March 29 (Bloomberg) -- Early this month, JPMorgan Chase & Co. stopped managing an investment account for a prominent client: the charitable foundation of Sigma Alpha Epsilon, one of the U.S.’s largest fraternities.
The bank was concerned about SAE’s bad publicity, according to Anthony Alberico, a JPMorgan vice president who dealt with the foundation. SAE has had 10 deaths linked to drinking, drugs and hazing since 2006, more than any other fraternity.
“If JPMorgan is going to turn us down, who’s next?” said Bradley Cohen, SAE’s national president. “What if universities start saying SAE’s not welcome?”
The snub by the largest U.S. bank validated a startling decision that Cohen, seeking to protect future members, had already reached. On March 7, the same day JPMorgan formally cut ties with the fraternity, the 51-year-old Cohen announced an end to one of SAE’s defining traditions: pledging, the months-long initiation where recruits sometimes fall prey to brutal hazing. The move catapulted Cohen into national prominence and drew criticism from alumni such as Texas oilman-turned-investor T. Boone Pickens. SAE became one of only a handful of 75 national fraternities to eliminate pledging.
“How much longer can we sustain these losses -- loss of life, loss of credibility to those who join and drop out because they were lied to, loss of valuable resources and loss of our reputation as leaders and as true gentlemen,” Cohen told SAE brothers this month at the University of La Verne in California during his first public address since the announcement.
Cohen, who took office only nine months ago, faced intense pressure to change the culture of SAE, according to him and other top fraternity officials. Besides JPMorgan, Lloyd’s of London was threatening to cancel SAE’s insurance coverage because of injuries, deaths and lawsuits.
Family considerations also motivated Cohen. He wanted to protect his older son, Devon, a high school freshman who is determined to join SAE in college. Devon wears bow ties in purple and gold -- SAE’s colors -- and knows its secret handshake.
“I don’t want him to be scarred mentally from hazing,” said Brad Cohen, relaxing with his family in their home near Los Angeles. “I don’t want him to want to join SAE so badly that he’ll do anything he’s told.”
Cohen’s pledging ban has stirred a backlash from some student and alumni members of SAE, which was founded at the University of Alabama in 1856 and has more than 240 chapters and 14,000 college members. Cohen, who must step down at the end of his term next year, took the chance that traditionalists could unseat his allies on the board at the fraternity’s next convention in 2015, he said.
Renowned as a Wall Street pipeline, SAE boasts prominent alumni such as hedge fund managers David Einhorn of Greenlight Capital and Paul Tudor Jones of Tudor Investment Corp. Pickens, whom Cohen consulted before announcing the pledging ban, said through a spokesman that he has reservations about it.
“Mr. Pickens believes pledgeship is a key part of fraternity life and helps those who go through it gain an appreciation for the rich history tied to each fraternity,” spokesman Jay Rosser said in an e-mail. Pickens supports a “greater focus” on alcohol and drug awareness, Rosser said.
“Either way, he appreciates the tough choice Brad Cohen has made,” Rosser said. “Time will tell if it was a good one.”
SAE chapters will still extend recruits a “bid,” or invitation to join. But students who accept will become full members almost immediately. They will be required to complete additional training, including alcohol education.
Angry student members are deriding those inducted immediately into the order as “insta-bros.” They also question whether the SAE board has authority under its bylaws, as Cohen maintains, to impose the ban on local chapters. Their posts warning that brotherly bonds will fade or pledging will go underground pack a Facebook page called “SAE Cause for Change.”
“Doing away with the pledge program is like giving all the kids on a youth soccer team trophies at the end of the season for doing ‘a good job,’” one critic wrote. “People need to face adversity in order to feel accomplished.”
E-mails and phone messages praising Cohen’s move poured in from administrators, fraternity members and families affected by hazing.
“We feel like he’s a strong, brave leader for taking this organization forward,” said Scott Starkey, who called Cohen to applaud the decision. Starkey’s son, Carson, died of alcohol poisoning in 2008 as a freshman during an SAE hazing at California Polytechnic State University in San Luis Obispo.
The son of an Olympic athlete, the 6-foot-1-inch Cohen has a square jaw and a commanding presence. Owner and chief executive officer of a real estate company based in Newport Beach, California, he has spent almost 30 years in volunteer leadership roles at SAE. His brother and nephew belong to the order, and his father was an honorary member. Cohen counts his induction into SAE among the most meaningful ceremonies of his life, along with his wedding and the naming of his three children. SAE awards cover the walls in his study.
He tries to live by SAE’s “perfect” creed, the “True Gentleman,” which all members must memorize, he said. It is a kind of golden rule of fraternity life, which begins: “The true gentleman is the man whose conduct proceeds from good will and an acute sense of propriety, and whose self-control is equal to all emergencies.”
In many ways, Cohen has an unusual background for an SAE leader. He’s the first Jewish president of SAE, which used to limit membership to “members of the Caucasian race” without a parent who was a “full-blooded Jew,” according to a 1903 book of rituals.
