REUTERS/Brian Snyder
William McGlashan, a former executive at TPG Growth, has faced charges in the nationwide college admissions cheating scheme.
- The college-admissions scandal has entangled celebrities and big finance names. And now, thanks to new court filings, Charles Schwab's charitable business is also being dragged into the drama.
- Bill McGlashan, the founder and former managing partner of high-profile private equity firm TPG Growth, said in a court filing on Wednesday that it was through Schwab's charitable business that he made a donation to college admissions scandal mastermind RIck Singer.
- In court filings defending himself against charges of fraud and bribery, McGlashan said Schwab "independently vetted and approved" the non-profit of Singer, who was found by law enforcement officials to have accepted payments from parents to get children into elite schools through a "side door" involving fraud.
- Schwab declined to comment on the filing but provided a statement on its general policy: "Schwab Charitable facilitates grants on behalf of its clients to 501c3 charitable organizations of their choice. To determine 501c3 charitable status, we and other donor-advised funds rely on the IRS."
- A spokesperson for the IRS did not immediately respond to a request for comment.
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The college-admissions scandal that broke open earlier this year has ensnared celebrities, finance industry heavyweights, and athletic coaches.
And now, thanks to new court filings, Charles Schwab's business that manages charitable contributions is being dragged into the drama and cast in a supporting role.
Schwab, according to court filings, was used by a private equity executive to make a $50,000 donation to a college consultant's non-profit, which prosecutors say was a payment to get his son into the University of Southern California illegally.
The executive, founding member of TPG Growth Bill McGlashan, has since exited the PE firm. He disputes this and is fighting the charges.
In his defense, McGlashan's lawyers pointed to Schwab as the firm where he kept some of his money in a so-called donor-advised fund (DAF), which offers people tax incentives for devoting part of their wealth to charity.
'Vetted and approved'
It was in this capacity that McGlashan said that Schwab "independently vetted and approved" the non-profit of college consultant Rick Singer, who accepted payments from parents to get children into elite schools through a "side door" that involved fraud.
McGlashan referred to Schwab in a 32-page filing on Wednesday in Massachusetts federal court, seeking additional evidence from prosecutors that could show he was not guilty of charges lodged against him.
The Department of Justice charged McGlashan in March with conspiracy to commit fraud and bribery in connection with a broader indictment of 33 parents accused of trying to get their children into elite colleges through payments that resulted in falsified exams and resumes.
In mounting his defense, McGlashan said it was Schwab's charitable account that had "final decisions" about grants he made to charitable organizations, and that the bank was responsible for performing "due diligence in addition to verifying IRS nonprofit status" of the recipient.
What remains unclear is where the vetting process - between Schwab, McGlashan, and the IRS - went awry.
In its due diligence policy, Schwab Charitable said it's "committed to ensuring that all grants are made only to eligible organizations and are used exclusively for charitable purposes," and that due diligence "begins with the confirmation of IRS eligibility."
Schwab declined to comment on the filing but provided a statement on its general policy: "Schwab Charitable facilitates grants on behalf of its clients to 501c3 charitable organizations of their choice. To determine 501c3 charitable status, we and other donor-advised funds rely on the IRS."
A spokesperson for the IRS did not immediately respond to a request for comment.
McGlashan said in court filings that Schwab, in its vetting, confirmed Singer's non-profit status with the IRS.
DAFs are a tool for big givers to reduce their tax hit
That McGlashan's attorneys are invoking Schwab's charitable giving business in its filing to prosecutors shows the complexities of DAFs.
Generally speaking, DAFs reduce wealthy investors' tax hit and allow them to direct how funds should be granted over time.
The setup allows investors to park securities in DAFs and get an immediate tax deduction in return. Whatever is invested then grows tax-free until it is directed towards an IRS-approved charity.
In McGlashan's case, he used his Schwab Charitable fund to donate to many charities, he said in court filings.
In 2017 alone, court filings said, he donated more than $300,000, including $70,000 to Marin County Day School and $72,500 to Marin Academy, his children's schools, as well as $50,000 to the Maasai Wilderness Conservation Fund.
Critics say the vehicles allow investors to get an immediate tax break while not actually putting funds toward a charity yet, while proponents of the setup say it helps grow the investment to an even bigger chunk of change, making the ultimate donation bigger.
In some cases, money can sit in the funds without going to charitable causes for years. Other financial services behemoths like Fidelity and Vanguard also offer DAFs currently overseeing billions of dollars, and earn fees off of the assets parked with them.
Vanguard Charitable declined to comment on the court case. Fidelity Charitable did not respond to a request for comment.
Investors are parking more and more money in DAFs
Meanwhile, the money pouring into DAFs has grown in recent years and experts see that continuing.
The National Philanthropic Trust, a non-profit organization that advises investors on their DAFs, in a November report counted 728,563 US DAFs through 2018, with that number more than doubling since 2017. Total charitable assets in US DAFs totaled $121.4 billion in 2018, up 8% from $112.1 in 2017, according to the Trust.
"We expect that grantmaking from donor-advised funds to charitable organizations will continue to grow at a consistently high rate," the organization said in a report.
Karin Prangley, a senior vice president at Brown Brothers Harriman who advises clients on charitable giving, said in an interview that she'd seen mistakes in DAFs over her two-decade career.
For instance, a donor might think it's appropriate to pay for a charitable item at an auction through a DAF. That wouldn't be a permitted action, however, because the donor is receiving a gift in return, Prangley said. But she'd never seen a DAF give to a fraudulent organization on behalf of a client, and this case appears extraordinarily rare.
"No philanthropic structure is entirely fool-proof," Prangley said. "Even within the platform of a DAF, there are still issues that come up."
