Madoff scandal inspires shul to probe Jewish financial laws

/Home/Madoff and the Jewish Community/Jewish Law and Madoff Scandal

Madoff scandal inspires shul to probe Jewish financial laws
By Leon Cohen
of The Chronicle staff

There is no moral ambiguity, Jewish or otherwise, about what financier Bernard Madoff has been accused of doing, according to Rabbi Shlomo Levin of Lake Park Synagogue.


Rabbi Shlomo Levin
The “Ponzi scheme” by which Madoff Securities, according to the Dec. 13 New York Daily News, was “paying off early investors with funds from subsequent clients to keep the illusion of profit alive” was clearly a form of stealing and lying.

His actions, said the Daily News, “may have resulted in $50 billion in losses — perhaps the biggest scam in Wall Street history.”

But Madoff, 70, is Jewish, was a large contributor to Jewish charities and well-connected in the Jewish community, and has sons who were among those who turned him in to the Securities and Exchange Commission.

These issues have inspired a lot of conversation in the Jewish community. For example, just weeks after the scandal began to unfold, graduate students at New York’s Yeshiva University began debating whether Madoff’s actions were sins, and whether it mattered that he was Jewish.

“There’s been a lot of discussion among rabbis about the status of monetary ethics in the Jewish community,” said Levin, whose congregants approached him about presenting a class on the ethical issues.

That three-session class ended this week, but The Chronicle had a conversation with Levin last week about the issues and findings of the class’s first two sessions.

Advice and charity

The first class focused on the question of “responsibility for bad advice,” said Levin. Many of the investors who lost money went to Madoff on the advice of friends and financial advisors. Under Jewish law, are these advisors liable in any way?

The Talmud in Tractate Baba Kama, plus other Jewish sources, discusses this topic, said Levin. The Talmud gives the example of an ancient “money changer or checker” who was supposed to determine whether coins were legitimate.

Suppose such a person advised someone to accept a coin as valid, and it turned out it wasn’t. “A number of factors” have to be considered to determine whether this advisor is liable.

Was the advisor an expert or not; paid for the advice or not; knew he or she was being relied upon or not?

“We came to the conclusion” that a paid advisor is responsible for bad advise; an unpaid advisor is responsible only if that advisor is not an expert and knew the advise would be relied upon. “If the person was not an expert, he should have said so,” Levin said.

However, if the advisor is an expert and was not paid for the advice, then the advisor is not liable for the bad advice, said Levin.

The second class discussed whether there is a duty for a charitable organization to return money that its leaders learned had come from an illegal source.

Madoff “had given a lot of donations” and that “made him seem more creditable in the Jewish community,” Levin said.

The Torah and Talmud are both “clear that you are forbidden to accept money if you suspect that it is stolen,” Levin said.

In fact, there is a Torah law, Deuteronomy 23:19, that states, “You shall not bring the fee of a prostitute” to pay vows to the Temple.

Medieval Spanish commentator Nachmanides said people seeking to ease their consciences sometimes used income earned in immoral ways to pay to the Temple. “We shouldn’t abet that,” said Levin.

However, what if the receiving charity had no reason to suspect that the money was illegally obtained? One might expect the charity would have to give the funds back.

However, Talmud Tractate Baba Kama talks about a principle called “takanat ha’shuk,” or the “remedy of the marketplace.”

The rabbis of the Talmud “realized that if someone bought something, and the thing turned out to have been stolen, if you require its return to the rightful owners with no compensation, that would have a chilling effect on commerce,” said Levin. “Everybody would have to worry, ‘What if this item is stolen?’”

Therefore, “as long as a person buys the stolen item in good conscience [without suspecting that it was stolen], the original owner has to pay for compensation for the object,” Levin said.

However, the “remedy of the marketplace” only applies where the person paid for the stolen item. “If the stolen goods were given to pay a debt, there is no ‘remedy of the marketplace’” i.e., the recipient has to return the item to its original owner, but doesn’t receive compensation because the recipient didn’t lose anything, or at least no more than already in debt.

And there also is no remedy when the item is given as a gift, since no loss is involved, said Levin.

The conclusion as applied to Madoff’s contributions, Levin said, was as follows: If a charity received money a short time before Madoff was arrested and still has it in its bank account, it has to return the money to compensate the investors.

But if the charity received the donation a long time ago, spent it, and then somebody tries to claim it from the people who have it now, then the “remedy of the marketplace” applies and the people who have it now do not have to return it.

The third class was scheduled to treat the question of “an obligation to sound the alarm.” Levin planned to address issues such as: How do we view those who didn’t sound the alarm but who knew what Madoff was doing? Regarding Madoff’s sons, does the obligation to honor their father trump the obligation to report his wrongdoing?

Levin said the class has 12 to 15 people and the participants “have a lot of ideas and opinions” about these matters.

He also added “one caveat.” “I don’t think this class would stop anybody determined” to steal money in this way, “but for people trying to do what’s right, this highlights how [handling money ethically] is also important.”