By Pam Martens: February 27, 2013

As questions swirl as to why New York University, a nonprofit subsidized by the taxpayer, used endowment funds from its law school foundation to provide Treasury Secretary nominee Jack Lew with more than a million dollars in mortgage loans in 2001 and a $685,000 “severance” payment when he voluntarily left to accept a high paying job at Citigroup in 2006, the name of John Sexton has emerged as someone who was in the know about the dealings.

As the document below confirms, Sexton, who has been President of NYU since 2001, signed off on the first $1,300,000 mortgage loan to Lew on August 22, 2001. The second mortgage loan by NYU to Lew in the amount of $150,000 was made later that same year. Lew has said in written testimony to the Senate Finance Committee that NYU forgave portions of the first loan and reimbursed him annually for any interest that was charged. According to tax experts, that doesn’t pass the smell test for an arms-length, market rate loan. According to nonprofit governance experts, giving any kind of a loan to a director or executive of a non-profit is an ill-advised slippery slope.

Before becoming President of NYU, Sexton served as Dean of the NYU Law School for 14 years. He joined the Law School’s faculty in 1981 following graduation from Harvard Law School, magna cum laude, in 1979. He certainly should understand the law.

Sexton is also a member of the Council on Foreign Relations, a think tank which just hired Timothy Geithner, who stepped down recently as Treasury Secretary, opening the door for Jack Lew’s nomination to the post. The Council on Foreign Relations’ Co-Chairman is Robert Rubin, the former U.S.Treasury Secretary under Bill Clinton. When Rubin left the Clinton administration, after helping to repeal the depression era investor protection law known as the Glass-Steagall Act, enabling Citigroup to become a casino housing speculative stock businesses as well as insured deposit accounts, Rubin proceeded directly to a Board post at Citigroup and earned $120 million over the next eight years as a senior advisor to the firm.

Citigroup collapsed into the arms of the U.S. government with a bailout that exceeded $2.5 trillion, including equity infusions, assets guarantees and loans from the Federal Reserve Bank of New York from 2008 to 2010. Sexton served as Chairman of the New York Fed from 2004 to 2006 and Deputy Chair in 2003. Sexton’s reign at the New York Fed overlapped with fellow New York Fed Board member, Sandy Weill, former CEO and Chairman of Citigroup. The New York Fed was the chief regulator of the holding company of Citigroup. While Sexton was Deputy Chair of the New York Fed in 2003 and Weill was on its Board, Weill sold back to Citigroup $264 million of his Citigroup shares which he had obtained under stock awards. The shares were sold on October 2, 2003 at a price of $47.14. Since that time, Citigroup’s shares have lost over 90 percent of their market value.

Weill held the distinction of one of the most obscenely paid executives on Wall Street but, nonetheless, was allowed to serve on the Board of his regulator, the New York Fed. In just a five year period, Weill received compensation of $785 million. He stepped down as Chairman of Citigroup in 2006 and the firm spiraled toward collapse just two years later.

The Board of the Council of Foreign Relations also includes Penny Pritzker, said to be on the President’s short list for Secretary of Commerce. Mary Jo White, the President’s nominee for Chair of the Securities and Exchange Commission, is a member.

The New York Fed is not Sexton’s only tie to Wall Street. He was a Board Member of the National Association of Securities Dealers (Nasdaq) from 1996 to 1998 and was Founding Chair of the Board of NASD Dispute Resolution in 2000 to 2002.

NASD Dispute Resolution is a polite name for Wall Street’s private justice system, or mandatory arbitration, now run by FINRA, the successor to NASD Regulation. Veterans of Wall Street consider it a rigged justice system where case law and legal precedent need not be followed, discovery is limited, appeals to a court of law are next to impossible to sustain and where the public is barred from observing the proceedings. On July 20, 2000 the Public Investors Arbitration Bar Association (PIABA) issued a statement accusing the National Association of Securities Dealers (NASD) of rigging its computerized system of selecting arbitrators. The statement said: “In direct and flagrant violation of federal law, the NASD systematically evaded the Securities and Exchange Commission approved ‘Neutral List Selection System’ arbitration rule requiring arbitrators to be selected on a rotating basis. Instead, the NASD secretly programmed its computers to select some arbitrators on a seniority basis – just what the rule was designed to prevent.”

PIABA said it discovered the manipulation when a team of its attorneys demanded a test of the selection system at an NASD/PIABA meeting in Chicago on June 27, 2000. PIABA said it believed the rule violation “tainted hundreds or even thousands of compulsory securities arbitrations – many still ongoing. In every such instance, the substantive rights of public investors to a neutral panel have been cynically violated. Many public investors were thus twice cheated: first, by an NASD member firm that fraudulently conned them out of their life’s savings, and second by the NASD Arbitration Department’s rigged panels.”

According to the publicly available Form 990 that NYU filed with the IRS for fiscal year September 1, 2003 through August 31, 2004, Sexton had $737,802 in compensation versus Jack Lew’s $853,048. But Sexton’s expense account was a staggering $187, 217 versus Lew’s $19,946.

During that same fiscal year, Sexton had a loan outstanding from the University for $124,697; Lew’s loan balance was $747,805 and the Senior Vice President for Finance and Budget, Jeannemarie Smith, had a loan balance of $268,515.

The tax filing notes that: “NYU also provides President Sexton with the use of two apartments…and the services of a car and driver. During his presidency, President Sexton is required to reside in one of these apartments for the convenience of NYU as a condition of his employment and to pay rent on the second apartment at a rate comparable to that charged to faculty and staff of the University for similar housing.” No explanation is offered as to why Sexton needs two apartments.

As we previously reported, during Lew’s tenure at NYU as Executive Vice President of Operations, he was able to buy a $1.3 million home courtesy of a cozy loan with the tax-subsidized nonprofit. Students, on the other hand, saw their tuition skyrocket by 40 percent. According to Amanda Fairbanks’ investigative report in the Huffington Post, there are now 498 young women at NYU moonlighting as prostitutes to wealthy sugar daddies in order to stay in school and pay their room and board and student loans. These young women are tragically emblematic of a society ruled by the 1 percent.