Madoff and America’s (Poorer) Foundations

By Nicholas Kristof

Most of the discussion of the Bernard Madoff scandal has focused on the impoverished zillionaires who are now mere millionaires. Yet much of the money invested by Mr. Madoff was money destined for charities, and so the losers will include some good causes and truly disadvantaged people.

A few private foundations have owned up to the money they’ve lost with Mr. Madoff, but most haven’t. So let me help them out.

I’ve obtained a list of nearly all the private foundations that invested money directly with Mr. Madoff, at least at the time of their most recent tax filings. Even in the unlikely event that they cashed out since then, they may still have to repay the money to others.

What is staggering is how many of these 147 foundations had all their assets invested with Mr. Madoff and may have been wiped out as a result. For example, the Avery and Janet Fisher Foundation, which supported everything from various museums to meals-on-wheels programs, appears to have been fully invested with Mr. Madoff. And the same is true of dozens more.

The Picower Foundation of Palm Beach, Florida, with nearly $1 billion in assets and a major contributor to non-profits across the nation, has already announced that it will close down because of its Madoff investments. Its beneficiaries have included a neurological research institute at MIT, the New York Public Library and the Children’s Health Fund.

Many non-profit organizations invested with Mr. Madoff and will suffer a double-whammy, losing not only their own savings but also the support of foundations that previously donated regularly but are now broke. And they will also lose some of their individual donors who were invested with Mr. Madoff as well.

This is the first time this information has been compiled and made public. Daniel E. Smith, a data-obsessed former housemate of mine at university (then the research assistant for a young economist named Larry Summers), compiled the list for me. Dan is now president of Benefit Technology, Inc., a Miami-based computer software company.

Dan notes that there are limitations in the data source — tax filings by foundations –- and in some cases the figures are imputed “best guess” estimates. But these figures generally give a rough sense of the direct exposure that the foundations may have had at the time they filed their returns (most returns are for 2007, some for 2006).

If anything, Dan says, the figures may understate the exposure, because they don’t include sums channeled indirectly to Mr. Madoff through “feeder funds.”

Mr. Madoff attracted a large share of investments from foundations and non-profits. If you’re running a Ponzi scheme, you might want to manage foundation money — the principal is likely to stay invested for the long term.

I’m posting the list because this is a matter of public concern: These foundations serve the public interest, and if the non-profits that rely on them have been financially crippled we should get a heads up.

The philanthropic world also should wonder if there aren’t more Madoffs out there. These foundations didn’t do anything wrong; they thought they were safely invested in a variety of financial instruments that they describe on the tax forms. Unfortunately, we now know that those securities apparently didn’t actually exist, and other foundations should take heed.

Then there’s the question of the accountants who prepared these tax returns. A surprising number of the foundations invested in Mr. Madoff shared the same accounting firms, generally small ones at that. One wonders if they could have looked more skeptically at the kinds of trades that supposedly were being placed on the foundations’ behalf by Mr. Madoff.

The figures were compiled with the help of a new search technology. Searching under “Madoff” thus also turned up two more foundations, included in the list, those of Mr. Madoff’s sons, Mark and Andrew. Interestingly, they were not invested with their father, and they used “big four” accounting firms. Congratulations to Mark and Andrew for avoiding the big investment in the backyard.

Who knows what else is out there? If I were a board member of a non-profit, I’d be making some calls.

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optimist January 29, 2009 · 4:43 pm

Thank you, yet again, for re-directing the issue to focus upon those whose very existence is at stake. This time due to the thuggish chicanery of Wall Street’s gangster-capitalists!

Please keep up the stories of slave-trafficking, the massacre of innocents in Gaza to make way for Israeli settler’s “lebensraum,” and, the human consequences of the violence and greed of the powerful.

Much appreciated.

schwerpunkt January 29, 2009 · 4:51 pm

What these foundations did was put ethnic considerations above financial interest. What organization or individual invests everything in one place otherwise? Perhaps this can serve all of us well to remember that our friends are not always part of our family.

William O’Connor January 29, 2009 · 5:04 pm

Foundations, as well as pension funds, should be limited and circumscribed as to the types of investments they deal in and as to the various kinds of securities that they hold, in order to secure and to maintain their exempt status.