Holding the black volume aloft, Cohen read that passage to his audience at the University of La Verne. When SAE renounced racism and anti-Semitism in 1952, he reminded the crowd, it faced the same complaints that change would ruin the fraternity that traditionalists now make about the pledging ban.
A Type 1 diabetic diagnosed at age 11, Cohen abhors forced drinking, which is often part of fraternity hazing. He worries that alcohol consumption, which can wreak havoc on a diabetic’s blood-sugar levels, endangers students with all kinds of health issues. Cohen, who wears an insulin pump, serves on the executive board of the University of California at Irvine diabetes research center. His son, Devon, also has the disease and held a diabetes fundraiser for his bar mitzvah in 2012.
Cohen is also SAE’s first foreign-born leader, he said. He speaks in the lilting accent of his native South Africa. His late father, Desmond Vernon Cohen, was an obstetrician-gynecologist, as well as a swimmer and water polo player on two South African Olympic teams.
Fearing racial strife over the government’s apartheid policy, the family left South Africa in the late 1970s when Cohen was 16. When he announced the pledging ban, Cohen compared the treatment of new members as “second-class citizens” to the abuse of blacks under apartheid.
Feeling lost and alone as a foreign student at the University of Arizona, Cohen helped alumni reopen the SAE chapter there. It had been shut down years before for hazing, including branding pledges on their buttocks with “Phi Alpha,” the SAE salutation and motto, Cohen said.
While Cohen’s pledging didn’t include physical hazing, he was subjected to practical jokes, such as taking a fake national exam, he said. Once initiated, he made lifelong friends. In his study, he flips through old photos of himself with his fraternity buddies, including one at a party where he is dressed as a Zulu warrior, in a scanty leopard-print outfit.
After graduating from Arizona with a bachelor’s in psychology and business administration in 1985, Cohen worked for two years at SAE’s headquarters in Evanston, Illinois. As director of expansion, he helped establish more than 20 new chapters, including one at Yale University in New Haven, Connecticut.
Cohen moved to Southern California in 1988. After a stint at Xerox Corp., he started working in the title insurance business. In 2009, he opened his own company, Granite Escrow Services Inc., which has annual revenue of more than $10 million, almost 100 employees and seven offices.
By then, Cohen had joined the Supreme Council, SAE’s governing board. He was also increasingly dismayed by hazing-related tragedies, including Starkey’s death after downing beer, rum and 151-proof liquor in an initiation ritual.
His wife, Kim, a former singer and actress who is also from South Africa, shared his concerns. Devon and their younger son, Zachary, wouldn’t have been allowed to join certain SAE chapters before pledging was eliminated, she said. “As a mother, I would have been scared to put them in an environment like that.”
As Cohen rose through SAE’s ranks, he pushed for a more comprehensive safety program, called “Minerva’s Shield,” which includes rules about alcohol and sexual consent, as well as a prohibition on hazing. It was adopted in 2004.
Still, universities have disciplined more than 100 SAE chapters since 2007, some repeatedly, according to a list published on the organization’s website as a result of a legal settlement. Colleges suspended or closed at least 15 SAE chapters in the past three years. In 2011, a sophomore pre-medical student at Cornell University died from alcohol poisoning after being blindfolded by SAE pledges in an initiation ritual.
Last June, when Cohen became president -- or officially, Eminent Supreme Archon -- he signaled his commitment to significant change by backing a proposal to ban alcohol in chapter houses. At the convention in Chicago, it failed to get the two-thirds vote needed to pass.
Cohen settled for a symbolic step. The council told chapters to stop using the word pledge and refer to recruits simply as “new members.” The goal was that they would be treated more humanely.
Cohen should have continued to focus his fight on alcohol abuse, said Nicholas Syrett, an associate professor at the University of Northern Colorado and author of a book about the history of fraternities. Ending pledging “doesn’t seem like it will change anything about the binge drinking at parties that doesn’t have anything to do with pledging,” Syrett said.
As deaths and injuries mounted, Lloyd’s of London became increasingly concerned about the risk of insuring SAE. It threatened to drop coverage because the fraternity poses too great a risk, according to Gregory Brandt, a state judge in Iowa, and Steven Churchill, executive director of the American Medical Association, both SAE council members. Loss of coverage could shut down SAE, they said.
The Lloyd’s warning was a turning point that “changed the way” SAE officials viewed the fraternity’s “future viability,” Churchill said.
Members already pay a base fee of $340 a year for liability coverage, among the highest rates of any fraternity. The SAE national’s deductible is $1.5 million a year, Cohen said.
SAE’s insurance broker, James R. Favor & Co., declined to comment, as did Lisa Hunter, a Lloyd’s spokeswoman.
Media pressure on SAE also mounted. A December Bloomberg News article, which called SAE the “deadliest fraternity,” revealed previously unreported hazing at Salisbury University in Maryland.
During an eight-week initiation in 2012, SAE brothers at Salisbury forced pledges to drink until they almost passed out and demanded they recite the True Gentleman pledge wearing only their underwear while standing in trash cans filled with ice, Bloomberg reported.
