Forgive, Forget, Receive: Why (Most) Toxic Donors Get a Second Chance

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As I type this, Sam Bankman-Fried is holed up in his parents’ $4 million Palo Alto home wearing an ankle monitor and strategizing with his lawyers about the U.S. government’s new indictment charging him with conspiring to bribe Chinese officials. Low on his list of short-term priorities, I suspect, is a campaign to rehabilitate his reputation through philanthropy.

Bankman-Fried, of course, was a big funder in the realm of “longtermist” effective altruism, but after the walls closed in last year, he let the mask slip. “I had to be [ethical],” he told Vox. “It’s what reputations are made of, to some extent.” Cynically linking his reputation to “ethical” behavior such as big-ticket philanthropy, Bankman-Fried made the mistake of saying out loud what many people say in private.

Earlier this month, about 400 miles south, another high-profile philanthropist with his own reputational challenges was also in the news. Unlike Bankman-Fried, he’s moving about freely in the world.

In San Diego, the Hotel del Coronado hosted a fundraiser for the Chadwick Center at Rady’s Children’s Hospital, and among its guests was billionaire Giving Pledge signatory T. Denny Sanford. In 2020, the South Dakota Division of Criminal Investigation obtained search warrants for the now-87-year-old Sanford’s email, phone and internet data and referred a potential child pornography case to federal authorities. The probe expanded to other states where Sanford owned homes. Sanford maintained his innocence, and in May 2022, officials closed the investigation without filing charges. 

Voice of San Diego’s Jesse Marks described the vibe at the fundraiser as surreal and charged. Natalie Laub, a Chadwick Center donor and physician, told Marks she had trouble explaining to guests why Sanford was there. “What would it look like to a victim of abuse?” she said. Some donors walked out. But the people behind the event clearly felt differently, underscoring that when it comes to the tricky terrain of rehabilitative philanthropy, redemption is possible when forgiveness is in the eye of the beholder.

The calculus of forgiveness

Reaching redemption, or not, depends on who is doing the forgiving and forgetting. Naturally, one of the main factors where donation recipients are concerned is the context and nature of the alleged indiscretion. The permutations run the gamut.

Sanford faced very serious accusations, but he was innocent until proven guilty and was never charged with a crime, so there is, theoretically, nothing concrete to “forgive.”

None of the Sacklers named in lawsuits have gone to jail, yet that hasn’t stopped organizations like the Metropolitan Museum of Art from refusing donations from “members of the Sackler family,” although it should be noted that nonprofit leaders did accept money even after Purdue Pharma pleaded guilty to criminal charges that they misled regulators, doctors and patients about Oxycontin’s potential for abuse in 2007. (Last year, the family owners of Purdue Pharma struck a deal with attorneys general to pay up to $6 billion in exchange for civil immunity.)

Similarly, universities cashed Jeffrey Epstein’s checks after his 2008 conviction on sex charges involving a minor in Florida.

We now know that some officials grappled with the ethical implications of taking that money — but they still took it. Why? There are many reasons, but here are three: Development officers’ livelihoods hinge on hitting ambitious fundraising goals; they know that big-ticket gifts can attract more donations and boost the school’s prestige; and utilitarian-minded administrations believe the good that the money can accomplish will exceed the opportunity costs of navigating ethical minefields.

This cost-benefit analysis favoring continued engagement with compromised donors is embedded in fundraisers’ DNA regardless of the economic climate, although it tends to loom larger in lean times. With inflation high, the stock market down and a recession potentially looming, I imagine the words of Saint Augustine reverberating in the heads of development officers across the country: “Lord, give me chastity and continence — but not yet!”

Or frame it in more secular terms, I don’t see evidence to suggest leaders are getting any more reluctant to accommodate donors situated in the moral gray area of alleged misdeeds. The Financial Times recently reported that Oxford University has solicited donations from Sackler family members over the past two years. Also consider how some organizations carefully welcomed a quasi-toxic Sanford and his donations back into the fold.

A torrent of new gifts

In 2019, Sanford announced a $350 million gift to National University to support the school’s efforts to become a leader in the highly competitive online education space. The gift propelled him to eighth place on the Chronicle of Philanthropy’s list of the top 50 donors of the year, just behind the Gateses and ahead of the Omidyars.

After ProPublica broke the news about the criminal investigation, administrators tabled plans to rename the school after Sanford, while students — in what has become a recurring trend in many toxic donor controversies — called on the school to return the money. In June 2021, the San Diego Union-Tribune’s Gary Robbins reported that it was unclear whether Sanford “has or will give National any or all of the money.”

A South Dakota deputy attorney general found that Sanford committed “no prosecutable offenses” in May 2022. However, a cloud of suspicion still trailed him as his lawyers fought the release of search warrant affidavits establishing probable cause for the investigation. Organizational leaders presumably plugged this fact into their cost-benefit analysis and responded accordingly.

In July 2022, after National University announced plans to merge with another online college, officials told the Union-Tribune’s Joshua Emerson Smith that donations by Sanford to the school, including $350 million in 2019, “played no role in the merger,” suggesting the university had not given back Sanford’s money. (Emails to the university were not returned.)

