel University, earlier this year and Hershey alumnus Richard Zilmer in 2015.

Fry and Zilmer were considered newer board members and not connected to the purchase of the golf course and financial excesses of the last decade.

Hershey spokesman Jarrell confirmed Monday that a third board member, Stephanie Bell-Rose, resigned after serving only three months in Hershey, Jan. 1 to March 28.

Bell-Rose is a senior managing director of TIAA-CREF Financial Services, which manages teacher retirement funds, and a trustee of the John S. and James L. Knight Foundation.

Bell-Rose told the charity that the time commitment to Hershey was "much more than she had anticipated and would interfere with her job responsibilities," according to a Hershey statement.

Pacella said the Attorney General's Office was seeking, by July 31, the resignation of board members who have served more than 10 years.

The office did not identify the members. But the charity's website lists three members who have served more than 10 years as Velma Redmond, the current chairwoman, who joined in 2003; and Joseph Senser, the vice chairman, who joined in 2001.

The third long-standing board member is Robert Cavanaugh, a former chairman who joined in 2001. The Hershey boards investigated the summer employment of Cavanaugh's son with "one of the trust's investment management firms," the Pacella letter says. The Attorney General's Office wants the directors to personally bear the cost of that inquiry.

In its latest filing with the IRS for the year ending July 31, 2014, the Hershey charity disclosed that Redmond earned $97,500 in directors' compensation, Senser earned $204,500, and Cavanaugh earned $332,500. The money could have come from multiple Hershey-related boards and may not be subject to the 2013 agreement.

Ric Fouad, a Hershey School alumnus and a long-term activist for reforms at the school, said on Monday that he was "encouraged by this sign that the attorney general has awakened to the gravity of Hershey's problems." But he said a "complete and immediate takeover of this charity's board" is needed.

bfernandez@phillynews.com

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