Madoff scandal: charities lose $1bn

By Daniella Peled and Anshel Pfeffer, December 18, 2008
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Bernie Madoff

Bernie Madoff

The Bernard Madoff investment scandal is expected to cost the Jewish charity world well over a billion dollars. But UK charities are likely to escape relatively unscathed from immediate losses.

Avraham Infeld, president of the Chais Family Foundation in Jerusalem, which has announced it is closing down after losing all its assets, said: “$600 million has disappeared overnight from the Jewish world.”

And according to Mark Charendoff, President of the Jewish Funders Network (JFN): “One billion dollars is a very conservative figure. We don’t know yet how bad it is. As every hour goes by, we are finding out how much more widespread this is.”

The Boston-based Robert I Lappin foundation has said that it will cease all operations, while the Carl and Ruth Shapiro foundation, which is also based in Boston, has lost at least 40 per cent of its assets.

The American Jewish Congress has lost two-thirds of its endowments. Several leading Jewish individual are also allegedly among those hit. Steven Spielberg, Eli Wiesel, Mort Zuckerman and Senator Frank Lautenberg were among those said to have had part of their investment portfolios managed by Madoff.

In the UK, only Limmud has been affected, following the loss of funding from the Chais foundation. The foundation, which donated more than $12 million a year, was a key funder of Limmud International, which is run from the UK. It had promised $100,000 as well as a further $500,000 to existing Limmud programmes in Israel and the FSU.

Andrew Gilbert, chair of Limmud International said: “This doesn’t damage Limmud in the UK but the Chais foundation was an important funder of Limmud International, which now has 40 groups worldwide.”

He described Limmud International as “British Jewry’s most important
export”.

Charitable organisations in Israel which have benefited from American funding may now look to the UK to help, according to UJIA chief executive Doug Krikler.

He said: “We don’t yet know what the knock-on effect will be, although we are in partnership with people from the US who support charities in Israel.”

Tony Bernstein, executive director of the UK’s Technion Society, which supports the Haifa-based institution, said it had no exposure to Madoff, although the Technion itself is believed to have lost NIS25 million ($6.5 million).

According to Avraham Infeld, who worked in UK Jewish education in the 1970s, the Chais foundation, set up by Stanley and Pamela Chais, had agreed $5.8million for new projects at a board meeting in New York last week.

“I informed the organisations which we support that we were distributing that money, in addition to the $12.5 million which we had already pledged,” he said.

“At 10pm that night I got a call to say that the entire endowment of the organisation had disappeared. I am really torn apart at the effect this is having on the wonderful work we do. Now I’m having to tell staff they’ve lost their jobs and tell the people who run the programmes, some of whom have spent the money they were expecting, that there’s nothing left. I am heartbroken.”

The US Jewish community has been hit hardest by the scam. A prominent member, Mr Madoff maintained close ties with many Jewish philanthropists and earned their trust, possibly causing them to turn a blind eye to his unusual business practices and to disregard warning signs.

“One of the biggest challenges for a person of wealth,” said Mark Charendoff, “is not knowing who you can trust. Everyone wants something from you, and the wealthier you are, the bigger a problem it is. People like that tend to develop a peer group that they can trust. They feel vulnerable and keep to a really small circle.

“The tragedy is that Madoff was not just a financial guru, he was part of their peer-group; not just a hired gun, he was one of them. That is why people entrusted their entire asset base to him. It’s one thing to be raped, but by a family member…”

Mr Charendoff said he still has no idea how many of the thousand-plus JFN members — private charitable foundations in the US — have been
affected.

It will, he said, take a year until the true extent of the wipeout is known, since many of the smaller foundations send out their annual donations to charities only in December and will not be announcing in public that their capital has been lost.

The revelation on Wednesday that J.Ezra Merkin, a prominent member of the New York Jewish community, was involved in the scandal, apparently channeling hundreds of millions to Madoff’s fund, was an even greater blow for many. One charity manager said: “Merkin is a third-generation leader here, and for the local Orthodox establishment, he was the untouchable financial guru. He advised so many prominent people here. Madoff was a friend of the billionaires from Palm Beach. Merkin was everyone’s friend.”

While the level of Merkin’s involvement is still unclear, it is already certain that he put huge amounts of money invested with him in Madoff’s fund without authorisation and for a fee.

He has already resigned as a trustee of Yeshiva University, of which he controlled at least $100 million of its endowment fund. He is expected to resign from the board of the New York Jewish federation.

    Last updated: 4:24pm, November 15 2010