The Madoff Scandal and the Future of American Jewry
The Madoff Scandal and the Future of American Jewry

JONATHAN S. TOBIN
February 2009

Before December 11, 2008, few Americans had ever heard of Bernard L. Madoff. Yet after his arrest for running what authorities allege was the largest Ponzi scheme in history, Madoff not only achieved the sort of notoriety that is reserved for arch-criminals; he also became, in an instant, one of the most famous Jews in the world.

Madoff had been managing billions of dollars for investors who thought they were beating the market with the steady gains he reported. The profits were illusory. There was only a decades-long scam in which the “returns” of early clients were paid by the contributions of those who came later.

In the days following the revelation of the alleged $50 billion scam, the willingness of the press to refer to Madoff’s Jewishness set off alarms in a community uniquely sensitive about the way in which its members have historically been singled out for opprobrium. The theme of Jewish financial skullduggery is, after all, a familiar one in the canon of anti-Semitic invective. Madoff’s religion and his nefarious business practices were quickly intertwined by many hate-inspired Internet posters, which in turn aroused concerns at the Anti-Defamation League and the American Jewish Committee that the Madoff moment might mark the beginning of a new and uniquely dangerous wave of anti-Semitism.

But the specifically Jewish crisis that has been set off by the arrest and revelations has little to do with the rantings of anti-Semites on the Internet, who will always find something to which they can attach and insinuate their pre-existing perspective. After all, many of Madoff’s victims were not Gentiles entrapped by a wily Hebrew, but were themselves Jews.

Nor were these victims the only Jews harmed by Madoff. It soon became clear that he had caused vast sums from Jewish charities whose endowments had been invested, directly or indirectly, with Madoff’s firm to vanish. The numbers are unimaginably large. Yeshiva University, of which Madoff had served as a trustee, initially said its losses amounted to $110 million. Hadassah, the women’s Zionist organization, reported that $90 million was lost in the wreckage of Madoff’s collapse. The American Technion Society, which aids Israel’s Institute of Technology in Haifa, put its losses at $72 million. Amid a long list of other groups that have admitted to losing money were the American Jewish Congress, the Jewish Community Foundation of Los Angeles, the United Community Endowment Fund in Washington, D.C., the Elie Wiesel Foundation for Humanity, the Robert I. Lappin Foundation, and the Chais Family Foundation.

Commentary in the weeks after news of Madoff’s alleged crimes spread often centered on the way he had earned the trust and the loyalty of his dupes because of his status as a member of the tribe. Samuel G. Freedman, the New York Times veteran among whose books is the provocative Jew vs. Jew, wrote powerfully about the manner in which the power elite of Modern Orthodoxy had accepted Madoff as one of its own, even though Madoff was himself not Orthodox. According to Freedman, the connections in this insular world were intense:

Their leaders and members overlap like a sequence of Venn diagrams. They are bound by religious praxis, social connection, philanthropic causes. Yet what may be the community’s greatest virtue—its thick mesh of personal relations, its abundance of social capital—appears to have been the very trait that Mr. Madoff exploited.
The method by which Madoff ran his scam for nearly twenty years lends a certain force to this line of argument. For, unlike the legendary swindler Charles Ponzi, an Italian immigrant who gave his name to the phenomenon of the pyramid scheme, or the mysterious Augustus Melmotte, the con man who appears out of nowhere as the richest man in London and proceeds to fleece everyone in sight in Anthony Trollope’s astonishingly prescient 1875 novel, The Way We Live Now, Madoff was no outsider. Rather, he was a pillar of the worlds of New York finance and Jewish philanthropy, who like most successful Jews of his generation—he is seventy years old—rose from modest origins.

Born in Queens and educated at Hofstra University on Long Island, Madoff was only twenty-two when he formed a firm that specialized in trading stocks on the margins of the traditional market. Utilizing new technologies, he eventually grew his company into a billion-dollar business. He served for a time as chairman of the NASDAQ market and was a member of various prominent Wall Street committees.

Madoff’s firm recorded transactions. In 1989, he began a second business investing the money of others. He found his customers through informal networks of Jewish businessmen in New York, and in Jewish country clubs on Long Island and in Palm Beach (and a third in Minneapolis). His ability to operate comfortably in these social settings where his low-key approach worked best allowed him to build his reputation as a wizard with money. Madoff set himself up as the operator of an exclusive club to which only the lucky few were invited to profit from his genius. His money-management techniques, he claimed, resulted in a miraculous record of continuous profits even when the market was down. Banking on his status as an insider in the clubby atmosphere of such places, he expanded his clientele until it included not only rich men also but the charities they endowed and on whose boards they served.

