Bloomberg News

Penn State to Probe Sex-Abuse Scandal, May Face Credit Downgrade

November 13, 2011

Nov. 12 (Bloomberg) -- Penn State University, mired in a child sex-abuse scandal on campus, named a trustee to lead an investigation into the events and faces a possible downgrade of its debt rating by Moody’s Investors Service.

The school yesterday appointed Merck & Co. Chief Executive Officer Ken Frazier to head the committee investigating the scandal and placed on leave Mike McQueary, an assistant coach who witnessed an alleged sexual assault on a boy in the locker rooms in 2002. Separately, Moody’s put Penn State’s Aa1 rating of about $1 billion in bonds on review while it considers the reputational and financial risk arising from the situation.

The Penn State board met in State College, Pennsylvania, after firing football coach Joe Paterno and President Graham B. Spanier on Nov. 9. Former defensive coordinator Jerry Sandusky, 67, was charged with the sexual assault of eight boys from 1994 to 2009. Athletic Director Tim Curley, 57, and Senior Vice President Gary Schultz, 62, were charged with perjury and failure to report the allegations. Paterno, the coach with the most wins in major college football history, wasn’t charged.

McQueary told a grand jury that he witnessed Sandusky sexually attack a boy in the school’s locker room showers in 2002. The university had said McQueary, who was a graduate assistant at the time, won’t attend the team’s final home game tomorrow after multiple threats were made against him.

“It became clear that under any circumstances he would not be able to function in a coaching role,” Interim President Rodney Erickson said yesterday at a news conference.

The interim president said the university will add extra security at the game and appoint an ethics officer to report to him.

‘Do the Right Thing’

“Never again should anyone at Penn State, regardless of their position, be scared to do the right thing,” Erickson said.

The board yesterday also named Pennsylvania Education Secretary Ron Tomalis as vice chairman of the committee investigating the scandal. Both Frazier, a graduate of Penn State and Harvard Law School in Cambridge, Massachusetts, and Tomalis are trustees.

Frazier became Merck’s CEO in January after joining the company in 1992 as general counsel. He made his name at Merck leading the company’s legal defense against thousands of claims that its Vioxx painkiller drug caused heart attacks and strokes.

Death Row Case

Before joining Merck, when he was a partner at Philadelphia law firm Drinker Biddle & Reath LLP in 1991, Frazier and two colleagues took on the case of James Willie “Bo” Cochran, an Alabama man on death row for allegedly committing a 1976 murder. Frazier and his team, working on a pro-bono basis for a man they believed innocent, won a new trial for Cochran, who was acquitted 1997.

“For the university, its alumni and students, this has been a terribly sad time for us,” Frazier said during a Nov. 10 meeting with analysts at the company’s headquarters in Whitehouse Station, New Jersey. “The board took steps that I think were in best interests of the university in the long term.”

Paterno has retained defense lawyer J. Sedwick Sollers to represent him, Paterno’s son Scott said in a statement yesterday. Paterno would like to answer questions though he will not because of advice from Sollers, the statement said.

“Like everyone who has watched this story unfold, my father is experiencing a range of powerful emotions,” Scott Paterno said. “He is absolutely distraught over what happened to the children and their families.”

--With assistance from Michael Sillup in New York. Editors: Cecile Daurat, Stephen West

To contact the reporters on this story: John Hechinger in Boston at jhechinger@bloomberg.net; Heather Perlberg in New York at hperlberg@bloomberg.net

To contact the editor responsible for this story: Jonathan Kaufman at jkaufman17@bloomberg.net


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