A single, anonymous letter was the focus of attention as dozens of board members met in New York from around the world at the annual meeting of the organization responsible for allocating billions of dollars in Holocaust restitution funds.
The 2001 letter, which warned of a fraud that went unheeded and that turned out almost a decade later to total $57 million, created sharp divisions among board members of the Conference on Jewish Material Claims Against Germany as they met on July 9 and 10.
The debate about how the letter was handled threatened to unseat the group’s long-standing chairman, Julius Berman. But Berman survived the vote to continue as chairman of the group for the 12th consecutive year.
Although Berman remains in his post, the letter may pose a threat to directors and senior officers — past and present. That’s because an investigation into the Claims Conference’s handling of the letter, carried out by its ombudsman, Shmuel Hollander, found serious managerial and administrative failings.
According to Hollander’s report, which was released to board members two days before the meeting, Claims Conference officers and Berman, who served at the time as pro bono counsel, failed to investigate the letter’s warnings adequately. They also failed to inform the Claims Conference board of the letter, both when it was received in 2001 and during the past few years, after the letter was given to Preet Bharara, the U.S. Attorney for the Southern District of New York, to be used as evidence in a trial against a trio of the fraudsters.
Laura Solomon, founder of a Pennsylvania law firm that specializes in representing not-for-profits, said Hollander’s report suggests that Claims Conference directors and officers broke the law.
“The failure to share the 2001 letter with the board, and to take all necessary steps to investigate, report to the proper regulatory authorities and stop fraud of this magnitude suggests a serious breach of those fiduciary duties,” Solomon said.
Solomon added that officers or board members who had a fiduciary responsibility in 2001, even if they have subsequently resigned from the Claims Conference, could be liable.
Such crimes would be investigated in New York by Attorney General Eric Schneiderman. Even before Hollander’s report was released, a spokeswoman for Schneiderman said his office had been alerted to issues at the Claims Conference and was reviewing the situation.
Hollander’s findings were relayed to the full Claims Conference board in a report compiled by a special four-person committee. In an introduction to the report, the committee called for “a comprehensive restructure of [the Claims Conference’s] culture structures, administration, management and governance.”
But the report was almost instantly undermined by the resignation of two of the committee members, Abraham Biderman and Roman Kent, in protest at what they said was a flawed document. “I believe that the report is inappropriately pejorative, contains material factual errors, and does not take into account the substantial management improvements made subsequent to 2001,” Biderman wrote in a July 7 letter that was distributed to board members, announcing his resignation from the committee.
Hollander’s investigation was commissioned following a story in the Forward that Claims Conference officials failed to heed the anonymous letter, which alleged fraud against key personnel in the group’s New York claims processing office.
When the fraud was eventually discovered, in late 2009, two Holocaust funds, endowed by the German government and administered by the Claims Conference, had been defrauded of $57 million. But the committee found that the fraud might have been discovered had the 2001 letter been “properly addressed and investigated thoroughly.”
The allegations in the letter were investigated twice in 2001, first by a Claims Conference employee in Germany, then by a paralegal at the New York law firm of Kaye Scholer, where Berman was a partner.
Karl Brozik, who was the director of Claims Conference operations in Germany and died in 2004, oversaw the first investigation. Saul Kagan, the Claims Conference’s previous executive vice president, and Greg Schneider, the assistant to the executive vice president, were copied on some correspondence.
Gideon Taylor served as executive vice president of the Claims Conference and resigned in 2009, months before the fraud was discovered. He was apprised of both investigations.
Crucially, Hollander’s report found a key weakness in the management structure of the Claims Conference: The alleged ringleader of the fraud, Semen Domnitser, had no superior. Although both investigations were cursory, they “should have served as an alert to Mr. Domnitser’s superiors, had anyone been functioning in this capacity,” Hollander found. Since Domnitser had no superior, the “fraud continued — and was perhaps even expanded — for eight years.”
Hollander reported that “the absence of professional control systems, as well as the absence of computerization… constituted a key factor in enabling, and certainly in facilitating, the fraud.”
“The organization was governed in a manner unacceptable in both public and corporate bodies,” the report said. “The apportionment of authority and the organizational structure in no way matched the needs of the organization, which was characterized by unreasonable levels of centralization.”
In a 21-page letter appended to the report, Schneider, who became executive vice president of the Claims Conference in 2009, said the ombudsman’s report was “deeply flawed.” Since the 2001 letter was publicized, current and former Claims Conference officials have blamed the failure to adequately investigate the 2001 letter on Brozik.
Although Brozik oversaw the initial investigation into the letter’s claims, the ombudsman found it “impossible to accept” that Brozik had any authority over Domnitser. But Schneider insisted in his letter that Brozik was responsible.
“The plain fact is that Brozik, while clearly not a manager in New York, was the second most senior staff member of the Claims Conference worldwide and certainly the most respected and knowledgeable about” one of the defrauded funds, Schneider wrote.
Schneider noted that the report “seems to go to great lengths to blame the New York staff, which I find perplexing and inexcusable.”
Schneider also criticized the ombudsman’s comments on the managerial culture of the Claims Conference. He said that such issues were outside the mandate of the ombudsman’s investigation — a fact that the ombudsman noted in his report — and that, given the ombudsman’s limited time and resources, he could not possibly have investigated this topic sufficiently. “I simply cannot accept this rush to judgment,” Schneider said.
The committee noted in its report that the 2001 letter was not disclosed to the Claims Conference board of directors either at the time it was received or subsequently. Rather than attributing this to a deliberate cover-up, the committee found that the failure to disclose the letter was “part of the litany of lack of diligence, competence and judgment that, as the ombudsman has shown, characterized this event throughout.”
“I vehemently object to this language and accusation,” Schneider said.
Later, he wrote, “There is not a day that goes by in the grueling four years since I discovered the fraud that I don’t replay events in my head, wondering what else I could have done.”
“I considered Domnitser a trusted colleague,” he added. “And so, when I say that I was ‘shocked at the discovery in 2009,’ I mean it. I was lied to, fooled, hoodwinked, duped. I missed it. I am sorry.”
Thirty-one people, including 11 former Claims Conference employees, have pleaded guilty or been found guilty of fraud.
The committee requested that after the final person is sentenced — probably later this year — the Claims Conference should conduct a more “comprehensive investigation” of “the general conduct over many years that enabled such a large-scale fraud to continue unimpeded.”
Claims Conference board members Natan Sharansky, chairman of the Jewish Agency for Israel, and Ronald Lauder, president of the World Jewish Congress, demanded on July 9 that, to maintain independence, any such future investigation must be composed mainly of representatives of the State of Israel and of Jewish groups that do not sit on the Claims Conference board.