Back before he was disgraced for losing investors billions in a massive alleged Ponzi scheme, financial adviser Bernard Madoff offered his services with a soft sell.
Mark Seal, a longtime veteran of Jewish organizations, recalls watching Madoff make his pitch twice to Jewish organizations — once in the early 1990s, and once 10 years later. Each time, Seal said, he was struck by Madoff’s combination of confidence and low-key charm, and by the sense of familiarity he conveyed.
“His pitch was one part technology and one part record and one part that he was a lovely guy and you felt that — it’s funny, in retrospect — you felt a certain amount of integrity,” Seal told the Forward. “That was his presentation, in essence — his reputation and his personality.”
Madoff’s sterling reputation, his affable personality and his apparent financial acumen allowed him to move easily through the clubby Jewish philanthropic circles of New York and Palm Beach, Fla. Madoff served on prominent boards, such as that of Yeshiva University; fellow board members, and even other money managers, sought after him to invest their money.
Now, Madoff’s collapse has gone off like an atomic blast in the midst of that world, leaving behind the wreckage of shattered lives and fortunes, and creating a gaping hole where there were once billions of dollars — and, more importantly, implicit trust.
It is this trust that makes possible the very existence of the relatively intimate world of Jewish philanthropy, where charity and business often mix. The loss of money and trust together has dealt Jewish philanthropy — a pillar of American philanthropy — a blow from which it will not recover anytime soon.
“He has savaged Jewish civil society for a decade,” said one philanthropic recipient, who spoke of receiving “30, 40 calls from longtime donor friends who told me about the money they lost.” The recipient spoke on condition of anonymity to protect his donors and his institution.
Others agreed: Jewish charities, donors, and ordinary individuals could be feeling the effects for years.
“Many Jewish philanthropies are dependent on high-end donors in very close social and economic networks, and this guy is right in middle of them,” said Jewish philanthropy expert Gary Tobin, president of the Institute for Jewish and Community Research. “It’s like finding out that your father is a felon — this is bad news for the family.”
Mark Rosenblum, director of the Jewish Studies Center at Queens College said: “This is a much more Draconian hit on American Jewish philanthropy than the generalized credit crunch has been. This one man has demonstrated a capacity to radically impact American Jewish philanthropy and, even more important, elements of American civil society.”
The collapse of Bernard L. Madoff Investment Securities LLC, an alleged Ponzi scheme that swallowed an estimated $50 billion, has sent shockwaves around the globe, engulfing major banks and investment firms. It also has engulfed dozens of bold-faced Jewish names, including Steven Spielberg, Elie Wiesel, Mortimer Zuckerman, and Mets owners Fred Wilpon and Saul Katz.
No less important, Madoff’s disgrace promises to affect, among others, the youngsters of rural Luzerne County in Pennsylvania, who were being sent to juvenile detention centers without first being able to consult a lawyer. The Philadelphia-based Juvenile Law Center used a $250,000 grant from the JEHT Foundation this year, in part to support legal action to stop this practice. But the money the foundation has lost with Madoff has forced JEHT to close, and the Center does not now know where it will receive future funding to continue this work.
Jewish organizations large and small have also seen their reserves sapped. Y.U., where Madoff was treasurer, announced that it had lost $110 million from its $1.3 billion endowment. The women’s Zionist organization Hadassah lost $90 million.
The damage extends outward from Madoff in successive rings. J. Ezra Merkin (see accompanying article) and Stanley Chais, both significant Jewish philanthropists, invested not only their own money with Madoff, but also that of their clients. Merkin’s investors included the endowments of Y.U. (where Merkin chaired the investment committee) and the Modern Orthodox day school SAR. Chais entrusted his family’s foundation, which donated $8.1 million in 2007, to Madoff. The foundation has since closed. The charitable foundation of media and real-estate mogul Zuckerman also lost substantial funds because of Madoff, via Merkin — funds that will, he has said, significantly impact his charitable giving.
