Nonprofit Ordered to Pay $5.5 Million for Cheating Students

NEW YORK—The founder of a nonprofit, set up to help students, formed a shell company that served as a middleman between cable companies and a university housing company, according to Attorney General Eric Schneiderman. George Scott siphoned millions of dollars through the shell company, Student Services Inc., “at the expense of college students.”

A settlement of $5.5 million was announced by the attorney general’s office Monday. The settlement demands Scott and his company pay restitution of $4.5 million, to go to Educational Housing Services (EHS) to lower students’ rent payments and upgrade services to students. The board of EHS will pay $1 million.

Scott and the five directors of EHS named in the settlement are permanently barred from serving as an officer, director, or trustee at any nonprofit in New York.

“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,” Schneiderman added in a statement.

EHS provides more housing for students in the city than any other entity, according to Schneiderman’s office. The company used Scott’s shell company, Student Services Inc., as a telecom company, but an investigation found the shell company “offered EHS nothing EHS could not have done on its own.”

“The breakdown in corporate governance at Educational Housing Services was stunning,” said Schneiderman.

The investigation by the Charities Bureau at Schneiderman’s office discovered that Scott, until being removed last month, used profits from his shell company to get millions of dollars. Also, the board of the EHS (the legitimate company) rewarded Scott with compensation and perks such as paying for his travel between New York and the Scotts’ second home in Aspen, Colo. The Scotts’ home in New York, a luxury penthouse in Brooklyn Heights, was also being subsidized.

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