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Settlement returns Riley Foundation control to SWBTS, Baylor

FORT WORTH, Texas (BP) – A settlement in a lawsuit filed by Southwestern Baptist Theological Seminary and Baylor University effectively returns control of the Harold E. Riley Foundation to the schools. Additionally, the trustees of the foundation will resign and agree “not to seek or accept” future employment by or service to any SBC entity or Texas charity.

Trustees Mike Hughes, the Riley Foundation’s president, and Charles Hott, its chief investment officer, as well as Augie Boto, former executive vice president of the SBC Executive Committee, agreed to the terms of the settlement, which was reached after several days of testimony in a temporary injunction hearing.

The settlement was reached after testimony from only one witness – Hughes – though others had been scheduled to testify. Additionally, the Texas attorney general, who had intervened in the lawsuit on behalf of the schools, had issued a subpoena compelling former Southwestern President Paige Patterson to testify before the settlement was reached.

Current Southwestern President Adam W. Greenway said the settlement “vindicates” the schools’ decision “to hold accountable those individuals whose actions served to undermine (Riley’s) donative intent,” adding he was thankful “that, in the Lord’s kindness, truth and justice has indeed prevailed.”

The Riley Foundation, founded by the late Harold E. Riley solely to benefit Southwestern and Baylor, was restructured in June 2018, after his death in 2017. In the lawsuit, filed in Tarrant County District Court, the schools alleged some members of the Riley Foundation’s board led a “secret coup” to “seize control” of the foundation – altering its purpose, stripping the schools of their rights and status as beneficiaries and misappropriating assets worth millions of dollars. Defendants included the Riley Foundation and Hughes, who is also a former Southwestern vice president.

“While painful and costly,” Greenway said in a statement, “this cause of action was necessary to protect charitable donors who deserve the confidence that the purpose of their generous gifts will be fulfilled with integrity and without interference. This victory is not only for Southwestern Seminary and Baylor University, but for all who are committed to ensuring that resources intended to advance Kingdom purposes are not misused.”

Baylor spokesman Jason Cook echoed Greenway’s sentiments.

“We are pleased this matter has been resolved, and that the funds entrusted to Baylor by the Riley Foundation will now be used for their intended purposes,” Cook said in a statement. “We appreciate the generosity of the Riley family on behalf of Baylor students and faculty.”

Hott declined comment. Patterson did not immediately respond to requests for comment.

Hughes’ attorney, Joe Cleveland, issued a statement saying Hughes was “pleased that a settlement was reached … resulting in a complete dismissal of all claims against him without any admission of liability.”

“Mr. Hughes resigned as president and trustee of the Harold E. Riley Foundation to obtain peace and in hopes that Baylor and Southwestern will continue to do everything in their power to achieve Harold Riley’s wishes,” the attorney’s statement said, adding that Hughes was honored “to serve the Foundation over these years and that his sole and only purpose was to achieve Harold Riley’s desire to help students at Baylor and Southwestern for generations to come.”

In a text message to Baptist Press, Boto said:

“The services rendered by the foundation’s trustees have always been in keeping with Harold Riley’s wishes, as well as in the best interests of both Southwestern Seminary and Baylor University. I trust the new trustees that the beneficiaries have chosen will commit themselves to do those same things. I wish them well.”

In September 2020, when the lawsuit was initially filed, Boto told Baptist Press the claims were “absurd.” Hott told Baptist Press then that “virtually every allegation” in the initial complaint was “completely false, without merit.”

Hott was also a member of Southwestern’s board of trustees. Along with Thomas Pulley, who was at one time also a Riley Foundation trustee, Hott had been suspended from the Southwestern trustee board by the board’s officers. Pulley later resigned from the Southwestern board. As part of the settlement, Hott “represents and agrees that he is no longer a trustee of SWBTS.”

According to terms of the settlement, the former Riley Foundation trustees are barred from fundraising efforts that could discourage donations to the schools or “divert” gifts from the schools “to a third party.” The trustees agree, “as part of their commitment not to divert” gifts or donations away from Southwestern or Baylor, “not to seek or accept any position or employment from or appointment in any fiduciary capacity” of a Texas nonprofit charitable organization or any SBC entity.