Bill Keep January 29, 2009 · 5:06 pm

Very helpful analysis. Having served as an expert for the government in the prosecution of numerous pyramid schemes, a not-to-distant cousin to the ponzi scheme, I have first-hand knowledge of the damage that can be done. Such schemes have hurt communities, turned friend against friend and even helped break up marriages. Through the lens of the non-profit we can see multiple levels of damage, some of which will effectively reduce the resources used to solve serious long-term problems (e.g,., medical research). Again, thanks for bringing this forward (and thank Dan too).

JJG January 29, 2009 · 5:15 pm

I’m not trying to blame the victims, but when you say that “these foundations did nothing wrong,” does that include those who had *all* their assets invested with Madoff? Is that considered good practice?

Bob Stewart January 29, 2009 · 5:17 pm

We should all recognize that the inadequate oversight of all the recent financial scandals can be traced to the political mumbo jumbo of that dynamic duo of the eighties, Maggie and Ron, soulmates of the Transatlantic conservative political Ponzi game. They sold too many voters that “government is the problem” and the markets will regulate themselves. Now their respective nations are smoldering in the ash heaps while the practitioners aree still collecting obscene bonuses. The root problem is greedy capitalismwithout governmental supervision.

Geronimo January 29, 2009 · 5:17 pm

The conventional, mundane techniques of the auditing profession would have outed Madoff, had virtually anyone subjected him to normal diligence. We hired an auditor into our company, and about a half-dozen people lost their jobs, with some receiving criminal prosecution and conviction to boot.

Charities–let no one speak against them–are full of people who just want the money to pile up somehow, so they can concentrate on their worthy goals. Many non-profit employees have the same blind spot(s), seeing their high purpose as being served only after the money has been banked by someone in another part of the organization.

News coverage implying that Madoff was some kind of evil genius does the public no service. A decent , experienced, $70,000-a-year auditor would have busted him years ago, had she only been given access to the claims he made. Reporting made-up stock trades and prices, when a simple check of the NY Times financial page would have shown that the particular stock never traded for that price on that day? Come on!

RAB January 29, 2009 · 5:23 pm

Beg to differ, having sat on a number of non-profit boards. Some are very good and take there responsibilities very seriously. Others are populated by individuals who are there to feel good about themselves. Were these boards having investment advisors come in monthly or quarterly and explain exactly where the funds were and how they were diversified? And questioning why they were not riding the market more instead of such fabulously steady returns? My guess is that Madoff preyed on non-profits and foundations because they were easy marks.

paul doane January 29, 2009 · 5:24 pm

Experts have compared the Madoff mental makeup to that of a sophisticated serial killer, like Ted Bundy. That seems to be almost be putting it mildly, unbelievably.
The endless damage to individuals, institutions, and the Jewish community in particular, are historic for all the wrong reasons. Brandeis University has to sell off it’s art collection because of this.

fred sigmon January 29, 2009 · 5:25 pm

I’ impressed with Nicholas’ and Dan Smith’s work. I hope the effort generates follow up and some good comes from such a tragedy’s as Madoff’s scheme. Thus, the $50b total might actually be $100,000,000b if you count the would be future givers who will now keep the money in their pocket.

fls

Justice January 29, 2009 · 5:25 pm

Foundations belonging to Mark & Andrew Madoff both show “0” exposure. What did they know…

Rajeshkumar Bhatti January 29, 2009 · 5:31 pm

The funds have been invested by Mr. Madoof in Isreal the way Robert Maxwell had done after he looted retirment funds of poor workers. These funds were tranfered via Swiss Banks and can be traced if FBI wished to trace it unless Isreal Government and its lobby in USA will interfere in such investigation.

Alan January 29, 2009 · 5:37 pm

Check out the list.

It doesn’t include foundtions/universities etc that turned their money over to money manager who funneled it to Madoff.

Jim Valle January 29, 2009 · 5:40 pm

As a financial lay person who has followed this story with some interest, I’m still intrigued by this question: Just where did all the money go? Madoff apparently spent millions on himself accumulating the usual paraphenalia of homes, boats, county club memberships and etc. But, he was handling billions. Of course he paid out some to folks who cashed out but not enough to account for fifty billion in supposed assets. Perhaps it’s the fact that most of our “money” is held electronically and has no actual physical presence unless we draw cash against our balance sheet? Most of my modest net worth is verified by numbers on statement sheets. I never actually see it or feel it. A few keystrokes in the right place and it could vanish in an instant. Scary thought…..

