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AJCongress Crippled by Madoff Scandal

One of the Jewish community’s most storied national organizations revealed that it has been gutted by the financial collapse of investor Bernard Madoff, losing the vast majority of its endowment.

Officials at the 90-year-old American Jewish Congress disclosed that apparent fraud at Madoff’s investment firm had cost the organization roughly $21 million of the $24 million in endowments that supported the AJCongress and its programs. Those endowments funded roughly one-fourth of the organization’s budget which, in 2006, was $6.2 million. In the wake of the losses, the AJCongress already has commenced staff firings and the slashing of programs, but its leaders have vowed to press on.

“It’s a serious blow,” said Marc Stern, the AJCongress’s acting co-executive director. “It’s not fatal. And we’re regrouping and going to rebuild the organization. But I wouldn’t deny that it’s a serious blow.”

The losses are particularly damaging given that, by many accounts, the organization has struggled to sustain its funding and to establish a clear identity in the Jewish communal world. Some observers predicted that this latest catastrophe could be fatal.

“Congress has been hanging on for a long time, and sadly, with the loss of its endowment, I suspect it’s not going to be able to hang on anymore,” said Jonathan Sarna, a professor of American Jewish history at Brandeis University.

It appears that the source of Madoff’s connection to the AJCongress was Martin and Lillian Steinberg, who were long-standing supporters of the organization and old friends of, and investors with, Madoff.

“The Steinbergs and Madoffs go back a long time,” said Phil Baum, a former executive director of the AJCongress. “They were very close, intimate friends.”

As a result, Baum said, the AJCongress began to invest with Madoff decades ago, and Madoff became a trusted adviser to the organization on financial matters.

“He seemed prosperous, responsible, serious and sober,” Baum said. “There was no reason to suspect anything.”

Madoff remained connected to the organization over the years, and he attended a meeting of the AJCongress’s investment committee as recently as late November 2008, just weeks before the scandal broke.

The AJCongress’s financial involvement with Madoff increased substantially around 2004. The organization sold its New York headquarters for $18 million in 2003 and used part of the proceeds to create an endowment. Half the endowment money was invested with Madoff and, at the time of the collapse, was supposedly worth $4 million. The other half was invested in more conventional financial instruments and still exists, worth roughly $3 million.

After the Steinbergs died, they left behind a pair of trusts that were established in 2004, to support AJCongress’s activities. One trust, valued at $6.8 million, supported the organization’s domestic operations. The other, valued at $10 million, was dedicated to programs in Israel. Current and former AJCongress employees said that after the Steinbergs’ deaths, it seemed natural to leave the money with Madoff.

Now, with those monies gone, the organization has started making cuts. Rochelle Mancini, who until recently was the AJCongress’s chief information officer and editor of the house organ, Congress Monthly, told the Forward that not too long ago, she was laid off on one day’s notice. She also said it appeared that the next issue of Congress Monthly would likely be the last, barring future developments.

Though AJCongress officials acknowledged that staff and program cuts were ongoing, they declined to offer specifics.

It’s ironic that the Madoff scandal, with its tales of exclusive country club life and high-priced international hedge funds, has been so destructive to an organization that was founded to be the voice of the Jewish masses. The AJCongress was founded in 1918 and became a populist counterbalance to the American Jewish Committee, which was dominated by the wealthy and conservative German-Jewish establishment. Under the leadership of its legendary founder, Rabbi Stephen S. Wise, the AJCongress was one of the first national organizations to support Zionism and to protest the Nazi regime, and it established a reputation for being politically liberal. After World War II, it made its mark as an active litigant on church-state issues and civil rights.

But observers say that in recent decades, the organization struggled to raise funds and to define its mission, even as other national Jewish organizations, such as the AJCommittee and the Anti-Defamation League, have grown and prospered. The AJCongress and the AJCommittee attempted to negotiate a merger in the early 1990s, but the deal fell through.

In the late 1990s and early this decade, the AJCongress shed a number of local chapters, in such cities as Boston, Philadelphia and Los Angeles, over ideological differences and disputes regarding finances. Several of those chapters have since reconstituted themselves as independent not-for-profits dedicated to liberal social issues.

Most recently, the organization has focused on church-state issues, where its expertise is widely respected, and on a variety of issues related to Israel. It also became more involved in international affairs under the controversial leadership of its former president and current chairman, Jack Rosen. One of Rosen’s main initiatives was to assiduously cultivate close ties with Pakistani President Pervez Musharraf, but when Musharraf was forced to resign in August 2008, that investment of time and prestige also collapsed.

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