The lawsuit stemmed from a meeting in June 2018 at which the schools claimed the foundation’s governing documents were improperly restructured. The lawsuit also claimed the Riley Foundation board was attempting to “seize control” of the board of directors of Citizens Inc., a publicly held insurance company whose stock forms the primary asset of the foundation.

The Riley Foundation filed suit in September 2020 to force Citizens to seat five directors, including Boto, Hott and Hughes. Citizens, a Texas-based insurance company founded by Riley, is publicly traded on the New York Stock Exchange and valued at more than $300 million. According to the schools’ lawsuit, positions on the Citizens board of directors are compensated annually in excess of $100,000.

The attempt to seat directors of Citizens also initially included Patterson, though he later resigned from the attempt to be seated as a Citizens director.

Texas Attorney General Ken Paxton had intervened in the case on behalf of the plaintiffs “to protect the public interest in charity.” The attorney general alleged that Hughes and Hott, “began to develop a scheme … to receive substantial salaries and benefits from this charitable Foundation and find a way to change the structure of the Foundation to the detriment of its sole charitable beneficiaries, Baylor and Southwestern.” The attorney general further alleged that the “actions of the Foundation, Hughes and Hott appear to reflect serious breaches of fiduciary duties owed to the Foundation and most importantly, the ultimate charitable beneficiaries.”

After testimony by Hughes included evidence of Patterson’s involvement, the attorney general’s office issued the subpoena for the former president. Southwestern officials said they had provided information to the attorney general “indicating efforts by Patterson and his associates to divert funds and redirect gifts away from the seminary to the Sandy Creek Foundation, his personal nonprofit organization.”

In a press release, Southwestern leaders noted that although the civil claims were resolved by the settlement, the seminary would cooperate with state and federal officials “as they look into this and related matters.”

Under terms of the settlement, Hughes, Hott and Boto will resign from the foundation’s board. They’ll be replaced by two representatives from each school.

Riley, who died in 2017, was a major donor to both Southwestern and Baylor. The Riley Foundation is funded with shares from Citizens Inc., which Riley founded in 1969.

The Riley Foundation was set up with Southwestern and Baylor as sole beneficiaries. Each school was granted three members on the foundation’s board, giving the schools’ combined representation a majority of the 11-member board.

Upon Riley’s death, assets including more than 1 million shares of Citizens were transferred to the foundation. According to the foundation’s 2018 tax documents, payouts to the two schools that year totaled $298,800.

But in a meeting June 11, 2018, the board was downsized and the schools’ right to appoint board members was eliminated. The foundation’s tax status was changed from a public charity to a private foundation.

The June 2018 Riley Foundation meeting, as well as a meeting 10 days earlier, came only days after Patterson was fired by Southwestern’s board of trustees, an event which would have “rendered the termination of Hughes’ employment” at Southwestern “likely.” The plaintiffs asserted that Boto and Hott are “also long time, close allies of Patterson in Baptist circles.”

The schools alleged the Riley Foundation board members “began paying themselves, and set up employment and substantial pay for Hughes and Charles Hott.” Subsequent emails between Hott, Hughes and Boto, included as exhibits in the plaintiffs’ petition, discussed Hott’s idea of using a controlling interest in Citizens Inc. to turn the Riley Foundation into “a high frequency quantitative trading powerhouse.”

Other emails between Hughes and Boto discussed using Riley Foundation distributions to Southwestern and Baylor “as punishment for ‘every cock-eyed misstep,’ and as a method of keeping Baylor and Southwestern ‘lashed to the cross.’”

The schools sought to regain control of the Riley Foundation “as Mr. Riley had intended.” In his motion to intervene, Paxton asserted that “the Attorney General’s presence in this matter is warranted to protect the interests of the public in charitable trusts, noting that under Texas law, “the Attorney General’s role includes ensuring that donor intent is adequately ascertained and taken into consideration in any judgment or settlement.”

“Today’s settlement returns the foundation to its original purpose consistent with Mr. Riley’s wishes to benefit students and future ministers of the Gospel, like his father many years ago,” Greenway said.

EDITOR’S NOTE: The author is enrolled at Southwestern as a part-time, distance learning student and is the father of a Baylor student.