And the gifts kept coming. Last September, Sanford pledged $150 million for a new stem cell institute at UC San Diego. As a sign of its gratitude, the school will give Sanford its Lifetime Legacy Award this spring. In January of this year, Sanford announced a $70 million donation to Sanford Burnham Prebys Medical Discovery Institute (its name, by the way, references his previous donations). With a current net worth of between $2 and 3 billion, Sanford said he plans to make Sanford Health — the South Dakota-based nonprofit healthcare delivery system that was renamed after his $400 million gift in 2007 — the primary beneficiary of his estate.

Opportunity costs

For all intents and purposes, Sanford would appear to be forgiven, at least in the eyes of those receiving his millions. However, the Sanford case also suggests that leaders who adopt the “forgive, forget, receive” approach can face downstream opportunity costs pertaining to the apparently absolved donor.

On March 25, Sanford’s lawyers appeared before the South Dakota Supreme Court arguing that the documents relating to the 2019 investigation should remain sealed. Both ProPublica and the Argus Leader, a South Dakota newspaper, countered that they should be made public. The Associated Press reported that “judges will make their determination on the request to unseal the affidavits in later months.”

You can probably see where I’m going with this.

If the court unseals the documents, the fallout from potentially damaging revelations will force organizational leaders to get back on the “to-return-or-not-to-return” merry-go-round. I wouldn’t be surprised if administrators (and their lawyers) are planning for such a scenario.

Also remember that the public likely won’t be as forgiving as donation recipients. Museum leaders who dragged their feet when it came to refusing Sackler donations ended up having to deal with highly disruptive protests and calls from persistent journalists — and perhaps even from the occasional donor — asking why they simply didn’t say no and move on for the good of the institution. In a similar vein, National University students and the Rady’s Children’s Hospital donors who walked out of the Hotel del Coronado fundraiser may call on leaders to return Sanford’s money if the unsealed affidavits contain disturbing information.

Of course, organizational leaders with a fervent desire to forgive also have an “in-case-of emergency-break-glass” option that can bypass a lot of this ethical handwringing. They can take money from toxic donors but insist on anonymity.

Setting aside the fact that, as my colleague Holly Hall wrote, “using anonymity to cover up infamy is morally suspect,” I’m hard-pressed to believe that donors would go along with the charade. The entire point of philanthropy-as-reputation burnishing is to ease the way for donors to pose with nonprofit leaders at black-tie events that double as public acts of contrition. Donors who give with the intention of clearing their names don’t have much of an incentive to cut a check under the cover of darkness.

Role models in rehabilitation

If somebody like Sam Bankman-Fried ever wishes to rehabilitate his reputation through big-ticket philanthropy — in the unlikely event he reaccumulates the resources to do so — he could find a better model than the still somewhat radioactive Sanford. Take these two examples from the field of finance.

The first is Michael Milken, who pleaded guilty to securities and tax violations in 1990 and went on to serve time in prison. As he went about rehabilitating his reputation in the aftermath, the former junk bond king became one of philanthropy’s most impactful supporters of medical research, especially in the cancer field, where he founded the Prostate Cancer Foundation.

The other example is hedge fund manager Steve Cohen. In 2013, his S.A.C. Capital Advisors pleaded guilty to insider trading and paid $1.8 billion in fines, although Cohen wasn’t personally charged. Today, he and his wife Alexandra are one of philanthropy’s most intriguing power couples thanks to gifts in fields like veterans support, lyme disease and psychedelic medicine.

I bring up Cohen for another reason. Those of us who cover philanthropy for a living sometimes lose sight of the fact that most Americans aren’t familiar with half (or even a quarter) of the names on the Chronicle’s top 50 donors list, let alone the full spectrum of characters on Forbes’ billionaires roster. Aside from a few famous names like Jeffrey Epstein, they’ll have little idea when a supposedly toxic donor attempts to rehabilitate their reputation. And when said donor does make a gift for, say, scholarships, they’ll nod and silently commend them (assuming, of course, they hear about the gift in the first place). For all of its influence and growth in recent years, philanthropy remains a relatively provincial sphere of American society.

Cohen’s example speaks to the fact that there are other ways for disgraced billionaires to iron out their reputations, ways that may end up getting them further than philanthropic giving. I imagine few Americans had heard of Steve Cohen back in 2013 when his name was in the news for the wrong reasons. But a lot more people know of him now. In 2020, he bought the New York Mets and embarked on a spending spree unparalleled in American sports history. At $370 million, the Mets’ 2023 payroll is the highest in baseball, far exceeding the league average of $148 million. This profligacy compelled the league to impose the “Cohen Tax” to instill more payroll parity.

By dipping into his $18 billion fortune to help the perpetually beleaguered Mets win their first championship since 1986, Cohen has emerged, oxymoronically enough, as “the most beloved billionaire in Queens.” I can speak to this phenomenon first-hand. As a native New Jerseyan, I often listen to New York City sports radio and am struck by how many long-suffering Mets fans revere Cohen as an almost messianic figure. It’s weird.

In fact, I’d wager Cohen’s ownership of the Mets has netted him more bang for his reputation-burnishing buck these past few years than all of his public philanthropy combined. If you need further proof, consider that a decade after his company paid the largest insider trading penalty in history, legions of Met fans now adoringly refer to him as “Uncle Stevie.”

Bankman-Fried and Sanford should be so lucky.