Brian Kennedy resigned on Oct. 28 as chief executive officer of the Buck Institute for Research on Aging in Novato. (IJ file photo)

A sweeping leadership change at the Buck Institute for Research on Aging comes as the institute emerges from the most trying financial period in its history, and it’s “not out of the woods yet,” a board member says.

“Over the last several years we’ve been working very hard to maintain a positive cash flow and a balanced budget, and that has been a challenge,” said Edward Lanphier, a member of the Buck Institute’s Board of Trustees since 2012.

Lanphier, who also serves on the board’s finance committee, briefly served as the institute’s CEO after Brian Kennedy resigned on Oct. 28.

The board on Nov. 18 announced that Dr. Eric Verdin, an expert on aging research and a former associate director and senior investigator at the Gladstone Institute for Virology and Immunology, will take the helm of the institute as CEO and president.

Along with that announcement, board members pledged $10 million in donations to the institute.

“Over the last six to nine months, we’ve had more success in terms of grant revenues,” Lanphier said. “That said, we’re not out of the woods yet.

“When you’re in a tight budget situation you fund the things you really, really, need to fund and some things don’t get funded,” he said. “That has been true over the last several years.

“We need to address the aging infrastructure at the Buck; we need to address equipment needs. With the unprecedented gift of our board, things have changed materially.”

Kennedy’s resignation was followed on Nov. 1 by the resignation of Mary McEachron, the institute’s chief administrative officer and general counsel. The resignations came as the institute was involved in possible merger talks with Gladstone Institutes, a San Francisco-based foundation.

“There are no business discussions ongoing with Gladstone,” Lanphier said.

McEachron became chief administrative officer in April 2010 shortly before Kennedy was hired in June 2010. Kennedy and McEachron — working along with former Buck senior vice president Raja Kamal — implemented a strategy of aggressively seeking international donors, many of them from the Middle East. Kamal, who was hired in December 2010, also resigned in June 2016.

Faculty unease cited

According to institute insiders who requested anonymity, some faculty members expressed unease about a few of the associations made during this period.

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Two men added to the institute’s board of trustees in particular raised concerns: Fouad Makhzoumi, a Lebanese native and CEO of Future Group, who joined the board in 2014; and Rubar Sandi, chairman of the Sandi Group, who joined the board in 2015. Sandi is an Iraqi from a wealthy Kurdish family who immigrated to the United States in the late 1970s.

The Sandi Group’s work with Texas-based DynCorp has been investigated by the special inspector general for Iraq reconstruction, according to David Phinney, a Washington, D.C.-based freelance reporter whose work includes a series on contractors and private military companies working in Iraq.

Phinney said the Sandi Group teamed with DynCorp on a massive multi-year U.S. State Department contract to train more than 100,000 Iraqi police officers, as well as dozens of other projects.

CNN reported in 2007 that the “State Department had been unable to account for most of $1.2 billion in funding that it gave to DynCorp International to train Iraqi police.”

Phinney said the matter has never been fully resolved.

“There is a DynCorp fraud case that has been reintroduced after a five-year hiatus that involves Sandi,” Phinney said in an interview.

According to The Guardian newspaper, Makhzoumi “was involved in the scandal which brought down the disgraced Conservative politician Jonathan Aitken.”

Aitken served as Minister of State for Defense Procurement under former Conservative British Prime Minister John Major.

The Guardian reported that Makhzoumi “recruited Aitken to the board of one of his companies in the 1980s. But Aitken failed to declare the directorship and, as the arms sales minister, promoted a military equipment deal for his friend in the 1990s.”

But McEachron, who spoke to the Independent Journal soon after her resignation, said, “I don’t know anything like that about him. He runs the largest charity in Lebanon. To my knowledge, there was never any controversy about any members of the board.”

In May 2014, the Buck Advisory Council awarded Makhzoumi’s wife, May, its Global Humanitarian Award. The council was created in 2010 in an effort to cultivate international donors. The award came a year after May Makhzoumi made headlines when it became known that she had contributed over 1 million British pounds to Britain’s Conservative Party since 2010.

Saudi honor scuttled

Buck insiders said the faculty balked when Kennedy floated the idea of naming a school of geroscience at the institute after King Fahd of Saudi Arabia in hopes of securing a $5 million donation. That idea was eventually abandoned.

Insiders also said that Sandi and Jostein Eikeland, a Norwegian-born entrepreneur, each pledged $5 million to the institute, but Sandi reneged on his pledge and Eikeland ultimately limited his contribution to $1 million.

Lanphier confirmed that the pledges fell short of what had been promised.

“These were new board members that were brought on, mostly of an international background,” Lanphier said.

Regarding the $10 million in new pledges, Lanphier declined to say which board members had made them, but he said they were solid and would be redeemed over the next three to five years.

“Everybody who is involved in this particular gift and these pledges is both local as well as having a long and serious dedicated history of giving to the Buck,” Lanphier said.

Interviewed in early October, when news of merger talks between the Buck Institute and Gladstone Institutes became public, McEachron said the institute was “doing better financially than in our entire history.”

She rejected the notion that the overture to Gladstone came due to any financial crisis within the institute.

“There has been borrowing in the past; it’s now pay as you go,” McEachron said. “We’re making all our loan payments as they come due, and we’re nevertheless experiencing a significant surplus from operations.”

‘Weathered the worst’

After her resignation, McEachron shared a copy of a PowerPoint presentation that Kennedy made to the institute’s board prior to his resignation. The presentation was titled, “Financially, we have already weathered the worst.” It detailed how the institute had coped with the loss of $10 million in revenue over the past five years.

The presentation stated that the institute spent $450,000 on legal expenses related to a $12 million lawsuit filed against it by Lehman Brothers Holdings Inc. in 2014.

The Buck Institute paid $2 million to terminate an interest rate swap with Lehman Brothers soon after the firm filed for bankruptcy in September 2008. The swap was designed to reduce the risk on floating rate bonds the institute was holding.

Lehman Brothers sued, asserting that the institute underpaid by more than $12 million when it canceled the swap. The two parties settled the matter out of court in February for an undisclosed sum.

“I can’t give you an exact number; that is part of the settlement,” Lanphier said.

Kennedy’s PowerPoint presentation stated that between fiscal 2012 and fiscal 2016 two of the institute’s major grant programs concluded — a $5 million geroscience grant from the National Institutes of Health and a $2 million stem cell shared research and training grant from California Institute for Regenerative Medicine.

The PowerPoint presentation recalled that after sequestration of federal funds began in March 2013, the institute experienced budgetary reductions in previously awarded grants ranging from 3 to 5 percent — requiring a 5 percent cut in the fiscal 2013 budget.

The presentation also cited $1.5 million in increased debt payments, and showed that the number of faculty members declined from 23 in fiscal 2015 to 21 in fiscal 2016. It projected 18 faculty members in fiscal 2017 and fiscal 2018.

Leasing revenue

McEachron, however, said the institute had benefited from significant revenue growth over the past two years from leasing space at the institute and corporate-sponsored research. Revenue from these two sources grew from $1.2 million in fiscal 2014 to $2.5 million in fiscal 2015.

The institute is currently leasing 27,000 square feet of its 245,000-square-foot campus to for-profit businesses. These include BioMarin, Ultragenyx, Cellular Dynamics, An2H Discovery Limited and Excel Venture Management.

In fiscal 2017, leasing and corporate-sponsored research are each expected to account for about 9 percent of the Buck’s revenue.

Lanphier said he expects corporate-sponsored research and leasing to continue to be important revenue sources for the institute. Regarding the leased space, however, he added, “Ultimately we’d love to have that space occupied by faculty doing research.”