Even With Aid, Groups Scramble To Cope With Post-Madoff Mess

By Anthony Weiss

Published December 24, 2008, issue of January 02, 2009.
  • Print
  • Share Share

Representatives of major Jewish foundations have agreed to offer millions of dollars in loans to not-for-profits hurt by the massive alleged Ponzi scheme of investor Bernard Madoff. But even with the announcement of this emergency intervention, additional organizations report being damaged by the scandal, and new information has emerged about those whose losses had already been revealed.

As the impact of the scandal has sunk in, Jewish organizations have gone from a state of shock to short-term damage control, and longer term planning for a future in which resources may be slim and expenditure controls substantially tighter.

New revelations included the closing of the Picower Foundation, a nearly $1 billion Palm Beach, Fla.-based organization that gave money to a variety of human rights, medical and Jewish causes. Also reporting losses were the Jewish Community Center Association of North America, which lost $6.5 million, the Philip & Muriel Berman Foundation in Allentown, Pa., and the American Technion Society, which raises money for the Israel’s Technion Institute of Technology and which reported a total of $72 million in Madoff-related losses.

Totaling the damage is difficult, in part, because the reported losses include not only the principal that not-for-profits had invested with Madoff, but also the returns on investment that they supposedly earned with his firm and that Madoff reinvested. For example, the Technion Society invested $29 million with Madoff in 1995 and reinvested $43 million in apparent returns on its investments. It now appears that the $43 million was a fiction and that the $29 million is also gone.

One major question that has lingered is why organizations decided to invest with Madoff, given that his secretive approach and incredibly consistent results had raised flags for a number of investment advisers and other foundations.

Some details have emerged, although a number of organizations — including the Jewish Community Foundation of Los Angeles, the United Community Endowment Fund in Washington, D.C., and the Elie Wiesel Foundation for Humanity — either failed to respond to requests for specifics or said they were still investigating.

Kevin Hattori, a spokesman for the Technion Society, said that the society made its initial investment with Madoff on the advice of a now-deceased member of its investment committee who was personally invested with Madoff.

“[The investment committee] approved it, another committee

approved investing with Madoff, it went through multiple committees and got full approval,” Hattori said. “They saw nothing that was a red alert.”

Another organization that has taken a significant hit is the women’s Zionist organization Hadassah, which reported total losses of $90 million. In a letter, the organization’s national president, Nancy Falchuk, wrote that Hadassah originally became invested with Madoff through a foreign donor who stipulated that Madoff manage the money. Hadassah then invested $33 million of its own money with him.

A number of observers have suggested that the scandal will force organizations to rethink their investment strategies, which, over the past two decades, have become increasingly aggressive as organizations have sought higher returns — and shouldered larger risks — from their portfolios.

“This is the first economic turndown since nonprofits in investing their own funds have been more aggressive,” said Jeffrey Solomon, president of the Andrea and Charles Bronfman Philanthropies. “For many years, nonprofits were happy to invest in Triple A-rated bonds and government securities. They didn’t look at returns so much as protecting the downside. That’s changed radically over the past 20 years.”

In the meantime, organizations have been looking to salvage what they can of the current situation. Representatives of 35 of the largest Jewish foundations gathered in New York on December 23 to discuss potential responses in a meeting that opened, symbolically enough, with a report from the now-defunct Chais Family Foundation, whose hundreds of millions of dollars in assets vaporized in the Madoff meltdown. Those foundations that remained then agreed to offer millions of dollars in loans to not-for-profits hit by the scandal. The foundations also agreed to set up an information center on not-for-profits damaged by the Madoff scandal, in order to guide potential donors, and to offer legal, accounting and development assistance.

“Here’s a roomful of philanthropists saying, ‘Not me, I’m spending my whole life trying to show people here’s what Jewish philanthropy looks like, here’s what Jewish values are.’ And this guy, in the course of a week, turns all of that on its head,” said Mark Charendoff, president of the Jewish Funders Network, which advises wealthy donors and organized the meeting of foundations. “They didn’t want that to be the lasting impression that’s out there.”

Observers have predicted that the scandal could have dire effects on Jewish organizations and Jewish philanthropy, potentially amounting to billions of dollars. But they also stressed that the scandal’s damage was not as overwhelming as some have made it out to be.

“My guess is, of the 100 largest foundations and 100 biggest Jewish donors, very few will be involved. So, yeah, maybe some — one, two, five — but they’re going to be the exception, not the rule,” said Gary Tobin, president of the Institute for Jewish and Community Research. “It is not going to shake the foundations of Jewish philanthropy.”

Find us on Facebook!
  • Sigal Samuel's family amulet isn't just rumored to have magical powers. It's also a symbol of how Jewish and Indian rituals became intertwined over the centuries. http://jd.fo/a3BvD Only three days left to submit! Tell us the story of your family's Jewish heirloom.
  • British Jews are having their 'Open Hillel' moment. Do you think Israel advocacy on campus runs the risk of excluding some Jewish students?
  • "What I didn’t realize before my trip was that I would leave Uganda with a powerful mandate on my shoulders — almost as if I had personally left Egypt."
  • Is it better to have a young, fresh rabbi, or a rabbi who stays with the same congregation for a long time? What do you think?
  • Why does the leader of Israel's social protest movement now work in a beauty parlor instead of the Knesset?
  • What's it like to be Chagall's granddaughter?
  • Is pot kosher for Passover. The rabbis say no, especially for Ashkenazi Jews. And it doesn't matter if its the unofficial Pot Day of April 20.
  • A Ukrainian rabbi says he thinks the leaflets ordering Jews in restive Donetsk to 'register' were a hoax. But the disturbing story still won't die.
  • Some snacks to help you get through the second half of Passover.
  • You wouldn't think that a Soviet-Jewish immigrant would find much in common with Gabriel Garcia Marquez. But the famed novelist once helped one man find his first love. http://jd.fo/f3JiS
  • Can you relate?
  • The Forverts' "Bintel Brief" advice column ran for more than 65 years. Now it's getting a second life — as a cartoon.
  • Half of this Hillel's members believe Jesus was the Messiah.
  • Vinyl isn't just for hipsters and hippies. Israeli photographer Eilan Paz documents the most astonishing record collections from around the world:http://jd.fo/g3IyM
  • Could Spider-Man be Jewish? Andrew Garfield thinks so.
  • from-cache

Would you like to receive updates about new stories?

We will not share your e-mail address or other personal information.

Already subscribed? Manage your subscription.