Investing with Madoff leaves Jewish community devastated

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Investing with Madoff leaves Jewish community devastated

by j. wire reports


At least $600 million in Jewish charitable funds have been wiped out by the reported collapse of Bernard Madoff’s Wall Street investment firm, a partial review by the Jerusalem Post has revealed.

One of the agencies stung the hardest is Hadassah, the Women’s Zionist Organization of America, which revealed Dec. 17 that it lost $90 million it had invested with Madoff.

Still, much remains unknown about what might amount to the most spectacular financial disaster to hit Jewish life since the Great Depression, and the losses could be as much as $1 billion.

“I consider that, if anything, a conservative estimate,” said Jonathan Sarna of Brandeis University, one of the nation’s leading authorities on American Jewish history. “It is catastrophic — there’s no other word. The Jewish community will look different when this is all over.”

Moreover, the Post’s figures do not include billions of dollars allegedly lost to individual and family investors, many of whom were the primary donors to Jewish schools, synagogues and communal charities.

According to a recent study cited by Gary Tobin, president of the S.F.- based Institute for Jewish and Community Research, Jews in the United States contribute 25 percent of the largest gifts to higher education, even though they make up just 2 percent of the population. They also give more than $5 billion to Jewish causes.

“To see foundations losing big parts or all of their assets through fraud has never happened before,” Tobin told Bloomberg News. “This is a tremendous violation of the public trust.”

The Madoff scandal erupted last week when the 70-year-old financier was arrested on a single count of securities fraud at his Park Avenue home.

Prosecutors contend that Madoff, who is free on a $10 million bond but subject to electronic monitoring and a 7 p.m. curfew, told employees of Bernard L. Madoff Investment Securities that he had lost as much as $50 billion in investor funds and reportedly described his operation as “a giant Ponzi scheme.” Madoff’s wife, Ruth, agreed on Dec. 17 to give up homes in Montauk, N.Y., and Palm Beach, Fla., if her husband flees.

For the worldwide Jewish community, the fact that the man at the heart of what may be Wall Street’s worst-ever fraud was an active member of the community could be the worst news yet in an already bad recession period. Not only could Madoff’s alleged dishonesty increase anti-Semitic feelings in a time of worldwide economic downturn, said many Jewish leaders, but his close involvement with the Jewish community has exposed vast amounts of Jewish communal assets to his scheme.

It’s not hard to see what attracted investors — and their money managers — to Madoff, a former NASDAQ stock market chairman. His reputation was stellar, and he seemed to be offering steady annual returns of some 10 to 13 percent. But on top of that, the scandal points out a key aspect of how Jewish philanthropy works — through close social ties, and very much based on word of mouth, said Tobin.

Countless family foundations up and down the East Coast, the lifeblood of so many Jewish causes, have been devastated — among them the Carl and Ruth Shapiro Family Foundation in Boston, said to have lost $145 million, having invested about 45 percent of its assets with Madoff.

A foundation of Elie Wiesel, the Nobel Prize–winning author and peace activist, was apparently hit hard, as well. The Wall Street Journal reported that in 2006, the Wiesel Foundation saw a $310,520 gain on some $37 million of securities traded on its behalf by Madoff. It is unclear the if the organization lost the entire $37 million.

Hadassah, meanwhile, already was facing tough times because of the economic downturn; in a statement this week, the organization cited “approximately $90 million invested with [Madoff’s] firm” although “we are currently in the process of investigating the exact amounts.”

The statement continued: “Falling victim to this unprecedented fraud will require us to make necessary adjustments, but it has not in the slightest affected our commitment to our core Zionist mission.”

Construction on a $210 million tower at the Hadassah Medical Center in Ein Kerem, Israel, started last year, but it is unclear whether the losses will affect its progress, a Hadassah spokesperson said.

Overall, the losses to Jewish philanthropists —including the charity of director Steven Spielberg, a trust tied to real estate magnate and New York Daily News owner Mortimer Zuckerman and Spielberg’s DreamWorks partner Jeffrey Katzenberg — are in the hundreds of millions, if not billions.

New Jersey Sen. Frank Lautenberg’s foundation reportedly invested $12.8 million of its $13.8 million in assets with Madoff at the end of 2006, according to a tax return for the organization. The Lautenberg foundation’s largest donation in 2006 was $352,500 to the United Jewish Appeal of MetroWest New Jersey.

