Feinstein

Philanthropist Alan Shawn Feinstein’s troubles with the Education Partnership didn’t begin with the nonprofit’s recent descent into receivership.

Two years ago, Feinstein sued the Education Partnership over its handling of a scholarship fund named after his father, Louis Feinstein. After 12 years of successful operation, Feinstein said yesterday, fewer scholarships were being awarded, expenses were up and information was hard to come by.

“All of a sudden, the students seemed to be getting far less, and it was costing far more, and we weren’t getting any answers,” said Feinstein. “Where was all that money going?”

When the Education Partnership went into receivership in June, saying that it couldn’t pay its bills, dozens of college students who had been promised Louis Feinstein scholarships were affected. Feinstein vows to pay those scholarships. But questions remain.

A court-appointed receiver, charged with sorting out the advocacy group’s tangled finances, says that the Education Partnership apparently mingled funds from different sources. That troubles Feinstein, who had been fighting for the past three years for more accountability, only to see the scholarship fund’s balance dip from $1 million in 2005, when the Education Partnership took control, to $763,000 last year, to some $300,000 or less when the organization closed its doors in June.

“The stock market had been going up during those years,” said Feinstein. “We were asking how come there was so much less money in the fund. But it was very difficult to get our calls returned.”

After a court hearing yesterday, receivership lawyer Diane Finkle said that $323,000 remains in a Morgan Stanley investment account labeled “Education Partnership,” but it’s unclear whether some or all of that money is from the Louis Feinstein scholarship fund. Feinstein said that the scholarship money was at Morgan Stanley. But it will be up to the accountants, lawyers and, ultimately, the judge, to sort out.

Valerie Forti, the former executive director of the Education Partnership, did not respond to a call seeking comment. Her lawyer has advised her not to talk. Forti is married to Providence Journal deputy editorial page editor Edward Achorn.

Feinstein’s 2006 lawsuit sheds new light on conflict behind the scenes with the Education Partnership, a prominent nonprofit group formed in 2003 that advocated for school reform, criticized teachers’ union contracts and ran a variety of educational programs with federal grant money and donations from some of Rhode Island’s leading corporations and prestigious national educational foundations.

Feinstein established the Louis Feinstein Memorial Scholarship in 1993 with $2 million in honor of his late father. Students interested in a teaching career receive an $8,000 scholarship if attending a Rhode Island college, plus $2,000 upon graduation, or the $2,000 graduation gift if attending college out of state.

For its first 12 years, the fund was administered by the Public Education Fund, which merged with the Business Education Roundtable in 2003 to form the Education Partnership. In 2005, according to Feinstein’s lawsuit, the Education Partnership assumed control of the scholarship fund and the “unique relationship” he had enjoyed with the fund’s previous administrators “quickly deteriorated.”

“Questions concerning administration of the fund were left unanswered, documentation was not provided, and the stellar reputation of the fund, established to honor plaintiff’s father, was becoming badly tarnished,” according to court papers filed by Feinstein’s lawyer.

Feinstein said yesterday that he was also concerned because fewer scholarships were being awarded —– five or six a year, down from 15 to 20 annually before the Education Partnership took over –– and that more scholarships seemed to be for Rhode Island students attending college out of state, which were just $2,000 versus $10,000 for students who study in Rhode Island.

Feinstein’s lawsuit, filed on Aug. 1, 2006, accused the Education Partnership of breach of contract, breach of fiduciary duty, failure to provide information and unjust enrichment. Feinstein complained that the group cut him out of the selection process for scholarship recipients and even refused to give him the addresses of scholarship winners so he could send them congratulatory letters.

Meanwhile, Feinstein, who had been the fund’s investment adviser, said that he also fought for more financial information. He noted in a court affidavit that “administration costs rose dramatically, comprising a disproportionate amount of expense.” The affidavit said that the Education Partnership’s payroll was $800,000, to administer $3 million in overall funds. In an interview yesterday, Feinstein said that he was concerned when he saw fees for conferences and travel and the large administrative salaries, thinking, “I hope that’s not coming out of our account.”

Feinstein said that he also began hearing complaints from scholarship applicants. A series of letters in 2006 between Feinstein and Forti reveals the simmering tensions. In one, Feinstein referred to an alleged statement by Azim Mazagonwalla, the Education Partnership’s then-vice president for finance, that “he did not trust us” and would not provide copies of scholarship applications.

“Since the Education Partnership took over, we don’t see any financial performance figures, no publicity or advertising about the scholars, nor get to even meet with or speak to any of the finalists, as we always did before, plus fending off complaints from scholars about non-receipt of their scholarship funds, and, an inability to even see simple records without a fuss,” wrote Edward Walton, director of the Feinstein Foundation. “Something is drastically wrong.”

In another letter, provided to The Journal by Feinstein, he complained to Mazagonwalla about the lack of financial information that he once received regularly, including verification that the Education Partnership was charging the agreed-upon management fee of one half of one percent of the fund. Feinstein also wrote that the group was not responding to the father of a scholarship recipient who had not received her money, and consequently the student’s college was threatening to revoke her matching scholarship grants.

Forti wrote back to Feinstein, acknowledging “glitches in the administration of the scholarships” when her group took over, but saying that those problems had been straightened out. She invited him to attend finance committee meetings, but said it was the Education Partnership’s policy “to not release unaudited financial information with regard to its assets or performance.”

Three weeks after Feinstein filed his lawsuit, Forti wrote that “in light of your ongoing displeasure with, and disruption of, The Education Partnership’s Louis Feinstein Scholarship Fund … we are disassociating ourselves with you.” Feinstein’s father’s name would be stripped from the scholarship fund and it would be given a new name, “without reference to you or your foundation.”

A Superior Court judge dismissed Feinstein’s lawsuit, siding with the Education Partnership lawyers’ argument that the organization had no binding agreement granting Feinstein the rights he claimed had been breached. Feinstein appealed in January 2007 to the Rhode Island Supreme Court, arguing that a decision against him “would shatter the expectations of those who generously donate their money and efforts only to find themselves expendable once the administrator has the funds within its control.”

The two sides subsequently agreed to have their case mediated by retired Supreme Court Chief Justice Joseph Weisberger. As part of the settlement, in June 2007, the Education Partnership agreed not to change the name of the scholarship fund, to adhere to the agreed-upon management fees and to be more forthcoming, said Feinstein –– but information was still difficult to obtain.

Feinstein said that one reason he agreed to the settlement was to spare any more money coming out of the scholarship fund to pay the Education Partnership’s legal fees, which he estimated at $30,000 to $50,000. One of the group’s lawyers, Brian J. Lamoureux, declined comment, citing attorney-client privilege.

Toward the end of the mediation, Feinstein said yesterday, Forti made a comment that he found perplexing.

“She said, ‘I want you to know that we’ve dropped the expenses of [running] the fund considerably,’ ”said Feinstein. “Then she mentioned a figure and my lawyer and I looked at each other and wondered why these expenses. ”

—With staff reports from Edward Fitzpatrick

mstanton@projo.com