Debra Zumwalt, General Counsel of Stanford University, sued for Tax Fraud & Money Laundering

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 2 months ago 

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 August 15, 2019

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 IndustryWired

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In never ending legal battle between medical artificial intelligence company MedWhat, it’s CEO Arturo Devesa, and Stanford University, the General Counsel of the university, Debra Zumwalt, was sued in May in Superior Court of Santa Clara County for Tax Fraud and Securities Fraud. Records show that case was later transferred to another jurisdiction in San Francisco Court. The lawsuit arises from for-profit venture capital firm Stanford-StartX Fund LLC investments in MedWhat coming not from the Fund but directly from commingled bank accounts of non-profit Stanford University in misrepresentations for-profit venture capital activities. Additionally, in misrepresentations of who the manager of the Stanford-StartX Fund LLC, which records state was Suzanne Fletcher but lawsuit claims it was tax-exempt Stanford University own employees acting a venture capitalists.

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Defendant DEBRA ZUMWALT is the General Counsel and Vice President of non-profit tax-exempt STANFORD UNIVERSITY. Online records show Ms. Debra Zumwalt is an officer of for-profit venture capital firm STANFORD-STARTX FUND LLC, and a registered agent of service for STANFORD-STARTX FUND LLC in the State of Delaware Division of Corporations and California Division of Corporations, in a commingling of non-profit and for-profit roles. Ms. Debra Zumwalt incorporated STANFORD-STARTX FUND LLC in 2013. According to Complaint, Ms. Debra Zumwalt broke Federal and State tax-exemption laws by mixing roles and being an officer of the commercial for-profit entity STANFORD-STARTX FUND LLC while being the General Counsel of a tax-exempt educational entity under California Revenue and Taxation Code (R&TC) Section 23701d while that same tax-exempt entity made wire transfers to MEDWHAT.

Over 200+ startups from startup accelerator STARTX, including MedWhat, received over $250,000,000 in investments from the Stanford-StartX Fund LLC from 2014-2019 until the Fund announced it was shutting down after being sued. Complaint states all 200+ companies never received any funds from an entity called Stanford-StartX Fund LLC. but from bank accounts under the name THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY.

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Court documents also state that Ms. Debra Zumwalt harassed DEVESA by filing to San Francisco County Court on May 6th, 2019 an ex parte application asking Judge for DEVESA to be prohibited to file ever a lawsuit against anybody in California when DEVESA discovered tax fraud committed by Ms. Debra Zumwalt and STANFORD UNIVERSITY BOARD OF TRUSTEES in January 2019 and filed a cross-complaint on May 1st, 2019 in San Francisco Court. ZUMWALT’s aggressive demands in ex parte application to deny DEVESA access to the legal system was denied by SF court the following day.

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Complaint states that this illegal conflict of interest and violation of IRS tax-exemption laws is not the first time for Ms. Debra Zumwalt.

ZUMWALT is a director at NASDAQ listed companies Huron Consulting Inc. and Exponent Inc while being the General Counsel lawyer of Stanford University. Exponent, Inc. records show the Company performed consulting services for Stanford University. The total amount paid for these consulting services was $350,000, $174,000, and $1,500,000 for fiscal 2016, 2017, and 2018, respectively. According to Exponent Ms. Zumwalt did not have an interest in these transactions. In making its determination that Ms. Zumwalt is an independent director within the meaning of applicable Nasdaq listing standards, the Board considered transactions between the Company and Stanford University (“Stanford”), of which Ms. Zumwalt is the Vice President and General Counsel. Given therelatively small amounts involved as compared to the revenues of each of the Company and Stanford, the Board concluded that the transactions at issue and Ms. Zumwalt’s relationship with Stanford did not affect Ms. Zumwalt’s status as an independent director.

This kind of euphemism could be considered a mild or indirect word or expression substituted for one considered to be too harsh or blunt when referring to something unpleasant or embarrassing or even corruption.

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In Stanford-StartX Fund LLC’s relationship to Ms. Zumwalt, according to the IRS, when it comes to tax-exempt non-profits creating a for-profit subsidiary, under IRS tax laws, corporate formalities must be observed to protect the separation of the entities. Otherwise the non-profit can lose tax-exempt status. Each organization must have a separate governing body and should conduct separate board and committee meetings, with separate minutes taken. The entities also should avoid commingling assets by using separate bank accounts and should maintain an arm’s length relationship. If the subsidiary and the parent will share any resources such as office space or employees, or if one entity is going to provide goods or services to the other, or a license of any intellectual property, the entities should enter into a written resource-sharing, services, or licensing arrangement. A charity must receive at least fair market value for whatever it provides to the for-profit entity.