There is nothing uniquely Jewish about the sort of scams that police refer to as “affinity frauds.” Such schemes have worked on a smaller scale among African-American, Hispanic, and white Baptist church groups. Criminals of all backgrounds and faiths have exploited co-religionists who trust one of their own, and have done so from time immemorial. Fewer probative questions are asked of people who prey on members of their own group, and when such questions are asked, the answers are often insufficient, as was the case whenever Madoff was asked about his methods.

No, what was unique about Madoff was the scale of his scheme, not the method of its execution. And that says more about the times in which we live than it speaks in any way to a flaw in the Jewish collective character—save, perhaps, for the flawed notion that Jews are somehow too smart to get bilked in so spectacular and embarrassing a fashion.

Some of the nonprofit organizations to which Madoff laid waste have since sought to minimize the impact of their losses by pointing out that much of their reported losses are, in fact, nothing more than fictitious profits that Madoff had claimed for them. Thus, Yeshiva University now claims that it has lost only $14.5 million. Similarly, Hadassah said that its vanished investment with Madoff was only $40 million, and the Technion Society informed its contributors that $29 million had melted into air.

The problem with downgrading the losses in this fashion is that it fails to take into account the potential honest earnings that were lost—the fact that had the money been invested with anyone else, it would probably have returned some significant degree of profit over the years that would not have vanished in an instant along with the principal.

It may be that, from the shell-shocked moment at the beginning of the Madoff scandal in which organizations overstated the pain caused them by his scheme, they have since consciously decided to play down the extent of the harm done. Perhaps it occurred to some of them that emphasizing their victimhood had the unfortunate side effect of making them look more foolish, and, perhaps, unworthy of being the recipients of further charity. No such effort to save face could help the smaller charities, such as the Wiesel, Lappin, and Chais foundations, which have been completely devastated and forced to shut down their operations. *

The future implications are not simply that many wealthy contributors in the Jewish community who have suffered serious losses will be unable to give generously to charitable causes in the future. There is, and will continue to be, a ripple effect from the Madoff scandal. Many of the groups that have been seriously hurt or no longer exist were themselves the source of funds for a variety of Jewish and non-Jewish activities. Charities that had no money of their own invested with Madoff were financially dependent on those that had. Scores of nonprofit groups designed to benefit Jews in the United States, Israel, and the former Soviet Union will now suffer profound budget cuts or worse.

Others, like the Gift of Life Bone Marrow Foundation, received a large proportion of their donations from Madoff’s own family foundation. With that source of support effectively ended, Gift of Life will not be able to expand its registry of bone-marrow donors in the coming year. Coming on the heels of a major downturn in the economy that had already had a profound effect on the volume of charitable donations in 2008, the Madoff fiasco is, as Abraham Foxman of the Anti-Defamation League put it in an interview with the Jewish Week, “the Titanic on top of a tsunami.”


There is one particular aspect of the crisis, however, that has been little discussed, in part because it might seem to blame the victim. In the past two decades, there have been remarkable changes in the manner and practice of charitable giving in the United States—changes that unwittingly exposed the world of Jewish philanthropy to the possibility of an extinction event like the Madoff fraud.

The growth of personal foundations and niche charities has multiplied the number of potential outlets for Jewish giving. As local Jewish federations and other umbrella philanthropies have learned to their sorrow, donors have become less likely to hand over their money to a central authority and let that central authority spend as it likes. This is an understandable impulse; why shouldn’t people willing to give over a substantial part of their personal fortunes to charity have the final word over the disposition of their funds?

It turns out that there might have been good reason. The self-checking redundancies that are often found within large organizations tend not to exist at smaller family or personal foundations, where there is less infrastructure and fewer procedures to govern giving and investment decisions.

In addition, the willingness of all philanthropies to, as the Wall Street Journal put it, “move away from the practice of distributing all the money they raised each year to beneficiaries and begin to invest a portion of it,” had made them more vulnerable not only to the vagaries of the stock market but also to fraud. A case in point is that of one of the most prominent of Madoff’s contacts, Jacob Ezra Merkin, a leading Wall Street figure with great influence in the Modern Orthodox community.

Merkin’s own investment firm, Ascot Partners, channeled $1.8 billion to Madoff. Merkin also gave Madoff access to the board of Yeshiva University as well as to contacts at the UJA-Federation of New York and the Fifth Avenue Synagogue, of which Merkin served as president. It is worth noting that while some large groups proved not to be immune to the sort of apparent conflict of interest that led Merkin to divert some of Yeshiva University’s funds to Madoff through his own investment firm, the New York UJA-Federation investment committee that Merkin chaired was sufficiently scrupulous to prevent a similar diversion of its moneys.



