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