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https://seekingalpha.com/filings/pdf/13362465.pdf

Additionally, Stanford University and all of its Board of Trustees were sued in San Francisco on May 1st, 2019 for Tax Fraud.

Medical artificial intelligence technology company MedWhat filed lawsuit claiming it was used and manipulated by a different entity advertised as its real investor, independent venture capital firm Stanford-StartX Fund, in order for Stanford University to illicitly profit and run clandestinely a for-profit venture capital firm while keeping its tax-exemption intact. Stanford-StartX Fund announced in January is shutting down and ceasing all investments in July.

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The lawsuit claims the University, in what seems criminal activity, lied about its subsidiary venture capital firm Stanford-StartX Fund in a partnership with startup accelerator StartX. Court documents show the investments never came from legal separate entity “Stanford-StartX Fund LLC”, a for-profit legal separate entity, but instead from a tax-exempt bank account under the name ‘THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY’, in an indication of misrepresentation, tax fraud, and money laundering. Records also show the fund wasn’t ran by its official manager, Suzanne Fletcher, but by University employees acting as unlicensed venture capitalist breaking tax-exemption rules.

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Complaint states Stanford and its Trustees lied and all sources of all 200 of Stanford-StartX Fund investments came directly from commingled school funds from Stanford University’s own tax-exempt bank accounts, not separate legal entity ran by Stanford-StartX Fund employees and officers outside of the university. Complaint states this created all sorts of conflicts of interests and different investment policies and procedures from advertised and these caused damages to MedWhat and its CEO. Records also show University Trustees illegally involved doing business with the Stanford-StartX Fund.

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Stanford University and tech startup accelerator STARTX developed a joint venture in 2013 to create an independent venture capital firm called Stanford-StartX Fund separate of Stanford University to make for-profit private equity investments in STARTX program tech companies like MedWhat.

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Court document state THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, also known as LELAND STANFORD JUNIOR UNIVERSITY, (hereafter “STANFORD UNIVERSITY”) is a tax-exempt entity under section 501(c)3 of the Internal Revenue Code and from California state income tax as an educational institution under the Revenue and Taxation Code (R&TC) Section 23701d.

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Court documents showing wire transcripts reveal Stanford University lied to MedWhat and all of its Stanford-StartX Fund LLC 200 portfolio companies when it said investments came from its independent for-profit subsidiary venture capital fund Stanford-StartX Fund LLC.

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All investments wire transfers said: THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY. Bank account originator owner contained same name. For years MedWhat says it was told by Stanford-StartX Fund the investments and bank accounts came from Stanford-StartX Fund. In 2018, as part of an ongoing investigation into fraud claims against Stanford-StartX Fund, All 200 tech companies at StartX were also told this and always believed it to be true. MedWhat was the first StartX company to discover that nowhere could be found the name Stanford-StartX Fund LLC as the owner of those investment bank accounts.

MedWhat discovered in 2018 that all investments by STANFORD-STARTX FUND LLC to MEDWHAT came in reality from bank accounts with the name of THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY with commingled school assets from its tax-exempt bank accounts at the Mellon Bank of NY; Under IRS rules, commingling assets between a non-profit and its for-profit subsidiary is illegal under tax-exemption rules and in effect violates the endorsement rule as a tax-exempt by STANFORD UNIVERSITY.

Stanford University’s Chief Financial Officer Randy Livingston announced a week after lawsuit was filed for fraud the shutting down and cease of new investments by Stanford-StartX Fund and the cease of partnerships with STARTX.

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Court documents reveal the University used Stanford-StartX Fund Manager Suzanne Fletcher as a front to maintain its tax-exemption status and give an impression to MedWhat of no involvement in commercial activities while hiding two of its employees operating actively the fund from school premises. Court documents state the fund was ran illegally by Susan Weinstein, Assistant Vice President for Business Development for STANFORD UNIVERSITY working under STANFORD UNIVERSITY’S chief financial officer RANDY LIVINGSTON, and Sabrina Liang, Director of School Funds at the Stanford University endowment.

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According to the university President and the CFO, “STANFORD UNIVERSITY does not endorse, and cannot appear to endorse, for-profit commercial entities”, when in reality, according to court documents, it was doing precisely that by wiring investments to Stanford-StartX Fund companies directly from Stanford University bank accounts and allowing managing of the investments by Stanford University employees and not Stanford-StartX Fund’s independent manager.

