The Cavalier daily :: Thursday, May 3, 1973 :: University of Virginia Library

The State Attorney
General's office has taken over
the defense of the University's
$500,000 Equity Funding
lawsuit, The Cavalier Daily
learned yesterday.

Donald Murray,
administrative assistant to
Virginia Att. Gen. Andrew P.
Miller, said, "this is a relatively
new development, and we are
now studying the situation. We
are in communication with
other schools who are also
involved."

Earlier reports said that the
University's co-defendants
included Princeton, Amherst,
Williams, Oberlin, among
dozens of others .

The University became
involved in the suit when its
investment adviser John W.
Bristol, sold its securities in the
now-defunct financial services
conglomerate Equity Funding
Corp.

Salomon Brothers, the
broker who handled the
transaction, unilaterally
canceled the sale and began a
suit to compel all the sellers to
take back their securities,
charging that Mr. Bristol had
material inside information
when he sold the stock for his
clients.

Federal securities rules
forbid trading on the basis of
inside information.

University Legal Adviser
Neill H. Alford Sr. , explained
that the attorney general was
handling the case because, "By
statute, the attorney general
has the authority to represent
any state institution in any
matter. In litigation outside
Virginia, he designates
counsel."

Debentures Held

In another facet of the
Equity situation, some facts
have come to light regarding
the quality of the debentures
the University held. In the sale
that Salomon is seeking to
rescind, both stocks and
debentures were sold.

While the university held
about five per cent of the
457,000 shares in the
questioned sale, it held about
40 per cent of the $255,000
debentures in the sale.
Compared to other universities
involved, the University's
holdings were weighted
towards debentures.

That fact is interesting
because Standard and Poor's
Corporation (S and P) and
rated the University's 5.5 per
cent convertible debentures as
a "B" before the Equity
scandal broke.

The quality rating of "B" is
the sixth grade from the top
and two grades below what
would be the lowest grade
generally considered safe for
bank investment.

Bonds Purchased

Just who bought the
bonds is not clear. They were
purchased in December 1971,
approximately the same time
that Mr. Bristol's firm took
over the management of the
University's general
endowment funds, but it is not
known whether the purchase
was made by the Bristol firm
or by a final action of the
Board of Visitors Finance
Committee, which managed
the funds previously.

Vincent Shea, vice
president for business and
finance, said that complete
discretion was placed in the
investment adviser. He also
mentioned a Ford Foundation
report of a year or two ago
that complained that
universities were no being
aggressive enough in buying
growth stocks.

Ford may have been right
then, but as an accidental
by-product of the collapse of
Equity Funding, more and
more institutions may be
seeking the security and high
yield on investment of income
securities, such as utility
stocks, rather than the elusive
big capital gain of the go-go
growth stock.