The fraud has also wiped out or severely damaged the finances of wealthy Jews who, though less famous, are among the most reliable donors to Jewish causes. At the exclusive Palm Beach Country Club, where Madoff recruited many of his clients, philanthropic giving was a requirement for membership.
“This scandal has wiped out a generation of Jewish wealth,” said Brad Friedman, a lawyer representing a number of the victims of the alleged Madoff scam. “Let’s not kid ourselves, this is the most philanthropic community in America.”
Jewish philanthropic experts estimate that the total losses in Jewish giving — to both Jewish and non-Jewish causes — could run into billions of dollars.
“You’ll see organizations going out of business,” said Mark Charendoff, president of the Jewish Funders Network, which advises wealthy Jewish donors. “Staff will get fired, programs will get slashed. In some cases, you could see organizations merge. We just don’t know yet.”
The scandal could also shake up the way not-for-profits do business. Over the past few decades, they have come to rely increasingly on endowments donated or bequeathed by wealthy supporters. The not-for-profit organization would then invest the endowment to fund operations or programs. With hundreds of millions of endowment dollars gone up in smoke, observers say that donors may no longer be so willing to entrust their money to charities to invest, unless organizations assure them that the money will be safe.
“What I hope happens is people become more careful,” said Rabbi Daniel Allen, CEO of the American Friends of Magen David Adom. “For instance, how is it that Y.U. lost $100 million, and the person who invested the money was an officer of the board? I think that’s called conflict of interest.”
Y.U. has already announced that it will re-examine its conflict-of-interest policies.
In contrast, UJA-Federation of New York, the country’s largest local philanthropy, announced in a statement December 16 that it had no funds invested with Madoff and had lost nothing, despite Merkin being on its investment committee.
“UJA-Federation does not make any new investments without the manager meeting with, and responding to questions from, members of the Investment Committee to give them an understanding of the manager’s strategy and execution,” the statement said.
The statement continued: “In the case of managed accounts (such as we understand Madoff ran), UJA-Federation would insist that securities be held by our independent custodian (JPMorgan). That alone would have prevented investment in Madoff securities, as we understand Madoff’s structure depended on his firm also acting as the custodian.”
Despite this, the charity will doubtlessly feel the impact of reduced donations from those of its supporters who did not exercise such prudence.
This raises questions that go to the core of the Jewish communal ethos: Why did so many entrust him with their money? Why did so few recognize the fraud? At the root are the largely unexamined ways in which a number of Jewish groups have operated for many years.
Ironically, Madoff’s firm, with its consistent but unspectacular returns, was seen as a low-risk place to park one’s money.
Seal said that in the two instances where he saw Madoff give his presentation, board members who already knew Madoff had brought him in. Unlike other financial consultants who came in with flashy suits and elaborate presentations, Seal said, Madoff was modest and kept things simple.
“He had a couple of pieces of paper with annualized returns, and you got an explanation of covered options,” Seal said, referring to Madoff’s purported investment strategies. “It wasn’t slick, and that, in some ways, endeared him to people.”
Madoff also wasn’t pushy about selling his investment services, Seal recalled.
“It was almost like he didn’t need your money, because he was so successful and so well invested. So you got a sense of a real comfort,” Seal said. “Everyone else always seemed a little hungry and eager to get your business.”
In addition to wealthy clients, Madoff lured in more modest investors. Starting 32 years ago, on the advice of their accountant, Joan and Arnold Sinkin of Boynton Beach, Fla., began investing with Madoff. After they finished putting their kids through college, the Sinkins began to steadily add to their stake with Madoff, a few thousand dollars at a time, until he controlled most of their life savings.
“We were really what you call middle class,” said retired physical therapist Joan Sinkin, 75, in an interview with the Forward. “I felt lucky to be with them.”
Now, their savings are almost entirely gone, and they may be forced to sell their condo on Long Island. Yet even now, reflecting on her talks with Madoff, Joan Sinkin can’t quite believe what has happened.
“He explained the philosophy,” Sinkin said. “We really couldn’t lose.”
With reporting by Gabrielle Birkner