Madoff’s infamy will cause much breast-beating on the part of institutions that should have known better than to trust him. But even those groups that escaped him will now be forced to create mechanisms for greater accountability for their endowments and stricter policies of governance simply because there is less money to go around these days.

Gary Tobin of the San Francisco-based Institute for Jewish and Community Research estimates the annual amount of Jewish philanthropic giving in this country to be $5 billion. Jewish portfolios have taken the same hits as everyone else’s, and so it is fair to presume that figure will be in substantial decline over the next year or two.

Despite that, the impetus to give generously on the part of those who care about Jewish life or charitable giving in general will not disappear. The obligation to give tzedakah—the word derives from the Hebrew root for “justice”—for Jews who are influenced by their religious tradition has not been annulled by Madoff or the panic on Wall Street. If anything, the crisis set off by these events has increased the pressure on Jewish givers who are weathering the storm to give even more generously to cover the shortfalls from the combined effects of Madoff and the recession.

Perhaps this will set off a war of scarcity between Jewish groups fighting over the money of those who are still giving, but the initial indications are that cooperation may prevail over chaos. Representatives of thirty-five of the largest Jewish foundations in the country met in New York on December 23, 2008, to coordinate their responses to the crisis and agreed to offer millions of dollars in loans to not-for-profits victimized by Madoff—a heartening display of a community banding together in a time of crisis.

But the real problem facing specifically Jewish charitable organizations is not a scarcity of dollars to be spread among rival Jewish causes, but rather competition from secular groups that have also been injured by the economic crisis. An assimilated Jewish donor who feels the charitable impulse but has fewer dollars to contribute might feel a greater sense of affinity and cause with an environmentalist group or an arts organization, and focus his reduced power on them instead. Just as the openness of American society has made it less likely for Jews to marry other Jews, so, too, it is less likely that Jews will give primarily to Jewish causes.

The long-term threat for Jewish philanthropy, then, isn’t Bernard Madoff but rather the overall threat facing the larger Jewish community in the United States—what came to be known, nearly two decades ago, as the “continuity crisis.” When the 1990 National Jewish Population Study reported alarming rates of intermarriage, numbers that offered the terrifying prospect of the eventual withering away of the Jewish population in the United States, a debate began in the organized Jewish world about how to address the approaching demographic disaster.

Should Jewish organizations attempt greater outreach to increasingly secular members of the community, even or especially to those who have intermarried, to help maintain bonds of kinship and prevent their becoming just another ingredient in the multi-ethnic American soup? Or should efforts focus on reinforcing the core Jewish population, to give it succor and strength, and to keep its people and children within the fold?

Those who argue that the Jewish future can only be secured by ensuring the continued existence and flourishing of practicing, believing, involved Jews —Jews who will take it as a mission and a duty to sustain the community over the generations—have promoted greater support for Jewish education through day schools, Jewish camping, and fostering a connection to Israel through the invaluable Taglit-Birthright trips to Israel for every young American Jew who applies. Most Jewish federations and the philanthropic world in general pay lip service to these matters, but in practice have failed to make them the priority.

The results of the past two decades suggest that the outreach model is a failure; individual Jewish federations and most communal organizations have seen declines in fundraising, and what data there are indicate that these efforts have done little to renew the commitment of Jews on the margins to the community or its future. Indeed, one of the reasons that generous Jews have been so determined to bypass the larger Jewish communal organizations may well be that those organizations have been so ineffectual in addressing the concerns of committed members of the community who have wanted to use their wealth to ensure a specifically Jewish future in the United States and in Israel. The consensus-driven culture of Jewish philanthropy has, predictably, failed to make a decisive choice with respect to the future of American Jewry.

The combined crises of 2008—the financial collapse and the Madoff scandal—will certainly exacerbate this dilemma and perhaps even sharpen the debate over the allocation of dollars. But the devastating losses created by Madoff pale when set beside the more pressing concern of demographic decline and the possibility that the decline in the number of people who are interested in Jewish causes will only accelerate over time unless something is done to arrest it.

The inability of the apparatus of Jewish philanthropy to find the will to focus its existing resources on the threat posed by rising levels of assimilation dwarfs the worries generated by financial scandals, even those as serious as that of Madoff.



The pain caused by Bernard Madoff will be lasting and felt by a great many people. There can be little doubt that the method by which he used his Jewish identity to worm his way into the confidence of many Jewish investors and charities will be among the most memorable aspects of his villainy. But those concerned about the future of American Jewry have far more pressing worries than the money Madoff stole and lost or the ammunition he might have given to anti-Semites. The real question is whether, at a time when resources are growing relatively scarce, the American Jewish community will finally take the full measure of the threat to its long-term survival and husband its straitened resources to address that threat openly, honestly, and effectively.
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