You regularly hear the term "prudence" referring to the standard for measuring success in practicing the fiduciary duty of care. Generally, this standard is interpreted as doing what any reasonable business person facing similar choices or situations would do.
The ponzi scheme perpetuated by Garfield Taylor in Washington, DC, or any other ponzi scheme, certainly challenges the question of when a board has been prudent.
The Washington Post story about Mr. Taylor being sued by one of his victims, the nonprofit Hilcrest Children's Center, raises the challenge of whether the board was truly prudent in its decision to invest a significant portion of its endowment, some $8 million, in what Mr. Taylor promised would be a sure-bet for preserving the endowment while generating a 20% return.
From the Post:
EC official Stephen L. Cohen said the case serves as a reminder to investors. “There really isn’t any such thing as . . . an investment that has zero risk with a high reward,” Cohen said.
The Hillcrest board, whose members had no special experience managing institutional investments, identified potential investment advisers through personal acquaintances, the nonprofit group’s lawsuit said. One member of the board had invested with Taylor.
Prudent?
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