Several months ago, the Board of Trustees at Lewis & Clark College confronted one of the most serious crises in the 136-year-old institution's history, yet details are only now emerging.

Willamette Week has learned of a highly unorthodox and ultimately disastrous investment made by longtime college president Michael Mooney that violated many of the college's investment policies.

Three board members--Columbia Sportswear founder Gert Boyle, high-tech investor Debi Coleman and investor David Stern--have resigned over the college's handling of the matter. "I quit because I couldn't accept how money was being invested," Boyle told WW. "If I had not been incredibly concerned, I would not have done what I did."

Conversations with many of those involved and a review of public documents reveal that in March 2001 Mooney made a $10.5 million loan to Environmental Oil Processing Technology Corporation, a publicly traded company. The Nampa, Idaho, firm employed an unproven technology for re-refining waste oil into diesel fuel. In October 2002, after the company failed to repay any part of the loan, which carried an interest rate of 12 percent, the college filed suit in Idaho seeking its money back. In December, the company declared bankruptcy.

Within the rarefied world of Lewis & Clark's board, the loan created extraordinary tumult--and not simply because the borrower defaulted.

For one thing, Mooney and the college's chief financial officer, Mervyn Brockett, made the loan without the board's knowledge. The investment also violated at least three of the Board of Trustees' rules, Mooney acknowledged in an interview Monday. The loan was both larger and longer in duration than board policies allow, and, more important, the borrower fell far below the college's credit standards.

According to financial officers at other private liberal-arts colleges, it's unusual for a college president to be directly involved in investments. Joseph Nelson, a vice-president at Kenyon College in Gambier, Ohio, says his college's president "has no direct role in investments." Asked about a college president and financial officer making an investment without board authorization, he said, "That would never happen at Kenyon." Asked the same question, longtime Reed College treasurer Ed McFarlane agreed: "We just don't do it that way."

Second, WW has learned that Mooney and his chief financial officer both personally owned stock in the Idaho firm. Mooney says he purchased stock on five or more occasions, investing a total of approximately $20,000 in the thinly traded stock. Brockett reportedly invested much less. Mooney says his purchases occurred after he approved the loan, which was facilitated by Stephen Persad, a Portland stockbroker who attended Lewis & Clark.

A college president personally buying stock in a company to which the college also lends money raises the possibility of a conflict of interest and is something other institutions would not permit. "I can't imagine a scenario where we would do something like that," says Reed College's McFarlane.

"I've since realized that this creates a terrible appearance and [is] an imprudent thing to do," says Mooney. He says he sold his stock at a loss before the Idaho company filed for bankruptcy.

Third, the loan to Environmental Oil Processing Technology was highly speculative and far outside the range of generally conservative investments that colleges typically make. The company had lost money consistently and accumulated a deficit of $9 million when the loan was made. Its annual reports included warnings from its accountants about the company's viability.

Nelson said colleges often invest in corporate debt through the traditional bond market, but lending money directly to any company, let alone one in financial distress, wouldn't happen at Kenyon.

Mooney says the $10.5 million came not from the college's $121 million endowment but from the institution's general fund and represents more than 10 percent of the college's annual budget of $92 million.

In recent weeks, the college has laid off staff, reduced administrative positions from full-time to part-time and decided to leave unfilled a number of vacant spots at the 630-employee college. Mooney insists the cutbacks are strategic reallocations unrelated to the failure of the $10.5 million loan. "The impact of this investment is very minor."

Trustees did not become aware of the loan until at least eight months after it was first made, according to Mooney and Mary Bishop, who is the vice-chairwoman of the board. The board then appointed a committee to investigate the matter and hired Lois Rosenbaum, a lawyer from Stoel Rives, to aid them.

The board considered a recommendation to censure Mooney and fire Brockett but ultimately decided to support both men, in part because Mooney has presided over a 14-year period of sustained growth at the 3,000-student college in Southwest Portland. "We discussed Mike's role and came to the conclusion that what he has done for the school outweighed the mistake that he made," Bishop says. Boyle, Coleman and Stern then resigned in protest.

"It's a mistake that I made," Mooney says, "and I feel awful about it."