CSU defendant in federal lawsuit

Seal of Colorado State University (Trademark o...
Seal of Colorado State University (Trademark of CSU) (Photo credit: Wikipedia)

The Colorado State University Board of Governors is a defendant in a federal whistleblower lawsuit in which CSU is accused of defrauding the U.S. government of “millions of dollars” through “false claims and fraudulent actions,” according to legal documents obtained by the Collegian.

Edwin Ruotsinoja, former Controller of the CSU System, filed the complaint in 2012 under the federal False Claims Act. In July 2013, the U.S. Department of Justice declined to become involved in the case, but Ruotsinoja chose to continue the claim independently.

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The latest action in the case was made April 3, 2014 when CSU attorneys argued to dismiss the case on the grounds that CSU was an arm of the state government and therefore not capable of being sued.

In the complaint filed in U.S. District Court, the plaintiff asks for a fine of $11,000 per incident of fraud, damages to be determined at a jury trial and payment of all legal fees. Under FCA guidelines, Ruotsinoja would be entitled to 25 to 30 percent of any settlement or judgment, with the rest going to the government.

CSU Spokesman Mike Hooker said the University could not comment on pending legal issues, but did say the University denies the claims.

The complaint is filed under the federal False Claims Act, a piece of legislation used by a whistleblower or relator to prove persons or companies are liable for defrauding the federal government.

The complaint claims CSU defrauded the government with misinformation concerning an account tied to federal grant money.

When a University applies for federal grants, part of the grant contract approximates how much the work will cost. This cost includes items such as employee fringe benefits that cover insurance and retirement for employees.

Annually, CSU files a fringe benefit rate proposal to the Department of Health and Human Services, which establishes the benefits CSU employees working under federal grants receive.

Based on the proposal submitted by CSU, the Department of Health and Human Services placed 1 percent of the total salary of all faculty, administration and professional staff working under federal contracts into one of the accounts for retirement benefits.

The complaint claims CSU changed the nature of the account in 2007 from a liability to an asset and chose not to place the funds into a government-mandated irrevocable trust. This gave the University the ability to utilize the account as unrestricted cash for other things beyond its initial purpose.

Furthermore, the complaint states that because the Department of Health and Human Services was not notified of the account change, the government paid more than it was supposed to into the account.

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“As a result CSU obtained funds in excess of the amounts which it was entitled and through CSU’s false claims and fraudulent actions, the federal government has been damaged by millions of dollars,” the complaint states.

As of June 30, 2007, the complaint states the net asset value of the account was listed as $19 million.

In the two years since the case was filed, CSU has filed two motions to dismiss the complaint.

The first motion to dismiss, based on jurisdictional questions, was dismissed by Judge R. Brook Jackson.

The second, which claims the University can’t be sued under the False Claims Act because the school is an arm of the state, is still under consideration by the court.

Ruotsinoja has filed two amended complaints, the most recent coming Feb. 6.

The suit claims that CSU changed the account status in 2007 during the administration of former CSU President Larry Penley. At the time, current President Tony Frank was provost to the University.

Penley abruptly resigned in November 2008 due to varying criticism from both faculty and students, and Frank was appointed interim president. He was later appointed on a permanent basis.

Ruotsinoja resigned his post as University controller just before Penley left the school. Ruotsinoja said he left because of philosophical differences between him and Penley regarding how the University handled its financing.

According to previous reports in the Collegian, Ruotsinoja and the other auditors were “forced out” under pressure from the administration, which, he said, was unhappy with the financial oversight they provided.

Ruotsinoja left CSU for a position as the controller of the University of Wisconsin, where he currently works.

Since the latest action on April 3, no further actions have been made in the case, and no meetings have been scheduled for the judicial calendar.

The Collegian reached out to Ruotsinoja for comment but he has not responded.

Collegian City, State and National Editor Skyler Leonard can be reached at news@collegian.com