Averett University is suing its former chief financial officer and an investment firm that the school claims colluded to hide budget deficits.
The private university in Danville has been cutting costs since spring 2024, when it discovered signs of financial mismanagement that led to a budget shortfall. Those withdrawals added up to nearly $20 million, according to the suit.
The university had not previously disclosed the amount it claimed had been mismanaged but said last summer that unauthorized endowment withdrawals were spent on technology and facilities at the university, along with debt payments.
Over the past year, Averett has instituted unpaid furlough days for some employees, eliminated its retirement benefit match, laid off more than a dozen staffers and eliminated several academic majors. It has also put its equestrian center in North Carolina on the market.
The university is also in default on more than $14 million in bonds due to missing reporting requirements, including annual reports and financial statements.
In the suit filed March 26 in Danville federal court, Averett puts the blame for the shortfall on its former chief financial officer, Donald Aungst, and Global Strategic Investment Solutions, which served for a time as the university’s investment adviser. The firm has offices in Arizona, Florida and North Carolina.
Aungst left Averett University in March 2024.
The complaint claims that Aungst, who started as vice president and CFO in March 2020, provided GSIS with confidential financial information about the university to help it win a contract to manage Averett’s endowment. GSIS began working with Averett in April 2022, and, collaborating with Aungst, “Surruptitiously drained Averett’s endowment of almost $20 million,” the suit says.
Aungst and GSIS misrepresented the state of the endowment to the board of trustees and repeatedly sold endowment funds without approval, according to the suit. By the time multiple unauthorized endowment withdrawals were detected in March 2024, Averett claims the endowment had shrunk to 25% of its value.
Typically, colleges set a limit for annual spending from their endowments to a small percentage of their value; Averett’s limit was around 4.75% as of its last audit for the fiscal year ending June 2023.
According to that audit, Averett’s endowment was worth $24.7 million. Of that, $24 million was restricted to certain purposes based on the instructions of donors, while just $637,000 did not have such restrictions.
Averett University declined to comment Wednesday on the case. The suit does not specify an amount the university wishes to recover from the defendants.
In an emailed statement, GSIS managing partner Curt Thompson — who is named as a defendant in the suit — denied the allegations and said that Averett is attempting to “scapegoat” his firm.
“Averett University repeatedly accessed its own endowment fund to meet payroll, invest in technology, pay down debt and cover other operational expenses due to liquidity challenges at the University,” he said. “The claims brought against GSIS … have nothing to do with GSIS’s provision of advisory services for the University’s endowment fund investment assets, but rather because our firm adhered to written distribution instructions from the University’s own officials.”
Aungst could not be reached for comment Wednesday.
Among the accusations, Averett says that Aungst “maxed out” the university’s line of credit and got help from GSIS to open a margin loan in 2022 to cover operating deficits.
Averett’s president at the time, Tiffany Franks, signed off on that loan, but the complaint says that she and the board were duped into doing so because Aungst and GSIS misrepresented the size of the loan and how it would be used.
The complaint claims that margin loans via Charles Schwab, the custodian for Averett’s investments, aren’t eligible for use by nonprofit organizations but that GSIS told the university that its other higher-education clients used the loans.
The board didn’t approve Aungst’s requests to GSIS to borrow millions from the margin loan, using the endowment as collateral, and the suit claims that GSIS presented “misleading reports” to Averett’s board to hide endowment withdrawals for the margin loan.
As of April 2024, the balance of the endowment was $1.9 million, according to the complaint.
The suit does not explain how the university learned about the endowment withdrawals in March 2024, but claims that Franks confronted Aungst on March 29 about the endowment.
The university previously stated that Aungst resigned on March 29.
Franks announced her retirement in December 2024.
Averett’s most recent audit through June 2023 shows margin borrowings totaling $6.6 million.
Averett’s tax return for the year ending June 2024 is not yet available.
Harold Johnson and Virginia Burner of the Williams Mullen law firm in Richmond are representing Averett University.
