Charities Closing Because of Stock Fraud

December 16, 2008       Mark Hrywna      

The North Shore-Long Island Jewish Health System (LIJ) had $5.7 million invested with Bernard L. Madoff Investment Securities LLC, at least according to its most recent statement from the firm.

What’s different in North Shore-LIJ’s case from other Jewish charities scrambling to find out if its assets were among those managed by Madoff, is that the investment came about from a donor who stipulated the original $5-million gift be invested with Madoff.

Madoff, who founded the firm in 1960, was arrested Dec. 11 after admitting that his $50-billion hedge fund essentially was a “Ponzi” scheme, paying off old investors with money from new investors.

In a statement, the Great Neck, N.Y.-based hospital said the $5.7 million represented less than 1 percent of its total investment portfolio and the donor has agreed to reimburse it for any financial loss. The hospital estimated that Madoff has contributed $216,000 to North Shore-LIJ during the past 36 years, but stressed that he was not a founder of LIJ Medical Center nor had any personal relationship with executives.

Days after Madoff’s arrest, assets of the firm were frozen, effectively shutting down several foundations that had all their assets invested with Madoff. Jewish family foundations and charities supported by them appear to be hardest hit by the Madoff revelations.

The Madoff Family Foundation, with assets valued at $19 million at the end of last year, gave thousands of dollars to charities based in New York City and beyond, including the Robin Hood Foundation, Girls Inc., and the Gift of Life Foundation.  The Salem, Mass.-based Robert I. Lappin Charitable Foundation had assets valued at $7.2 million at the end of 2006 — all invested with Madoff.  The foundation laid off its staff and ceased operations.

The Carl and Ruth Shapiro Family Foundation had almost half of its $323 million in total assets managed by Madoff. Of the nearly $13 million the foundation gave away to 146 organizations last year, the largest gifts were to Brandeis University ($2.85 million), Brigham & Women’s Hospital ($2.5 million) and the Museum of Fine Arts, Boston ($1.5 million).

The list of affected Jewish charities goes on, including the family foundation of U.S. Sen. Frank Lautenberg (D-N.J.), the Elie Wiesel Foundation for Humanity and Wunderkinder Foundation, which counts director Steven Spielberg as a supporter, among others that had investments handled by Madoff, though it was unclear how much has been lost. The Jewish Community Foundation of Los Angeles, the largest manager of charitable gift assets for Los Angeles Jewish philanthropists, invested $18 million with Madoff, or less than 5 percent of its assets, which was part of a common investment pool set aside for long-term endowment-type uses.

United Jewish Communities (UJC) had no assets invested in any Madoff fund, but is surveying its 157 federations nationwide to determine the extent of the system’s financial exposure. “We will work with federations, affiliated agencies and others to ensure that endowments continue to meet standards of full transparency, prudence and appropriate fiduciary care,” UJC said in a statement.

But UJC, like other Jewish charities, received healthy contributions from foundations that invested in Madoff. UJC received $3 million from the Chais Family Foundation, which last year doled out $8 million to Jewish causes in Israel and Eastern Europe. The foundation announced it would close because all of its assets – valued at $178 million as of May 2007 – were invested with Madoff. Chais also gave $1.4 million last year to the American Committee for Weitzmann Institute.

Madoff resigned as treasurer on the Yeshiva University Board of Trustees and the university is investigating how much of its endowment was invested with his firm. In the days following the arrest, Yeshiva University in New York City removed Madoff’s name from the list of Board of Trustees on its Web site before removing all names entirely. The school is “investigating all aspects of his relationship with the university.”

Madoff also serves on the 30-member Board of Directors at New York City Center, which did not have investments with Madoff, but did receive contributions from several foundations that were invested with his firm. It was unclear at presstime whether he remains on the board.

The 70-year-old Madoff, a former chairman of the NASDAQ exchange, faces a single count of securities fraud and was released on $10-million bail. Investigators say Madoff’s crime originated in a separate and secretive investment-advising business that served between 11 and 25 clients and had a total of about $17.1 billion in assets under management. According to the FBI, Madoff told at last three senior employees that the business was a fraud and had been insolvent for years, losing at least $50 billion.

The alleged fraud came to light in early December, according to authorities, when Madoff struggled to come up with $7 billion in client redemptions.