Fraternity members confined recruits for as long as nine hours in a dark basement without food, water or a bathroom, while blasting the same German rock song at ear-splitting volume, according to two former pledges and the findings of the university’s disciplinary board.
In the wake of the Bloomberg article, Cohen asked Dwight “Duke” Marshall, the volunteer alumni adviser for SAE’s Salisbury chapter, about what happened in the basement. Marshall said brothers had played the music only to prevent pledges from hearing secret SAE rituals taking place upstairs, according to Cohen.
Cohen fired off an e-mail to Marshall and other alumni that likened confining students in the dark, amid deafening German music, to something out of Auschwitz, the Nazi death camp.
“I take offense to that as a Jew,” he remembered saying in the e-mail. “I take offense as a member of SAE.”
Marshall and others downplayed the seriousness of hazing at Salisbury to the national fraternity, Cohen said. On Feb. 2, SAE suspended the chapter’s charter and said brothers will lose membership privileges. The university has suspended the chapter through the summer of 2015.
In an interview this week, Marshall said he didn’t mislead Cohen and found his e-mail offensive. Still, he said he respects Cohen’s opinion. “He’s our leader,” he said.
Cohen and the rest of the Supreme Council began considering a pledging ban. At a Jan. 19 meeting in Tucson, Arizona, they debated the idea and alternatives such as shortening the initiation period.
The final decision to stop pledging came on a Feb. 3 conference call. Cohen said the council kept its plan under wraps for fear that hazers would accelerate abuse of pledges before the program was eliminated.
“How many more new members have to die before everyone is willing to change the way we operate?” SAE Executive Director Blaine Ayers said in an e-mail.
A rebuff from an unexpected quarter reaffirmed the council’s resolve. SAE’s charitable foundation had an investment account with New York-based JPMorgan containing about $500,000, which was primarily used to make payments on a loan and occasionally to sell stock gifts. The account dated back to the mid-2000’s, Cohen said.
Then, in February, JPMorgan said that it was reconsidering the relationship to avoid tarnishing its reputation, according to Todd Buchanan, vice president of the foundation and one of Cohen’s predecessors as SAE’s leader.
“It was shocking,” Buchanan said. “It really spoke to why we needed to make a stand. We’re better than this.”
The bank, which has said it would pay more than $23 billion to resolve regulatory and criminal investigations, has cut ties since last year with about 2,000 clients that could attract scrutiny, according to a person with knowledge of the matter. Emily Sackett, a JPMorgan spokeswoman, declined to comment.
Cohen and Buchanan said they learned March 6 that JPMorgan had decided to quit doing business with SAE’s foundation. On March 7, the bank sent a letter terminating the relationship. That day, Cohen announced the pledging ban.
“As an organization, we have been plagued with too much bad behavior, which has resulted in loss of lives, negative press and large lawsuits,” he said in a video address.
A week later, during a student leadership conference at the University of La Verne, Cohen milled around with undergraduates from chapters across Southern California. Some admired his purple and gold tie, adorned with tiny phoenixes.
“We’re like the Phoenix,” Cohen told them. “We’re rising from the ashes.”
Filing into the arena under a huge American flag, SAE brothers wore khakis, blazers and crisp white shirts, and ties in the fraternity’s colors. Sorority women in high heels acted as hostesses.
The brothers shouted the SAE motto, “Phi Alpha,” before joining in a medley of fraternity songs, filling the arena with rich baritones: “And to Phi Alpha with its guiding light, And to the lion who will fight, fight, fight.”
For half an hour, Cohen made his case that the Supreme Council had no choice but to ban pledging:
“No parent should ever have to suffer the loss of a child because that child was simply trying to join a fraternity -- our beloved fraternity, where we claim to be true gentlemen.”
After the speech, Alexi Sciutto, who just graduated from California State University at Northridge, buttonholed Cohen to offer support. His SAE brothers helped him cope with his mother’s death from breast cancer, he said.
“I’ll do whatever needs to be done to keep SAE alive,” he told Cohen. “And I’ll do it until I die.”
Christian Couch, 21, a junior from California State University at Long Beach who attended Cohen’s speech, said he disagreed with the new policy.
“It doesn’t feel right. You just sign up and you’re automatically in,” he said. “It’s the easy way out.”
After the speech, Cohen joined other fraternity staff and volunteers in workshops about the revamped program for new members, called “The True Gentleman Experience.”
Leaning against a wall in a classroom with 25 SAE members, Cohen said that brothers must still learn rituals, including the SAE creed. “They don’t need to learn the True Gentleman standing in a tub of ice, half naked,” he said.
Back in Cohen’s family room, his 14-year-old son, Devon, said he’s pleased that SAE eliminated pledging. His parents support his ambition to join the fraternity.
“The brothers I’ve met are so cool, so nice, so welcoming,” Devon said. “They really are true gentlemen.”
To contact the editors responsible for this story: Daniel Golden at email@example.com Chris Staiti