Many Jewish leaders reached earlier this week said they did not yet know the extent of the damage to their own organizations because they were still checking with their major donors and reviewing their investment portfolios to determine their exposure to Madoff’s scheme.

“I don’t think we’ll know the scope of this for a year,” said Mark Charendoff, president of the Jewish Funders Network, an umbrella body of family foundations.

Some organizations, however, already reported being hit hard. Reports surfaced that Yeshiva University in New York lost about $110 million from its endowment fund, though the university declined to respond to an explicit query about the rumor.

Madoff had served as treasurer of the board of trustees and board chairman of YU’s Sy Syms School of Business until he resigned last week.

The American Jewish Congress squelched rumors of its demise by announcing that it was severely hurt by the Madoff fallout but will not close. The future of the Jewish advocacy group, founded in 1918 to fight anti-Semitism and protect civil rights, had been the source of speculation since word leaked that it had invested a large portion of its endowment with Madoff.

One foundation in Massachussets had no choice but to close. The Robert I. Lappin Charitable Foundation said it had lost $8 million — all of its assets.

Also in Massachussets, the Maimonides School, an Orthodox Jewish day school in Boston, lost up to $5 million, the school’s chairman wrote in a letter to parents and board members.

Ramaz, a Jewish school on New York’s Upper East Side, reportedly had about $6 million with Madoff. Congregation Kehilath Jeshurun, an Orthodox synagogue also on the Upper East Side, reportedly has about $3.5 million at risk.

Other institutions which claim to have lost money include Yad Sarah in Israel, the Charles I. and Mary Kaplan Foundation in Rockville, Md., and the Texas-based Julian J. Levitt Foundation.

At least one nonprofit is calling out for help in the wake of the collapse. The Gift of Life Foundation, a Jewish bone marrow registry that relied heavily on Madoff as a benefactor, announced on its Web site that it would immediately need to raise $1.8 million to make up for recent losses.

Reflecting the sense that the full extent of the damage

is still unclear, the executive vice president and CEO of the UJA–Federation of New York said that even though its endowments were not exposed, the organization still could be hurt if donors lost money in the scheme.

“We do not yet know the full extent of the losses that supporters of UJA-Federation and other Jewish institutions have had,” John Ruskay said. “But we have already heard that many major institutions had substantial funds invested, as did foundations. Already in the context of a very challenging economic environment, this will present another significant difficulty.”

Reports swirled in the national media about prominent businessmen from across the country who lost money in Madoff’s alleged scheme.

New York Mets owner Fred Wilpon, GMAC Financial Services chairman J. Ezra Merkin and former Philadelphia Eagles owner Norman Braman all were reported to have taken significant hits due to their dealings with Madoff, who reportedly would not accept any investment in his fund below $10 million.

Among other Jewish institutions and foundations believed to be hit: the Technion– Israel Institute of Technology, which reportedly had $6 million invested with Madoff, and Carl Shapiro’s charitable foundation, which reportedly might have lost as much as $145 million.

“It’s a major massive shock to the philanthropic system. You have organizations that may not be viable entities without the resources that would have come either directly from endowments or from significant donors,” said Sandy Cardin, president of the Charles and Lynn Schusterman Family Foundation, which, he said, did not take a hit from the collapse.

Sarna, of Brandeis, predicted that the wholesale destruction of fortunes and endowments would prove to be a turning point in American Jewish institutional life, which over the past 20 years has moved from a model of community funding — collecting small donations from a broad swath of donors — to focusing on a handful of “cowboy” mega-donors who launched hugely successful programs such as Birthright Israel outside of the traditional federation system.

“The reduction of billions — not millions, but billions — in the Jewish economy means that there is just not going to be enough money to sustain all the institutions and initiatives that have been created,” Sarna said.

“We will be a poorer community for that. What’s been wiped out is an infrastructure that was particularly important in sustaining these institutions. The people who were invested with Madoff were the generation that not only supported institutions like Yeshiva University or the Holocaust museums, but that created them.”

The challenge facing American Jewry will be saving programs and institutions that provide “the most bang for the buck,” a task complicated by the absence of a unifying organization to take the lead.

Jack Wertheimer, a professor at the Jewish Theological Seminary in New York City, called it “a triple whammy for Jewish and other not-for-profits that are already staggering because their donor base has been so hard-hit by the sharp drop in the value of their assets, and their own endowments have declined too.”




Jacob Berkman of JTA, Haviv Rettig Gur and Allison Hoffman of Jpost.com and the Associated Press contributed to this report.