A charitable act goes wildly off course

This was no ordinary cruise ship, either. It was the m/s Paul Gauguin, a fixture in the South Pacific, small enough to sail the impossibly turquoise bays of the Tahitian Islands, luxurious enough to draw a well-heeled clientele from all over the world.

The ship, co-owned by Lewis and his younger brother, Hank, was on a course to be sold soon, and when it was, the Boston Foundation would realize a windfall of as much as $40 million, among the largest gifts the philanthropy has ever received. Alan Lewis and his wife, Harriet, wanted the money targeted for youth violence programs in the poorest neighborhoods of Boston. Hank Lewis even threw in another 3 percent share from his half stake of the ship.

The ironies of this deal flowed as freely as champagne on the pool deck of the Paul Gauguin: an elegant vessel being used to combat gunplay among the city’s younger residents, the beauty of Polynesia holding sway over the meanest streets of Dorchester, Roxbury, and Mattapan.

“We were on Cloud 9,’’ said Paul Grogan, the Boston Foundation’s chief executive. “This would have immediately been one of the largest funds at the foundation. We were elated about the size, and we were tickled about what it was.’’

But a deal that began with smiles and handshakes in late 2007 quickly devolved into back-stabbing and double-crossing amid the economic downturn of 2008. The value of the ship plummeted, the Lewis brothers became entangled in an increasingly public feud over a failed merger of their two travel companies, and the Boston Foundation struggled to protect its unusual asset in a sea of silence and uncertainty.

And protect it did. Last month, a binding arbitration panel made up of three experienced Boston lawyers ordered Hank Lewis to pay the Boston Foundation $29.2 million for its stake in the ship, plus another $1.6 million in interest, a sweeping victory for the philanthropy and for Alan Lewis.

The 23-page award, issued in secret but made public this week in a Suffolk Superior Court filing, creates a vivid narrative of a virtuous brother — Alan — offering the huge and unusual gift to the Boston Foundation, only to have Hank try to pry much of it back for himself. The arbiters blasted Hank Lewis for playing on the economic downturn and stoking fears of potentially crippling tax consequences to try to convince the Boston Foundation to sell him its shares of the ship at a cut rate.

Such animosity between the brothers once seemed impossible. Before the economic downturn, the Lewises had been so close that they bought a vacation house together in Rhode Island. Now they are so estranged that they are scheduled to square off in Suffolk Superior Court in early May in a suit over the failed merger of their businesses.

For two brothers, they couldn’t be more different. Alan Lewis, a quiet philanthropist around Boston, gave $10.8 million to Babson College in 2008. Hank, by contrast, has had run-ins with the law, and his company, Vantage Deluxe Travel, paid a $4.5 million settlement to the federal government in 2003 after he and his chief financial officer, Harry Melikian, were accused of postal fraud by using a charity rate to send mailings for their for-profit business. They were accused by the US Attorney of making false statements to cover up their misdeeds.

Hank Lewis’s lawyer, Stewart Grossman of Boston, offered little in the way of comment yesterday, except to say that he hopes the Lewis brothers reach a “global settlement’’ involving the Paul Gauguin and a separate lawsuit surrounding the failed 2008 merger of their companies. In an appeal filed this week in Suffolk Superior Court, Hank Lewis’s lawyers said their client was not bound by any fiduciary responsibilities to his partners under Massachusetts law because the Paul Gauguin’s holding company is registered in the Cayman Islands.

Both Alan Lewis and his lawyer, Thomas Butters, who successfully argued the case in front of the arbitration panel, declined comment for this story.

The arbitration award reveals in often vivid detail the sometimes insidious efforts of the younger brother to undermine what began as an odd but generous donation to one of Boston’s premier charities.

In late 2008, Hank Lewis, who was given management responsibility of the ship, warned the Boston Foundation that it could face an expensive capital call to keep the vessel afloat, according to the award, raising the specter that a respected philanthropy that caters to worthy causes in Boston would be spending money upgrading an ultra-luxury ship in Tahiti.

In early 2009, Hank Lewis offered the foundation $15 million for its stake in the Paul Gauguin, and when it turned him down, he upped it to $17 million, according to the award. Grogan, the chief executive, armed with a maritime appraisal that placed the value of the ship higher, rejected the overture.

“It was in December of 2008 that we got a letter from [Hank] that was doom and gloom,’’ Grogan said. “It was about how terrible the economy was, the boat needed to be refitted, they had lost their booking agent, and, ominously, there was a mention that they may need to put some more capital into the company.’’

What Hank Lewis never revealed to Grogan — or to his brother, Alan — was that a South Pacific hotel operator, the Pacific Beachcomber, had made an offer of $68 million to buy the Paul Gauguin, according to the arbitration award. That sale price would have made the Boston Foundation’s 43 percent stake worth $29.2 million — nearly twice Hank Lewis’s original offer.

“There can be little doubt that the scheme, as chronicled in numerous contemporaneous documents and credible testimony, was to ‘squeeze’ TBF and keep it in the dark about the negotiations and Beachcomber’s bona fide offer,’’ the arbitration award said.

In fact, Grogan and Alan Lewis did not learn of the Beachcomber until an industry newsletter reported that the Paul Gauguin had been bought. The story, though, was wrong on one crucial point: Rather than sell the ship, Hank Lewis decided to lease it to Beachcomber because of what the arbiters determined was another attempt to block the foundation from benefiting from a sale.

Under federal tax code, the Boston Foundation had to sell its stake in the ship within five years or face a 10 percent tax penalty on the property’s value in the sixth year, and a 200 percent penalty in the seventh year — a crippling liability. By leasing the ship in a long-term deal, the award said, Hank Lewis was essentially forcing the philanthropy to divest itself of the Paul Gauguin.

“The evidence clearly established that the sole reason for the shift from a sale to a charter was [Hank Lewis’s] inability to secure TBF’s shares,’’ the award said. “Beachcomber repeatedly expressed its preference for an outright purchase.’’

In the Superior Court filing asking that the arbitration award be vacated, Hank Lewis’s lawyers described as “fiction’’ the possible sale to Beachcomber, or even the ability of Beachcomber to get financing for the ship.

It was a particularly ugly fight over an uncommonly refined ship. The Paul Gauguin, which holds just 332 guests, routinely wins rave reviews for its predominantly Polynesian staff and larger-than-average staterooms, most of which have balconies that look out over the lush islands. The fact that it not only sails exclusively in the South Pacific, but also was built specifically for that route only adds to its legend.

The arbitration panel looked askance at management fees that Hank Lewis had been charging the partnership to oversee the ship and ordered him to refund $2.4 million to the holding company. Hank Lewis charged $120,000 a month in a ship management fee, and his Boston company, Vantage, charged another $80,000 a month in a “strategic management fee,’’ the award said. Before Hank Lewis took over management responsibilities in December 2008, his brother, Alan, managed at no charge, the award noted.

As Grogan expressed relief over the victory this week, left unsaid was how rare is it that the Boston Foundation, one of the bedrock institutions of the city, finds itself in the middle of such an unpleasant fray. Grogan said he was “slow to awaken to what was going on’’ in terms of Hank Lewis’s dealings, if only because the foundation’s donors are trying to give — not take back.

Grogan, though, told of how Alan Lewis invited him to lunch several months ago as the controversy continued to rage and apologized for all he put him through.

“As we were leaving, he handed me an envelope, and I opened it back at the office,’’ Grogan said. “It was a $100,000 gift to the foundation. They are great donors to have.’’

Brian McGrory is a Globe columnist. His e-mail is mcgrory@globe.com