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White Collar Defense & Compliance Developments in Criminal Law, Federal Case Law and Statutory Developments

Picard v. Mets/Wilpon/Katz Madoff Settlement One Year Later – Part II: Was the Saul Katz Form 990-PF Worth the Wait? – Installment 90

Posted in Bernard Madoff

 

Michael Kline writes:

Even though the Saul Foundation took ample time until February 1, 2013 to prepare its Katz Form 990-PF, such Katz Form 990-PF suffers from a disappointing and manifest scarcity of information as to the Saul Foundation’s involvement with Madoff and the Settlement Agreement with Madoff Trustee Picard. (Capitalized terms not otherwise defined herein shall have the meanings assigned to them in Installment 89.)  

What did the Saul Foundation 2011 Form 990-PF disclose about Madoff and the Settlement Agreement?

The Saul Foundation was (i) a defendant in the Wilpon Litigation, (ii) listed on Schedule 2 to the Settlement Agreement as having been a recipient of transfers in various accounts from Madoff in excess of principal aggregating more than $2.5 million, and (iii) a signatory to the Settlement Agreement (individually, a “Schedule 2 Signatory” and collectively, “Schedule 2 Signatories”), thereby agreeing to the amount in item (ii).  Additionally, fiduciaries of the Saul Foundation, such as Saul and his spouse Iris, are also Schedule 2 Signatories, individually and in other capacities. 

These Schedule 2 Signatories stand to benefit directly and handsomely from the Settlement Agreement because they will have a portion of their monetary clawback exposure (up to $2.6 million for the Saul Foundation) in the Madoff bankruptcy funded by the individuals and entities listed on Schedule 1 to the Settlement Agreement (individually, a “Schedule 1 Signatory” and collectively, “Schedule 1 Signatories”) that have net equity claims allowed by Picard against the Madoff estate. 

A number of observations can be made as to the Saul Foundation 2011 Form 990-PF (the Saul Form 990-PF):

1.         The Saul Form 990-PF reflects, on line 15 of its Part II Balance Sheet as an “other asset,” an item of $433 that is explained in Statement 7 as “Estimated SIPC Recovery – Madoff Theft Loss.”  Presumably the nominal amount believed to be receivable from the Madoff estate by the Saul Foundation relates to some small interest in a listed item on Schedule 1.  However, inconsistently and inexplicably, there is no other reference in the Saul Form 990-PF that the Saul Foundation (a) has any involvement in the Madoff fiasco, (b) was a defendant in the Madoff bankruptcy, (c)  signed the Settlement Agreement as a Schedule 2 Signatory, and (d) agreed that it has over $2.5 million in Schedule 2 obligations to Picard.

(As an aside, all of the above observations are pertinent to the Fred Foundation.  For example line 15 of the Part II Balance Sheet in the Wilpon Form 990-PF reflects as an “other asset” an item of $4,677 that is explained in Statement 7 as “Estimated SIPC Recovery – Madoff Theft Loss,” but there is no other reference that the Fred Foundation has signed the Settlement Agreement as a Schedule 2 Signatory and has agreed that it has almost $2.2 million in Schedule 2 obligations to Picard.)

2.         The Saul Form 990-PF (like the Wilpon Form 990-PF) contains no explanation or information, either on a financial or tax basis, as to how the Saul Foundation is dealing with the credits that it is using to offset its Schedule 2 obligations by assessments against the Schedule 1 Signatories as provided under the Settlement Agreement.  Are they liabilities to the Schedule 1 Signatories to replace the obligations to Picard?  Could they be voluntary (or involuntary) contributions by the Schedule 1 Signatories to the Saul Foundation (and the Fred Foundation)?  Are they something else?

3.         It appears that Michael Katz may have provided input or played a role in the preparation of the Saul Form 990-PF and the Wilpon Form 990-PF, as he is listed on line 14 under Part VII-A as the person in whose care are the books of the respective Foundation.  It may also explain why there is no separate “paid preparer” who signed the respective 2011 Form 990-PF, as Michael may not have been compensated for any such role.

In light of complex considerations, such as those in items 1 through 3 above, an officer or trustee of a private foundation, should be aware of the seriousness of the disclosures when he or she signs a Form 990-PF with the following affirmation:    “Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct and complete.”

(Michael J. Kline, the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office, and is a past Chair of the firm’s Corporate Department. He concentrates his practice in the areas of corporate, securities, and health law, and frequently writes and speaks on topics such as corporate compliance, governance and business and nonprofit law and ethics.)

[Part III will be continued in Installment 91]