Harvard Overpaid for Timber as Romanian Agent Held for Bribery

Jan 30, 2014 12:01 am ET

Jan. 30 (Bloomberg) -- An investment agent who represented Harvard University faces charges in Romania that he took more than $1 million in bribes to induce the school to buy forest land at inflated prices.

Dragos Lipan Secu arranged with unnamed sellers to artificially boost prices that Scolopax, a Harvard-owned company, paid for timberland between 2007 and 2009, anti- corruption prosecutors said in a statement Jan. 21, the day after Lipan Secu was arrested.

Lipan Secu collected bribes valued at 4.45 million lei ($1.3 million), as well as a 2007 trip to the Canary Islands and a Chrysler Sebring car, prosecutors said. He was also charged with money laundering, and his wife, Mariana, was arrested for complicity. The two are being held in preventive custody in Bihor county and are facing more than 10 years in jail.

“This whole matter harmed Scolopax’s shareholders because the forest lands were overpriced and the difference went to the defendants,” Livia Saplacan, a Bucharest-based spokeswoman for the Romanian Anti-Corruption Department, said in a telephone interview.

The pair were caught when two people who allegedly paid the bribes reported the Lipan Secus to authorities, prosecutors said. Under Romanian law, a person who reports a crime before it comes to the attention of prosecutors receives immunity, Saplacan said, adding that the sellers won’t be investigated.

Phone Disconnected

Attempts to reach Lipan Secu through a mobile-phone listing were unsuccessful. The publicly listed telephone number for Scolopax no longer works. Scolopax, based in Brasov, Romania, is owned by Harvard through an investment entity called Phemus Corp., according to the university’s tax filings.

“We are aware of the allegations and gathering further information,” Kevin Galvin, a spokesman for Cambridge, Massachusetts-based Harvard, said in an e-mail.

Neither Harvard nor prosecutors would say how much Scolopax may have overpaid for its forests.

The matter is an unseemly one for Harvard, the world’s wealthiest university, which prides itself at identifying esoteric investment opportunities such as third-world forestry, said Jack Lutz, a consultant on timberland investing at Forest Research Group in Rowley, Massachusetts.

‘Risky Places’

“They’re going into some risky places but maybe here’s one that isn’t going to work out well for them,” said Lutz, who formerly worked for Boston-based Hancock Timber Resource Group, the world’s largest timberland manager for institutional investors.

Prosecutors said Lipan Secu was managing director for Scolopax. The university said he was a contractor rather than an employee.

“The matter in Romania pertains to actions of an outside contractor who is no longer associated with Harvard Management Co.,” which oversees the school’s endowment, Galvin said. The relationship with Lipan Secu ended in December 2012, he said.

In 2010, Lipan Secu was listed as executive director of Oriolus Srl in the Journal of Economic Agents. Oriolus, which specialized in timber and forestry, had the same address as Scolopax. Galvin declined to comment about Oriolus. Harvard doesn’t own the company, according to the university’s tax filings.

Harvard Management has been increasing investments in natural resources in foreign countries, including timberlands that are farmed for paper and wood products.

Exploring Timberland

Jane Mendillo, president and chief executive officer of Harvard Management, began exploring timberland as an investment in the 1990s when she was a vice president. The company sold its U.S. tree farms in the past decade and began making similar purchases overseas, including in New Zealand and most recently in Brazil.

Ziarul Financiar, a daily newspaper based in Bucharest, reported in 2011 that Harvard had emerged as the largest owner of forests in Romania after the state government, controlling 35,000 hectares through Scolopax, as well as 2,000 hectares of farmland in the country. Harvard’s endowment was valued at $32.7 billion as of June 2013.

The arrests point to a need for greater oversight of entities used for overseas investment, the Responsible Investment at Harvard Coalition said in a press release. The group has also criticized Harvard-owned companies’ operation of tree farms in South America.

Scolopax had assets of $126 million as of June 30, 2012, according to a tax filing by Phemus, which is incorporated as a nonprofit entity and based in Boston.

--Editors: Chris Staiti, Lindsay Fortado