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Stanford Bookstore to receive $1 million in stock loss settlement
STANFORD -- The Stanford Bookstore will receive nearly $1 million in a settlement for a $1.8 million loss it suffered in risky stock investments in 1990.
The California State Attorney General's Office on Jan. 4 settled the claim with three former bookstore officials and the store's insurance carrier, which will pay its policy limit of $1 million. The state will receive $83,000 of the $1 million to cover its investigative costs.
Law Professor Robert Weisberg, chairman of the bookstore's board of directors, said the money would be earmarked for the store's general funds.
Former manager Eldon Speed, former deputy manager Philip Chiaramonte and former controller Patrick McDonald had been investigated for the stock loss, which occurred when McDonald, without authorization by the board or senior managers, invested a large amount of the bookstore's reserves in highly speculative equities through margin accounts.
McDonald then ignored orders by his managers to convert the investments back to safer securities, leading to the large loss when the stock market dropped significantly. He subsequently was fired.
The stock loss was revealed by the Stanford Daily in 1992, when it also revealed unusual perquisites for bookstore managers, including a vacation home in the Sierra foothills, the use of a motor home, and the use of luxury or high- performance vehicles.
In a civil suit, state officials charged Speed, Chiaramonte and McDonald with violating the state corporations code and the bookstore's internal procedures.
The store, governed by a board of faculty, staff and students, is a nonprofit public-benefit corporation, separate from the university.
McDonald still may face claims by the state of at least $20,000 for self-dealing and diversion of bookstore assets to personal use. Speed and Chiaramonte earlier settled similar claims when they deeded the vacation home to the bookstore and offset other perks against retirement benefits to which they were entitled. The house eventually was sold for $385,000.
Weisberg said the bookstore has spent at least $2 million in legal and accounting costs straightening out its problems, and will be compensated for only about half of the stock loss.
Nevertheless, he said, the store has remained in the black throughout the controversy “because there were cash and investment reserves which were able to absorb these expenses, though obviously the reserves were drastically diminished.”
The bookstore earns about $50 million a year - more than $40 million from the main store on White Plaza and the remainder from various auxiliary enterprises.
Weisberg was reelected chairman of the bookstore board last September “with the understanding I would serve one year at most,” he said.
Knowing that the bookstore controversy is largely settled, Weisberg joked that “it has been a very educational experience, but on the whole, I'd rather have remained uninformed.”
He said three new bookstore directors have played key roles in “rebuilding the enterprise”: William Lazier, professor of law; Robert Augsburger, lecturer in management at the Graduate School of Business and former vice president for business and finance; and Morton Winston, a Los Angeles lawyer and businessman.
Weisberg said that the “unsung heroine” is Giselle Sered, a 1993 Law School graduate and a certified public accountant, “who deserves major credit for the internal audit that satisfied the attorney general that we had turned the enterprise around.”
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