Foundations Close in Wake of Madoff Investment Scam

Foundations Close in Wake of Madoff Investment Scam

The alleged multibillion-dollar Ponzi scheme run by Wall Street financier Bernard Madoff has sent shock waves through the world of philanthropy, forcing at least three foundations to close their doors and threatening donations to several nonprofits, the Jewish Telegraphic Agency reports.

Madoff, the founder of Bernard L. Madoff Investment Securities, was arrested last week after admitting to his board that a hedge fund he ran was essentially a Ponzi scheme that had been paying returns on invested funds with funds paid by other investors. Over the weekend, the Robert I. Lappin and Chais Family foundations, both of which had invested most of their funds with Madoff, announced that they had lost millions of dollars in the scam and would be forced to close. On Monday, the New York City-based JEHT Foundation announced that it was stopping all grantmaking effective immediately and would close its doors at the end of January 2009. Madoff had managed funds for JEHT's donors, Jeanne Levy-Church and Kenneth Levy-Church.

Madoff and others invested in his fund were major supporters of a wide range of Jewish nonprofits. One of those investors, Sandy Gottesman, had an estimated $20 million of his foundation's $144 million invested with Madoff at the end of 2007, while U.S. Sen. Frank Lautenberg (D-N.J.) had about $15 million of his foundation's assets invested with the disgraced money manager.

While the full extent of the damage to the Jewish philanthropic world is not yet clear, many organizations already are reeling. The Gift of Life Foundation, a Jewish bone marrow registry that relied heavily on Madoff as a benefactor, has announced that it will immediately need to raise $1.8 million to make up for recent losses, while Yeshiva University, where Madoff served as treasurer of the board and chairman of the Sy Syms School of Business until he resigned last week, said it had lost tens of millions of dollars, if not more.

"What really emerges out of this [is that] people sometimes forget to conduct the due diligence when dealing with others with social prominence — and especially in the hedge fund area where people think you have to be really smart to be in hedge funds," said Jeffrey Solomon, president of the Andrea and Charles Bronfman Philanthropies. "In many ways, for all investments something like this is tragic, but for nonprofits where boards have the fiduciary responsibility of acting with great prudence, it is even more tragic."

Stephanie Strom. "Wall St. Fraud Leaves Charities Reeling." New York Times 12/16/2008. Jacob Berkman. "Madoff Scandal Rocks Jewish Philanthropic World." Jewish Telegraphic Agency 12/14/2008. "Statement of Robert Crane, President of the JEHT Foundation, on behalf of the Foundation's Board of Directors." JEHT Foundation Press Release 12/15/2008.