State obtains $5.5M settlement from EHS, operator of dorms at St. George

December 10, 2012 Raanan Geberer Brooklyn Daily Eagle
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The state Attorney General’s Office has obtained a $5.5 million settlement to resolve an investigation into what it calls mismanagement and excessive executive compensation at Educational Housing Services, Inc. (EHS), a not-for-profit corporation that provides more housing for students in New York City than any entity other than the colleges themselves. 

While EHS maintains student residents around the city, in Brooklyn it’s best known for maintaining student residents in two buildings of the St. George Hotel, on Henry and Clark streets in Brooklyn Heights, since the late 1990s.

Settlement funds will be used to reduce student rents and improve the conditions of the students’ rooms, according to the Attorney General’s Office. Attorney General Eric Schneiderman’s investigation found that George Scott, EHS’s President until he was removed last month, misused EHS as a vehicle to generate personal wealth and subsidize his lavish lifestyle.

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Over the years, the dorms at the St. George have been used to house students from a variety of colleges. In the past, Pace University rented large numbers of rooms for its students, but Pace University recently opened its own dorms. Other schools whose students have rented residences at the St. George include Pratt Institute, St. Francis College, St. Joseph’s College, Marymount Manhattan and the Institute for Audio Research, to name a few.
“The breakdown in corporate governance at Educational Housing Services was stunning,” said Schneiderman. “Siphoning millions of dollars at the expense of college students is deplorable. Mr. Scott’s conduct and the role of the EHS board in enabling his abuses represent the complete opposite of what is expected from the leadership of not-for-profit organizations in New York state.”

The investigation determined that, beginning in 2003, Scott and his wife siphoned off millions of dollars from EHS through a company, Student Services, Inc. (SSI), that Scott set up to provide cable, internet and phone service to EHS’ dorm rooms. SSI was not a genuine telecom company, however, but just a shell Scott created to serve as a middleman between EHS and legitimate cable companies, according to the Attorney General’s Office.

The Attorney General’s investigation also found that the directors on EHS’s board breached their fiduciary responsibilities by approving Scott’s self-dealing activity without proper diligence or oversight. In addition, throughout the period that Scott was siphoning off millions of dollars, the board rewarded Scott with high executive compensation as well as numerous other expensive perks, including the cost of his travel between New York and the Scotts’ second home in Aspen, Colorado and a housing allowance to pay for a luxury Brooklyn Heights penthouse.

On Yelp, a user-generated general review site, EHS’ dormitories rated only two out of five stars. While the site contained ratings for all of EHS’ New York dorm buildings, the respondents had quite a bit to say about the St. George.

L.S. from Brooklyn, while acknowledging the pluses of the facility – “security, nice lobby, T.V. + cable, microwave, fridge, and bathroom in room, the Brooklyn Heights neighborhood is really nice” – also said the St. George has “small, kind of gross rooms … ugly hallway, small bathroom, questionable A.C., strange and uncomfortable chairs, unattractive linoleum floors, general dorm-y-ness, pests, weird guest policies.”

 Vanessa from Cambridge wrote, “My boyfriend stayed at the St. George Hotel location over the summer.  It’s the equivalent of living in a dirty college dorm … if you are over the age of 18 I highly suggest not staying there.  Also, you have to register your guests ahead of time in order for them to stay in the apartment that you are renting and paying for!

“They charge you something like $15 a night for guests as well.  In addition, your guests are not able to come and go without you.  You must be there with them in order to get in, and they must have the proper identification to enter with you.  That’s right, you can’t just bring a friend in with you to visit or hang out.”

Under the settlement obtained by Attorney General Schneiderman’s office, Scott and his company, SSI, will make restitution of $4.5 million and the directors on EHS’s board will pay another $1,000,000 for their breaches of fiduciary duty. Settlement funds will be used by EHS to reduce students’ rent payments and upgrade the services and amenities EHS provides to students, all pursuant to guidelines to be approved by the Attorney General’s office.

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