LOUISVILLE, Ky. (WDRB) – Three years after former University of Louisville President James Ramsey and his chief of staff Kathleen Smith were forced out of their jobs, the university’s nonprofit foundation still owes them more than $73,000 in compensation, but it refuses to the turn the money over.
The fight over the money is the latest development in the financial fraud lawsuit that U of L and the U of L Foundation filed 14 months ago against Ramsey, Smith, three other former university and foundation officials and the foundation’s former law firm.
The money owed to Ramsey ($55,422) and to Smith ($17,886) are their remaining balances under the deferred compensation plan that the foundation’s board terminated in 2017.
Instead of sending checks to Ramsey and Smith, the foundation has asked a judge to place the money in a court-controlled escrow account pending a review by the IRS.
The tax agency started looking at the foundation last year after its current leaders sent the agency a third-party study that claims Ramsey, Smith and others were “excessively” paid.
But lawyers for Ramsey and Smith say that by withholding the final payments, the foundation is essentially stealing money that its previous board of directors approved and promised to pay – facts that the foundation’s current executive director did not dispute in depositions spanning from February to May.
During the Ramsey era, which began in 2002, the foundation offered the deferred pay to nine high-level university administrators as an incentive to remain in their jobs. It sweetened the payouts with interest earnings mirroring those of the university’s endowment and “gross up” payments meant to cover the administrators’ personal income tax liabilities.
The foundation paid Ramsey $7.2 million, and Smith $2.6 million, in deferred compensation under the plan from 2010 to 2016, according to a 2017 forensic investigation commissioned by the university. That was in addition to regular salaries from the university and other payments from the foundation.
Media scrutiny of the foundation’s compensation of administrators in 2015 ultimately played a role in Ramsey’s ouster a year later and an overhaul of the university and foundation governing boards.
Now under new leadership, the foundation contends that Ramsey and Smith’s pay violated IRS rules for charitable organizations and has demanded that they return some of the money.
Attorneys for Ramsey and Smith reject that, saying even if their clients were paid too much – which they dispute – the payments were approved by the foundation’s former board members, the vast majority of whom the foundation chose not to sue in the case.
“You’re really saying, the board gave (Ramsey) excess compensation; he didn’t take it … He didn’t steal it; right?” Ramsey’s lawyer, Steve Pence, said in a deposition on March 29.
Keith Sherman, the foundation’s executive director, replied: “I think that’s a fair statement.”
Sherman would go on to say that, while the foundation determined that Ramsey received excessive pay, “We didn’t say he gave it to himself.”
Sherman said in a separate deposition on May 15 that Smith’s deferred pay was “authorized” by Ramsey, who was given latitude the foundation’s former board to award the compensation to his subordinates.
The lawsuit, filed jointly by the university and foundation in April 2018, alleges that Ramsey and other administrators depleted the university’s endowment through excessive spending, including unbudgeted expenses like the deferred compensation.
Sherman said in depositions that the cumulative damage to the endowment is about $80 million.
But attorneys for the defendants have repeatedly questioned why the foundation doesn’t hold its previous board members responsible, and say the alleged reckless spending still went to legitimate university purposes.
The university and foundation have asked for a September 2020 trial in the case.
Sherman is the only major figure to have been deposed so far and has sat for six days of testimony. U of L board of trustees chairman David Grissom is set to testify on July 26.