Averett files lawsuit alleging ex-CFO, firm ‘drained’ school’s endowment fund

Danville private university Averett University has filed a federal lawsuit alleging its former chief finance officer worked with an investment firm to conceal illicit draws from its endowment that were used to cover budget deficits.

In a complaint filed March 26 in the U.S. District Court for the Western District of Virginia, Averett states that Donald Aungst, who was hired by the university in 2020, colluded with Arizona-based Global Strategic Investment Services (GSIS) to “surreptitiously” drain close to $20 million from the university’s endowment.

Requesting a jury trial, Averett is asking for the defendants to pay compensatory and punitive damages but does not name a specific amount.

GSIS vehemently denies the allegations.

“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,” the company said in a statement. “It is truly unfortunate that Averett — through this spurious federal lawsuit — is now seeking to scapegoat our firm … for the decisions, actions and inactions of its own officers and directors during this unfortunate period.”

A spokesperson for Averett declined to comment Thursday. Aungst did not respond to attempts to reach him via social media. According to his LinkedIn page, Aungst is retired and based in Florida.

In addition to Aungst and GSIS, the defendants in the case are GSIS co-founders Curt Thompson and Don Callaghan, and employees Nick Botticelli, Matt Underwood and Dan Chesin. According to the firm’s website, Botticelli is chief investment strategist, Underwood is director of research and portfolio management, and Chesin is director of operations.

The lawsuit alleges that between December 2022 and April 2024, Averett’s endowment value fell by 75%. In April 2024, the net balance of liquid assets in the endowment was about $1.9 million with another $2.3 million in illiquid assets. In July 2024, the school revealed publicly that it was responding to a temporary funding shortage due to mismanagement of the school’s finances, instituting salary reductions for top leaders and furlough days for staffers.

The cost cutting has been extensive, however, with the university going on to cut positions and eliminating several majors. In March, the school listed its equestrian center for sale for $1.6 million.

On Jan. 3, Minnesota-based U.S. Bank Trust issued a notice that Averett is in default on more than $14.57 million in bonds issued in 2017 because its debt service coverage rating was too low, and it had not provided proof of insurance policies. The notice, which Cardinal News first reported, noted the university was not behind on bond payments.

According to the lawsuit, Aungst provided confidential information to GSIS to help it win a contract to serve as Averett’s outsourced chief investment officer and co-fiduciary, starting in January 2021.

From April 2022 through April 2024, GSIS and Aungst “surreptitiously drained Averett’s endowment,” the complaint alleges. “In effect GSIS helped Aungst dig a financial hole that will take years for Averett to overcome.”

During this period, the firm and Aungst recommended that the university open a margin loan account, but GSIS mischaracterized the loan as a “line of credit,” without advising the Averett board that a margin loan is not appropriate for a nonprofit university, according to the lawsuit. The university’s then-president, Tiffany Franks, signed an application for the loan in April 2022.

Between April and December 2023, GSIS personnel “presented misleading reports to give the board false confidence that the endowment remained largely intact,”  the complaint states, and the firm “repeatedly misrepresented” the state of its endowment, which was declining after selling off endowment funds and making withdrawals.

In its statement, GSIS objects to the idea that Averett leaders were misled.

“It is important to note that the claims brought against GSIS in this new federal court action 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,” he said. 

The lawsuit does not explain how Averett leaders learned of the endowment’s depletion, but it notes that Franks confronted Aungst about the university’s financial situation on March 29, 2024, after which he immediately resigned.

The 38-page lawsuit alleges multiple counts, including breach of fiduciary duty and professional negligence. Franks retired in January after serving as Averett’s president for nearly 17 years, and in December, Averett named David Joyce its 15th president. Donald Merricks, a retired bank president, former state delegate and two-time alumnus, is Averett’s interim CFO, and Susan Nelson is its new director of finance.

Founded in 1859, Averett has more than 1,300 students.