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Cy Twombly Foundation Sues a Director

WILMINGTON, Del. (CN) - The Cy Twombly Foundation claims in court that its former treasurer/director misappropriated $310,000 from the late artist's foundation.

The foundation sued Thomas Saliba in Chancery Court. It claims he misappropriated

$309,983.61 while playing fast and loose with the foundation.

Plaintiffs include two of the foundation's four board members, Nicola del Roscio and Julie Sylvester; Saliba also is on the board. The fourth member of the board, attorney Ralph Lerner, is mentioned in the complaint, but not as a defendant.

The complaint states: "In August 2012, as a result of their questioning, Del Roscio and Sylvester discovered that Saliba had been causing the Foundation to pay - without board knowledge or approval - hundreds of thousands of dollars in unauthorized 'investment management fees' to his so-called investment management firm, 'Saliba Managed Funds,' starting just six months after Twombly's death. In response to Del Roscio's and Sylvester's demand, the payments have

ceased; but they have not been refunded, and had they continued, Saliba would have continued to take hundreds of thousands of dollars each year from the Foundation for the indefinite future."

Works by Twombly (1928 - July 5, 2011) have fetched up to $17 million at auction.

The complaint continues: "Following their investigation, Del Roscio and Sylvester confronted Saliba with their findings. In response, Saliba (through his lawyer) ultimately admitted that Saliba Managed Funds is not a third-party investment management firm, but rather a fictitious d/b/a that he created for himself. Saliba also admitted that neither he nor his fictitious firm is registered as investment advisers with the State of New Hampshire (where his office is located) or the Securities and Exchange Commission ('SEC'). Such registration is required under the

Investment Advisers Act of 1940 for paid investment advisers controlling assets between $25 million and $100 million. Because the Foundation had over $60 million in cash and financial investment instruments throughout the time that Saliba paid himself fees, the payment of these fees would have been inappropriate and illegal even if they had been approved by the board.

"Despite clear evidence of misconduct, Saliba has refused to accept responsibility for his actions. Making matters worse, Saliba is now acting in concert with Lerner (who was complicit in allowing the unauthorized fees), and is compounding his misconduct by obstructing the protocols for discipline under the Foundation's written Conflict of Interest Policy. All of these actions are harming the Foundation - and the harm exceeds the illegal fees themselves. Saliba, as a board member, has violated his fiduciary duty to the Foundation, by, among other things, engaging in self-dealing in violation of the Internal Revenue Code and the securities laws and in blocking the Foundation's ability to take appropriate disciplinary action, which (a) is placing the Foundation in jeopardy of losing its tax-exempt status, (b) is subjecting all of the

board members to risk of monetary sanctions under Section 4958 of the Internal Revenue Code (which governs excess benefit transactions), and (c) might draw action by the Delaware Attorney General (which has jurisdiction over nonprofits). Saliba is also harming two of the Foundation's greatest assets: its reputation among the community of museums, galleries, education centers and non-profit arts foundations at large, which lies at the very core of the Foundation's ability to fulfill its mission, and the legacy of Twombly as an artist.

"To address Saliba's misconduct, the Foundation brings this action against Saliba for breach of his duty of loyalty as an officer and director, in which it seeks reimbursement of the unauthorized 'investment management fees,' plus interest, together with the Foundation's legal fees incurred in this lawsuit. Following the judgment against Saliba, the Foundation also intends to file a prompt application under 8 Del. C. § 225(c) to remove Saliba as a director."

The foundation claims that Saliba recommended that it sell art, without disclosing that doing so would bring him "even more undisclosed feels."

It claims it asked him for a summary of the foundation's finances at the Aug. 22, 2012 board meeting, to which Saliba replied evasively.

"As the board had never authorized any payments to Saliba for any 'financial services,' Sylvester pressed Saliba for a detailed breakdown of the amounts paid. Although Saliba promised to provide the information the next day, he did not do so," the complaint states.

It continues: "More than a month passed without Saliba providing the requested facts concerning his self-dealing. Therefore, on September 24, 2012, Sylvester asked the Foundation's accountant to provide a detailed accounting of the payments. The accountant reported that Saliba Managed Funds had received a total of $220,945, starting in January 2012 (six months after Twombly died). The payments (calculated at a rate of 50 basis points per annum on all of the Foundation's cash and financial investments) were made on a quarterly basis as follows: January 9, 2012 - $51,945; April 11, 2012 - $84,500; and July 9, 2012 - $84,500. A subsequent, January 2013 accounting revealed that the payments continued through October 2012, and actually exceeded $300,000. Incredibly, Saliba had been recommending to the board in August 2012 - again, without disclosing his fees - that the Foundation should 'preserve capital' by selling tens of millions of dollars of artwork and using the proceeds to make additional financial investments. Saliba did not disclose that such action was in his own personal interest, as it would have caused the Foundation to pay even more undisclosed fees."

The foundation seeks at least $309,983.61, plus interest, and damages for breach of fiduciary duty, plus costs.

It is represented by Catherine Gaul with Ashby & Geddes.

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