Charities Still Stung by Madoff Scandal Year Later

Nancy Falchuk will never forget the phone call. She was in Boston, it was raining and the news was bad. Hadassah, the century-old Jewish charity she had been elected to lead a year earlier, had just lost a big chunk of its endowment in a Ponzi scheme — maybe as much as $90 million.

Bernie Madoff mugshot
US Department of Justice
Bernie Madoff mugshot

The man responsible for this disaster, the world would soon know, was Bernard Madoff.

"I don't even say his name anymore," Falchuk said in a phone interview this week.

The leaders of scores of charities around the country, and the world, found themselves living a similar nightmare in the days after Madoff's Dec. 11, 2008, arrest on charges he orchestrated the multibillion-dollar fraud, which affected thousands of investors.

With the global financial crisis in full bloom, 2009 was already shaping up to be a grim year for charities, but few have had such rough going as the philanthropies that learned a year ago Friday that some or all of their finances had been wiped out in the Madoff scandal.

Some, like the $1 billion Picower Foundation, the $240 million Betty and Norman F. Levy Foundation and the $198 million Chais Family Foundation, lost everything and shuttered within days.

Others survived. They have spent the year cutting staff, curtailing grants and hoping, often in vain, that new donors would step in and help replenish what they lost.

"It has been a very difficult year," said Richard Gordon, president of the American Jewish Congress, which saw a $21 million trust left to it by philanthropists Lillian and Martin Steinberg vanish in the fraud. "Like anything else, you go through anger and outrage, and over the year, I think you work through some of the issues. But there is a tremendous sense of loss of what you could have done."

The damage caused to charities, especially Jewish nonprofits and those that aided Israel, is still being assessed.

Scores of foundations and charitable trusts appear to have lost enough money because of Madoff, who was active in the Jewish community and knew the heads of many of the organizations that invested with him, to hinder or cripple operations. Others lost nothing but suffered anyway.

Jewish Communities of MetroWest New Jersey, a charity that didn't have a dime invested with Madoff, still had to slash operations after more than a dozen of its major donors, who had been giving $600,000 a year, were wiped out in the fraud.

Its CEO, Max Kleinman, said it had to lay off 12 people, furlough staff and cut executive salaries.

Still, the work continued.

The Elie Wiesel Foundation for Humanity, founded by the writer and Holocaust survivor, said in a posting on its Web site that it still managed to have "a productive year," despite losing almost all of what it thought was a $15.2 million endowment.

"Thanks to generosity from around the country and world, with donations from $5 and up, we are pleased to let you know that we are able to honor all of our commitments and continue all of our projects," the message said.

American Society for Technion, which raises money for a technological institute in Israel, said that in 2009 it raised $77 million — slightly more than the book value of its vanished Madoff investments.

There were budget cuts and a small reduction in staff, spokesman Kevin Hattori said, but no programs were canceled.

But while several charity directors said they are optimistic about the future, a few are still wondering whether more bad news lies ahead.

Over the past 12 months, investigators unraveling Madoff's finances have learned that several charities that had invested with the swindler had withdrawn millions of dollars over the years that, unbeknownst to them, were false profits stolen from other investors.

Some of those groups face the possibility that they could be asked to give that money back.

The Carl & Ruth Shapiro Family Foundation, a powerhouse in giving to hospitals and schools for decades, suspended all new grant making this year and hasn't announced when its work might resume.

It wasn't entirely wiped out by Madoff. The foundation's tax returns said it had $112.3 million left in its coffers, even after the scandal erased $145 million.

But like other charities that had invested with Madoff for many years, the philanthropy could potentially lose more of its savings in the hurricane of legal action related to the fraud.

The court-appointed trustee unraveling Madoff's affairs has filed claims against several of his investors, including Shapiro, in an attempt to force them to return bogus profits.

To date, he has refrained from getting aggressive with charities that profited from their Madoff investments, but the potential for a so-called clawback is there.

Hadassah is among the groups that could be targeted. The charity, which funds health care initiatives, Zionist education and the Hadassah Medical Organization in Jerusalem, withdrew more money from its Madoff funds than it originally put in.

So far, the trustee hasn't demanded a repayment. Nor is the organization likely to volunteer one.

"It would be very, very hard for us," said Falchuk, citing the group's fragile finances. "I can't tell our donors that I'm going to take their money and give it back to Madoff victims."

In the meantime, she said, the group has sought to streamline and refocus itself. A reorganization, already in the works before the Madoff loss, was accelerated. Nearly 100 paid staffers lost their jobs.

Falchuk said she also has worked hard to rebuild the nonprofit's reputation.

Hadassah has added 8,000 new members in recent months. It still plans to finish major projects, like construction of a new medical tower in Jerusalem, and fundraising has picked up in recent months.

But the job cuts were "painful," Falchuk said.

"It's not over," she added. "People are still angry."