The independent investigation into an ill-fated $10.5 million loan made by former Lewis & Clark College President Michael Mooney presents a damning if unsurprising portrait of Mooney's conduct. But the report, released Sept. 5, sheds new light on how the college's auditor, its banker and particularly its legal advisor, Stoel Rives--the state's largest and most powerful law firm--contributed to the debacle.

WW first revealed details of Mooney's loan in early June (see "The Mooney Trail," WW, June 4, 2003). Two weeks later, Mooney resigned after 14 years at the helm of the Southwest Portland liberal-arts college.

At the same time, Lewis & Clark's board hired Tonkon Torp lawyer George Spencer to investigate the loan's circumstances. Spencer's 43-page report portrays Mooney as a deceptive control freak unmonitored by a sleepy board and surrounded by a staff of yes-men.

Although Spencer concluded that Mooney did not make the 2001 loan to the now-bankrupt Environmental Oil Processing Technology for personal gain, he found that the former president's trading of the Nampa, Idaho, company's stock violated Oregon conflict-of-interest statutes. Spencer also found Mooney violated numerous college policies and was guilty of "actively concealing" the loan from his board.

Mooney had help. Spencer found that Wells Fargo Bank executed five transfers of college funds totaling $10.5 million without proper authorization. "That these funds were released from the operating account is the fault of both the College and Wells Fargo," the report states.

Spencer also criticized Lewis & Clark's auditor, KPMG. The firm was inexplicably unaware of college policies that prohibited the loan, Spencer found, and did not press for details of the transaction.

While Wells Fargo's and KPMG's sloppiness was apparently unintentional, Spencer found that Gersham Goldstein, a Stoel Rives partner and Lewis & Clark trustee, withheld crucial information deliberately.

Had Goldstein told fellow board members what he knew, Spencer reported, Lewis & Clark would not have transferred the final $4.5 million to Environmental Oil.

On Oct. 17, 2001, Steven Moore, a Stoel Rives lawyer who was advising the college, warned against giving the company any more money. "We believe the additional advances of $4.5 million will also present extremely serious risks to the College," Moore wrote in a seven-page letter detailing his concerns (Moore's emphasis).

At that time, Spencer says, no board members knew about the loan--except, that is, for Goldstein. "At this point in time, Gersham Goldstein, a partner in the firm and a member of the College Board of Trustees, knew that the College was in an extremely risky investment and that the issue of authority of the College to make the Loan was in question and that his partner (Moore) had already advised the college that it made no sense to advance additional funds," Spencer wrote. "Why Goldstein did not immediately contact the Chairman of the Board or the Chairman of the Audit or Investment Committees (or perhaps all three) is not clear. He did not, but he should have."

Spencer found that Goldstein remained mum despite the advice of his partner Peter Jarvis, an authority on legal ethics. "'My view on the situation as explained to me by Gersh is that full information about President Mooney's actions that were apparently inconsistent with College policy must be brought to the Board's attention,'" Jarvis wrote in a email Spencer quoted. "'Whether President Mooney takes the lead in making disclosure or we do it, we will want to make sure that nothing is hidden.'"

But neither Goldstein nor anybody else at Stoel Rives told the board, and in the subsequent two weeks Mooney advanced the final $4.5 million of the loan.

Spencer's assessment of the consequences is blunt. "Stoel Rives arguably had a duty to finish its probe, and breached that duty. The assumption is that the breach caused damages (at least the final College advances of $4.5 million)."

Goldstein disputes Spencer's conclusion. "I've read portions of Mr. Spencer's report. I disagree with his determinations. It's something to be worked out with our client, Lewis & Clark College," he says.

Spencer's investigation is unlikely to be the final chapter in this saga. His report provides a road map for legal action against Mooney, KPMG and Stoel Rives--although Spencer makes it clear that the prospect of litigation is clouded by the fact that Mooney, and thus the college, bore ultimate responsibility for the loan.

At meeting last Friday, trustees voted to accept Spencer's report, according to college spokesman Brian Gard. However, they made no decisions regarding Spencer's recommendation to consider hiring a lawyer to explore potential lawsuits.

Find links to Spencer's report at