Chris January 29, 2009 · 5:44 pm

The real scandal here is how little these “charitable foundations” actually donated to anybody. Your select list shows assets of roughly $ 300 million and total donations of less than $20 million. Buying Bernie multiple houses was probably better for the economy than their donations!

Lucy Bernholz January 29, 2009 · 5:48 pm

Thanks for compiling this list. You are absolutely right this is of public concern – nonprofits and foundations are public trusts. You also point out several other important considerations – portfolio diversity, degrees of separation and responsibility from nonprofits to foundations to investors, the roles of accountants. Some of these issues can be better regulated, some of them require closer attention by individuals, and some of them are just the cost of getting ripped off. Here’s one discussion of the differences – //philanthropy.blogspot.com/2008/12/they-need-us-now.html – read through the comments for examples of some who’ve responded to the crisis in Madoff’s wake, as well as the opinions of some who think its a self-inflicted set of problems.

Shane January 29, 2009 · 5:49 pm

Can it be so simple? One man, charismatic and persuasive, lacks conscience and soul and can steal from the most needy? We really need a crack team of psychologists here because I am losing faith in mankind. What kind of a moster steals from helpless people? What kind of a monster looks and sounds so normal, exxemplary even, that he gains the respect of his local community, and the world community? I feel great despair upon reading the list of victims.

William January 29, 2009 · 5:53 pm

Thank you for posting the list of foundations invested in the Madoff scheme. As a grant writer for a small non-profit, I immediately scanned the list for foundations that provide funding for our programming.

Whew! None of our funders are listed. However, I now anticipate that lots of Jewish-oriented non-profits will be entering into competition for grants from foundations that are not listed.

Russ January 29, 2009 · 5:54 pm

It’s unfortunate for an investor to have lost personal funds he invested without following good standards of diversification and due diligence. It’s worse – a violation of fiduciary duty and public trust at the very least – for someone to fund a charitable foundation and then invest the funds with such little care. Private foundations are too often treated as extensions of the founder’s estate – to be managed with the same care or lack of care – when in law they’re separate entities obligated to serve the public good. The losses of these foundations are the public’s losses, and it’s important to remember they were funded 1/3 or more by the U.S. Treasury through tax deductions. Shame on those responsible for making such poor investment choices.

Conn Nugent January 29, 2009 · 5:57 pm

Mr. Kristof writes: “…These foundations didn’t do anything wrong; they thought they were safely invested in a variety of financial instruments that they describe on the tax forms. ”

Maybe Mr. Kristof is just a nicer guy than I am, but I’m not so quick to exonerate the foundation trustees. They bear an obligation to know what’s in their portfolios. And yes, this obligation can be delegated, but not to a single accountant known to the donor’s family. You need an Investment Committee, with disinterested professionals who ask tough questions and who can check and balance each other. “Due diligence” is a standard applicable to both grantmaking and investing.

Henry Scott January 29, 2009 · 5:58 pm

Wonderful bit of public service! Thanks,

Jeff January 29, 2009 · 5:58 pm

Speaking as a not for profit board chair, you’re looking at the damage done by lazy boards. There’s no other way around it. Staff should take their lumps, but they will when their jobs end and the offices close, but boards have a justifiably higher expectation of due diligence, and they went for the easy placement, the easy return (they thought, easily), and the easy record keeping.

Lazy boards. Lazy board officers. Mr. Kristof, you should also print the list of board officers with these organziations — i’d not want them on, let alone heading any non-profit boards ever again.

Gudrun January 29, 2009 · 5:59 pm

Also Universities are affected by Madoff, Brandais was auctioning off its collection of modern art, the Rose Collection because they lost so much money via Madoff.. as reported on NPR.

Ernest Lavissiere January 29, 2009 · 5:59 pm

I have been involved with the boards of Insurance companies that untook chartiable programs. It allways struck me that these intellegent businessmen often left commonsense at home when dealing with charities. They all assumed that all those involved including themselves had wings.

SKV January 29, 2009 · 6:05 pm

If Mark and Andrew Madoff were not invested with their father it is not grounds for congratulation. To me it is evidence of their knowledge of his guilt, which they would share.