The Madoff Accounting
A year ago, Bernard Madoff’s name was known mainly on Wall Street, in the toniest neighborhoods of Manhattan and Palm Beach, and by the few ordinary folks who thought they were unusually lucky to have tapped into his investment genius. Now, they know better. Everyone knows better. Now, his cocky visage made for Halloween masks so popular that several purveyors sold out before the holiday. His Mets baseball jacket fetched $14,500. He may sit behind bars for the rest of his life, but he’s still a celebrity, a marketable product.
A year ago, after the shock subsided and the full extent of the damage wrought by Madoff’s $65 billion fraud began to take shape, there was a pervasive sense that this crisis was more than just a financial debacle, it was a deep breach of trust, an embarrassing window into how Jewish America had lost its way in its too-eager embrace of wealth and easy success. Madoff, we discovered, had many enablers.
So now the question is whether we have learned anything in the last year to reform our collective behavior and shore up the Jewish values and governmental oversight that should have stopped this scheme in its tracks. The answer isn’t heartening.
Some institutions walloped by this scandal have taken the lesson to heart, by critically reviewing their investment policies, and making necessary changes. At Yeshiva University, for example, which lost a whopping $110 million through indirect investments in Madoff funds, a new chief investment adviser is now in place, as is a conflict-of-interest policy that hopefully will prevent the sort of coziness and lack of oversight that allowed J. Ezra Merkin, a money manager who ran one of the major Madoff feeder funds, to also manage portions of the Y.U. endowment while serving as chair of the investment committee.
But many other foundations and charities harmed by the massive fraud are unwilling to say publicly what, if anything, they have done in response. This silence is disappointing. For trust to be rebuilt, transparency must reign so that donors can be assured that their money is well used and protected.
The shameful failure of the federal government’s regulatory apparatus to investigate and stop Madoff’s perfidy has by now been documented. In August, the Security and Exchange Commission’s independent inspector general released a scathing report detailing how, despite six substantive complaints lodged between 1992 and 2008, the SEC failed to investigate Madoff’s operations. Had the agency taken appropriate measures — not extraordinary ones, just doing its job — the fraud could have been uncovered long before Madoff confessed.
The SEC’s chair, Mary Schapiro, vowed that the report would not be filed away unnoticed, and sent it to every one of her 3,700 employees. “And, together with that report I sent along a sampling of the victims’ letters,” she said in a November speech, “not just for everyone to read about the victims’ anger and disappointment, but to remind ourselves about how important it is to do what we do every day — to appreciate the very suffering that our work can prevent.”
Even if every one of those employees followed her direction, though, the SEC’s failure is emblematic of a lax regulatory environment that also contributed to the far more widespread economic meltdown, and which still has not been fully addressed by Congress. But Schapiro is right about the victims’ anger and disappointment, aimed as much at government ineptitude as at Madoff himself.
This fury is understandable. Ordinary people, even more so than larger institutions, don’t have the resources to monitor who is watching their money and had every reason to trust the smiling, benevolent and thoroughly steady face that Madoff presented to them — especially in the absence of any red flags raised by government. Still, the Madoff story is a sober reminder that individuals and organizations bear the ultimate responsibility for their finances. Nonprofit boards, especially, must be more vigilant about how they manage what is essentially a public trust.
Finally, a year ago, some had hoped that the devastation brought by Madoff and the national recession would spawn a broader examination of Jewish nonprofits to assess whether their organizational structures fit the needs and resources of our time. While some groups have undergone worthy soul-searching and, in some cases, realigned their missions and strategies, the broader communal conversation hasn’t yet happened. And that begs the toughest question: If not now, when?
CLARIFICATION: Last week’s editorial, “Not Only for Ourselves,” left the wrong impression about an agency that delivers food supplies to hungry and needy people in its region. Although, as reported, many families were not home to receive the food contributions on a certain day, the agency ensures that the provisions are, in fact, delivered shortly afterward. The Forward apologizes.