General Ramblings: Indefensible

February 1, 2009       Paul Clolery      

Lena Foster: What did you finally invest in, Mr. Miller, do you remember? Daniel Miller: [under his breath] Um, uh… cattle. Lena Foster: And what happened to the cattle? Daniel Miller: I don’t know. I never got a straight answer. All I know is that their teeth fell out. –“Defending Your Life,” 1991

The people who need straight answers regarding the foundations and endowments that lost billions of dollars in the Ponzi scam allegedly run by Bernie Madoff are the clients who desperately needed the services provided by the charities that now have their funding cut because of the scam.

Those answering the questions need to be the foundations’ and endowments’ board members. They are the ones who, with a nod and a wink, thought they were getting away with something by investing with a pal, who claimed to be beating Wall Street despite the Dow Jones tanking.

More “perp walks” are needed. Madoff shouldn’t be the only one in handcuffs. State attorneys general should be preparing cells for charity officials who shirked their fiduciary responsibilities and put all of the charity’s financial eggs in a rotten basket. Various attorneys general have announced investigations into charities. They need to start with the investment committee members at the charities.

Madoff is smart, you’d have to be to pull this off, right? Endowments were his pigeons because Madoff understood all too well that endowments don’t ever dip too deeply into the funds so there wouldn’t be a call for the money. Investment committees were fat and happy with paperwork that showed huge gains that had no basis in reality. Madoff is smart, smarter than the investment committees anyway.

Rule number one of the investment committee member’s handbook clearly reads that it is not fiscally responsible to put all of an endowment in one investment or with one investment manager. It’s time investment committee members stop treating endowments as if they are not something that need constant attention.

You’d think that a deal such as this wouldn’t pass the smell test administered by a seasoned financial professional. But when you look at the long list of people who were scammed, you realize it’s mostly folks who don’t believe their stuff stinks.

There are some bold-faced names that are now more red-faced because of this theft. Actors Kevin Bacon and his wife Krya Sedgewick have acknowledged they, too, were swindled. The couple can make a movie and earn millions. But, there are people roaming the streets hungry because of this and don’t have those options.

Although as of this writing Madoff remains in his posh penthouse with an electronic ankle bracelet, it’s a matter of time before he’s behind bars. There’s no way he can defend his life, nor can the board members of foundations and endowments who thought they were getting away with something. NPT