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Complaint states the University lied and that the STANFORD-STARTX FUND LLC and STANFORD UNIVERSITY are in reality de facto of one the same entities that kept a tax layer to de jure keep them separate and prevent violations of tax laws. Lawsuit also states the STANFORD-STARTX FUND is also an investor in MEDWHAT’S direct competition, Sense.ly, something that was not disclosed at the time of investment to MedWhat.

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Documents also state Stanford University “lied to MEDWHAT to make illicit money, conduct tax fraud and lie to the IRS. Stanford University 2016 IRS Form 990, on Page 6, line 16, asks “Did the organization invest in, contribute assets to or participate in a joint venture or a similar arrangement with a taxable entity?” Stanford University responded No. That’s false statement as Stanford has a joint venture with STANFORD-STARTX FUND, which is a limited liability corporation taxable entity. Stanford lied to the IRS in its 2016 Form 990.”

All Board of Trustees have been sued individually for approving the fraud scheme and their names appearing as Trustees in all bank wire transfer investments to MedWhat. Trustees names are:

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•  Marc Tessier-Lavigne, President, Stanford University, Stanford, CA

•  Felix J. Baker, Co-Founder and Managing Partner, Baker Brothers Investments, New York, NY

•  Mary T. Barra, Chief Executive Officer, General Motors, Detroit, MI

•  Bret E. Comolli, Chairman, Asurion Corporation, Atherton, CA

•  RoAnn Costin, President, Wilderness Point Investments, Cambridge, MA

•  Michelle R. Clayman, Managing Partner & Chief Investment Officer, New Amsterdam Partners LLC, New York, NY

•  Dipanjan Deb, CEO & Co-Founder, Francisco Partners, San Francisco, CA

•  Henry A. Fernandez, Chairman and CEO, MSCI Inc., New York, NY

•  Angela S. Filo, Co-Founder, Yellow Chair Foundation, Palo Alto, CA

•  Sakurako D. Fisher, San Francisco, CA

•  Bradley A. Geier, Co-Managing Partner, Merlone Geier Partners, San Diego, CA

•  James D. Halper, Senior Advisor, Leonard Green & Partners, Los Angeles, CA

•  Ronald B. Johnson, Founder & CEO, Enjoy, Menlo Park, CA

•  Marc E. Jones, Chairman & CEO, Aeris, San Jose, CA

•  Tonia G. Karr, San Francisco, CA

•  Carol C. Lam, Attorney, La Jolla, CA

•  Christy MacLear, New Canaan, CT

•  Kenneth E. Olivier, Chairman Emeritus, Dodge and Cox, San Francisco, CA

•  Carrie W. Penner, Chair of the Board, Walton Family Foundation, Aspen, CO

•  Laurene Powell Jobs, Founder/Chair, Emerson Collective, Palo Alto, CA

•  Jeffrey S. Raikes, Co-Founder, The Raikes Foundation, Seattle, WA

•  Mindy B. Rogers, Atherton, CA

•  Victoria B. Rogers, President, Rose Hills Foundation, Pasadena, CA

•  Kavitark Ram Shriram, Founder, Sherpalo Ventures, Menlo Park, CA

•  Ronald P. Spogli, Founding Partner, Freeman Spogli & Co., Los Angeles, CA

•  Srinija Srinivasan, Palo Alto, CA

•  Jeffrey E. Stone, Chairman Emeritus and Senior Partner, McDermott Will & Emery LLP, Chicago IL

•  Gene T Sykes, Global Co-Head of M&A & Chairman, Goldman Sachs Group, Inc., Los Angeles, CA

•  Jerry Yang, AME Cloud Ventures, Palo Alto, CA

•  Charles D. Young, Chief Operating Officer, Invitation Homes, Dallas, TX

Complaint also states that some University Trustees, such as Steve Jobs wife, Laurene Powell Jobs, and Yahoo co-founder Yerry Yang, co-invested with the Stanford-StartX Fund LLC through their own venture capital firms while their names as THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY bank accounts funded those same companies, and thus breaking tax-exemption rules, fiduciary duties with the university and creating illegal conflicts of interest.

For example, Stanford Trustee Felix Baker is a managing director of KODIAK SCIENCES, a company that has received investments from the STANFORD-STARTX FUND LLC from a bank account with the name THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY. Lawsuit states Baker used tax-exempt university funds as a trustee for for-profit investments in his own company and breaking tax-exemption laws.

Kodiak Sciences did an IPO on October 4th, 2018 in NASDAQ in NYC with STARTX featured on its billboard in Times Square alongside Stanford-StartX Fund LLC Manager Suzanne Fletcher.

For more information on case visit webapps.sftc.org, case number CGC18565596