After allegedly committing fraud within his hedge fund, Thomas Kutzen, OC ’76 and chair of Oberlin’s Investment Committee, resigned in early July from the Board of Trustees.

Kutzen is the founding CEO of AlphaBridge Capital Management, a hedge fund that cheated investors by inflating the value of the fund’s assets and repeatedly deceiving the firm’s internal auditor, according to the U.S. Securities and Exchange Commission.

In January 2014, after the scale of the overvaluation of AlphaBridge’s assets had become apparent, the auditor decreased the official net asset value of the fund from $138 million to $48 million — a 65 percent decrease. Since AlphaBridge collected a management fee of two percent of the firm’s assets and 20 percent of the firm’s profit, the valuation of AlphaBridge’s assets directly corresponded to the personal income of Kutzen and his co-owners.

The SEC fined Kutzen, Michael J. Carino and AlphaBridge a grand total of $5 million, banned Carino from working in the financial industry for at least the next three years and officially censured Kutzen. Neither Kutzen nor Carino admitted to the SEC’s charges, but both agreed to accept the punishments as part of a settlement.

As chair of the Investment Committee, Kutzen worked closely with the College’s investment staff and kept the rest of the committee informed of any changes to the endowment. Kutzen was also a member of the Audit Committee and Executive and Debt subcommittee.

According to a press release from the Communications Office, Kutzen “will continue to support the institution in a variety of volunteer capacities.” When asked what those volunteer capacities would entail specifically, a spokesperson for the College declined to comment.

“He’s resigned and then he’s continuing on board as a volunteer? So it’s not really a resignation,” said College junior and member of the Responsible Investing Organization Jasper Clarkberg.

In response to the scandal, RIO wrote a petition calling for increased transparency in Oberlin’s investments.

“If something is transparent, then it’s hard to make mistakes like this,” Clarkberg said. “Transparency is good because it forces you to be ethical and be sure about what you’re doing and be precise. Since we don’t know a lot about what our endowment is invested in, or how the office works, it’s really hard to hold it accountable.”

The petition also called for greater diversity on the Board, including adding more members from “non-financial industries” and marginalized communities.

“We don’t think that the fraud allegations have anything to do with the Oberlin endowment; we just think that it’s indicative of a larger culture of wanting to hire people who will create the most profit for the endowment rather than wanting to hire people who have an ethical basis for the investments and will probably not commit fraud,” Clarkberg said.

In response to questions from the Review about the demands in RIO’s petition and whether the College would be reviewing its investments in light of Kutzen’s fraud settlement, General Counsel Sandhya Subramanian released the following statement on behalf of the College:

“While the College is not in a position to comment on the SEC’s action regarding Mr. Kutzen, it is among the Board’s highest priorities to ensure responsible stewardship of the College’s endowment. The Board is pursuing a due diligence process to confirm that reasonable oversight and accountability measures are in place and will continue to balance its fiduciary duties with its commitment to responsible transparency about its actions and the College’s operations. The Board also continues to be dedicated to enhancing diversity within its ranks, in accordance with the institutional priorities reflected in the College’s strategic planning process.”

According to current and former members of the Investment Committee, Kutzen was an exceptional investment chair for Oberlin.

“He was a complete gentleman,” said Leonard Smith, professor of History and a member of the Investment Committee from 2011 to 2013. “He was very devoted to the College. I thought he worked very hard on the behalf of the College.”

Smith said he was “saddened” by the news that Kutzen had settled with the SEC for allegedly committing fraud.

“I don’t altogether know what to make of it. I know that in the business community, I’ve been told by people with absolutely no connection to the College, let alone Tom Kutzen, that you can’t presume guilt on the outcome of an SEC investigation. They’re a zealous organization — it’s in the public good, I’m not faulting what the SEC did, not at all, but I think in my own mind I’ve reserved judgment because I’m not really competent to know what happened.”

The SEC accused Carino, a minority owner and the firm’s chief compliance officer, of primarily perpetrating the fraud. According to the SEC, sometime between 2008 and 2010 Carino routinely supplied his own estimates of the value of AlphaBridge’s assets to brokers who were supposed to produce independent and unbiased valuations. The brokers then passed Carino’s estimates to AlphaBridge’s internal auditor and lied, saying that Carino’s estimates were, in fact, their own. Both brokers were eventually fired for their participation in the scheme.

The SEC’s statement does not appear to implicate Kutzen as an active participant in the alleged fraud. But it indicates that Kutzen may have been aware of what Carino was doing. According to the SEC, after the auditor became suspicious of the brokers’ numbers in 2011 and asked to communicate with the brokers without Carino’s interference, “Carino emailed the auditor’s questions to [one of the brokers], along with Carino’s suggested responses. Carino copied Kutzen on this email.” The broker then sent the auditor a slightly modified version of Carino’s drafted response.

“Although I remain a qualified, registered investment advisor with the SEC, I have stepped down in the best interests of the College,” Kutzen said in an email to the Review. “I am pleased this matter has been resolved and is behind us at the firm. I believe Oberlin is a very special place, and it has been an honor to serve Oberlin. I wish to thank the many friends and members of the community who have sent in emails, calls and notes of support.”