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U.S. Court Upholds NYU Stern Decision to Deny MBA to Student Convicted of Fraud

A U.S. district judge upheld the decision by New York University’s Stern School of Business to deny an MBA to a student who hid from school officials that he had been convicted for insider trading, the Financial Times reports.

The decision comes as business schools are increasingly being called upon to focus more on ethics and moral responsibility. In the wake of the financial crisis, some critics have blamed business schools for perpetuating a business culture that fosters greed and self-entitlement among students, the FT wrote.

Former NYU Stern student Ayal Rosenthal plead guilty in 2007 to conspiracy to commit securities fraud after tipping off his brother to non-public information he became privy to while working at accountancy firm PwC in 2005. He was also pursuing a part-time MBA at Stern at the time. Rosenthal served a 60-day sentence in prison for the crime.

NYU Stern denied Rosenthal his MBA for violating Stern’s Honor Code and Code of Conduct while enrolled at the school. Rosenthal, who had completed the degree requirements for the MBA, brought suit against Stern, alleging that the school’s decision was “fundamentally unfair,” the FT reports. But a U.S. district court judge has since upheld the university’s decision.

“Rosenthal managed to complete his course requirements only by concealing his criminal investigation from Stern,” the judge ruled. “The authority and discretion to determine whether Rosenthal was qualified to receive an MBA degree from Stern properly rested with its faculty.”

According to John Fernandes, president and CEO of the Association to Advance Collegiate Schools of Business, the case represents the first time that a business school has had to decide whether or not to grant a degree to a student convicted of a felony related to his professional dealings. It comes as “business schools are increasingly sensitive to be seen as operating in a transparent environment,” Fernandes told the FT.

Though Rosenthal’s lawyer tried to argue that faculty shouldn’t be given full discretion to decide who does or doesn’t deserve the benefit of an MBA, ethics experts disagree. “It’s entirely within the rights of a … business school to set the criteria for graduation, and if it chooses to set the criteria to include moral qualities, it seems to me to be perfectly appropriate,” Kirk Hanson, executive director of the Markkula Center for Applied Ethics at Santa Clara University, told the FT. “To tolerate the presence of an MBA who, while they were enrolled, has been convicted of a crime of dishonesty… sends the wrong message,” he added.

Other ethics experts suggest that the case could renew interest in a universal MBA honor code in which graduates of business school pledge to act ethically in business, according to the FT report.

For the full Financial Times article, click here.

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