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This is the eighteenth in a series of installments on this blog that are discussing some issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Madoff”). Installments 3 through 8, Installment 10 and Installments 14 through 17 of this series focused on the specific concerns of charities that were victims of Madoff and similar schemes. All potential stakeholders should consult professional advisors to have their positions evaluated.

On October 27, 2009, Irving Picard, the trustee in the Madoff liquidation proceeding under the Securities Investor Protection Act (the “Madoff Proceeding”), together with Securities Investor Protection Corporation (“SIPC”) President Stephen Harbeck, held a telephone briefing with reporters on progress to date of the Madoff Proceeding. During the course of his prepared remarks, Mr. Picard did not discuss efforts in the Madoff Proceeding to “clawback,” that is, recover assets from Madoff investors who received more in cash distributions than they invested with him.

During the course of the questioning by reporters, the “clawback” issue was raised and the following response was given by Mr. Picard:

At the moment, as I indicated of the accounts that were active at the end of last December, there were 2,568 accounts that received more than was deposited. . . . That’s an area that we are looking at. We’re not going to be suing people who don’t have money. We’re not going to be able to collect. We’re not going to sue people where we become familiar with the fact that they have hardships, medical problems, losing their homes and other things like that. No final decisions have been made; it’s a matter that again, over a period of the next six to eight or nine months, we’re going to be taking a very close look and, quite frankly, those will be looked at virtually on an individual basis before we make some final decisions. . . . if we determine that that’s a matter that we’re going to pursue, then we will pursue them for what we believe is the appropriate amount that we should be seeking from them.

It is noteworthy that Mr. Picard did not address in his response the widely-publicized “profits” from investing with Madoff that have been reported for charities like Hadassah, as discussed in Installment 14 of this series.  

Mr. Picard’s response may be compared to the report by Diana B. Henriques on May 28, 2009 in The New York Times that “[t]here is the widespread fear among some — unfounded, Mr. Picard says — that he will sue struggling charities or people of limited means for money they withdrew in the past but no longer have.”

Has Picard now evidenced by his silence a subtle shift from his earlier position with respect to not pursuing ‘struggling charities” that made profits from investing with Madoff? The October 29,2009 issue of The Chronicle of Philanthropy has disclosed that Hadassah suffered a decline of almost 50% in donations during 2008 to just over $85 million as compared to the 2007 level. Does that loss in revenues qualify Hadassah to be exonerated from clawback as a “struggling charity” under Mr. Picard’s earlier position? A significant portion of the decline in Hadassah donations may be due to the economy generally. However, ironically, some of the decline may be attributable to the adverse publicity for Hadassah from having invested with Madoff. Moreover, a number of its major donors may have incurred heavy losses with Madoff and could not maintain their contributions to Hadassah.

As the Madoff Proceeding continues to unfold, these issues should become clearer.

[To be continued in Installment 19]
 

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

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This is the sixteenth in a series of installments on this blog that are discussing some of the issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Madoff”). Installments 3 through 8 and Installments 10, 14 and 15 of this series focused on the specific concerns of charities that were victims of Madoff and similar schemes. All potential stakeholders should consult professional advisors promptly to have their positions evaluated.

On September 22, 2009, the Associated Press reported that federal prosecutors had disclosed in New York that approximately 50% of the Madoff stakeholders had withdrawn more money than they invested with him and about 50% had invested more money than they had withdrawn. There have been many reports that among those stakeholders which received more in distributions from Madoff than they invested were charities. Installment 14 of this blog series reported on allegations that Hadassah received $40 million more in distributions from Madoff than they had invested with him.

Diana B. Henriques wrote an article on May 28, 2009 in The New York Times  entitled “It’s Thankless, but He Decides Madoff Claims,” in which Ms. Henriques reported that “[t]here is the widespread fear among some — unfounded, Mr. [Irving] Picard [the trustee in the Madoff bankruptcy proceeding] says — that he will sue struggling charities or people of limited means for money they withdrew in the past but no longer have.”

The May statement by Mr. Picard now presents him with a fascinating quantitative and qualitative dilemma and conundrum. All charities, especially those providing social services like Hadassah, are “struggling” with materially reduced contributions because of the economy, increased demands by individuals who are unemployed and suffering financially, losses in endowment funds from the substantial market declines and increased regulatory activity.

While some smaller charities have already gone out of business from the Madoff fiasco, others large organizations like Hadassah still have meaningful endowment funds, even if depleted. The criteria that Mr. Picard will use to separate “struggling” charities and “people of limited means” from whom he will seek funds and those from whom he will not raises fundamental questions of fairness, size relative value that will likely lead to much more controversy.

[To be continued in Installment 17]
 

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

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This is the fourteenth in a series of installments on this blog that are discussing some of the issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff. Installments 3 through 8 and Installment 10 of this series focused on the specific concerns of charities that were victims of Madoff and similar schemes. It generally advocated that every charity should respond pro-actively in the wake of the Madoff scandal and the current adverse economic climate. Such action should include a filing of its Form 990 with the Internal Revenue Service (the “IRS”) as promptly as practicable with appropriate disclosures, whether or not it was a Madoff stakeholder itself. All potential stakeholders should consult professional advisors promptly to have their positions evaluated. 

This Installment 14 is designed to compare and contrast the most recent Forms 990 filed with the IRS for fiscal 2008 by two of the most significant and respected charities that invested with Madoff: Hadassah, The Women’s Zionist Organization of America, Inc. (“Hadassah”) and Yeshiva University (“Yeshiva”). While the missions of Hadassah and Yeshiva (collectively, the “Charities”) are different, they provide a basis for comparison, and share as part of their missions the advancement of education and Jewish awareness in the United States and Israel. For disclosure purposes, readers are advised that the spouse of the author of this blog post has been a Life Member of Hadassah for many years.

Concerns about profound financial and other impacts on these Charities from their investments with Madoff were published soon after the Madoff scandal became public in December 2008.  For example, an article by Stewart Ain entitled “Hadassah Reveals $130 Million Windfall from Madoff,” was published in The Jewish Week on January 14, 2009 (the “Ain Article”). A more recent article on Hadassah and its involvement with Madoff that contains some is “Woman Tells of Affair with Madoff in New Book,” by Diana B. Henriques and Stephanie Strom, published in The New York Times on August 13, 2009 (the “Henriques/Strom Article”). An article about the impact of Madoff on Yeshiva entitled “Betrayed by Madoff, Yeshiva U. Adds a Lesson,” by Javier C. Hernandez was published in The New York Times on December, 23, 2008 (the “Hernandez Article”). 

Several weeks ago, the charity information website GuideStar posted the Hadassah Form 990 for the fiscal year ended May 31, 2008 (the “2007 Hadassah Form 990”). This past weekend the Website posted the Yeshiva Form 990 for the fiscal year ended June 30, 2008 (the “2007 Yeshiva Form 990” and collectively with the 2007 Hadassah Form 990, the “2007 Forms 990”).

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This blog series has already covered the newly-designed Form 990 for 2008 (the “2008 Form 990”) that requires 501(c)(3) entities to provide greatly expanded disclosure through answering questions that require “yes” or ‘no” responses about governance and business operations of charities. Questions that are answered “no” require explanation in the 2008 Form 990.

One of the questions for each of the Charities that would have required a response in the 2008 Form 990 (but not the 2007 Forms 990 recently filed with the IRS by the Charities) is whether the respective Board of Trustees and Audit Committee reviewed the 2007 Form 990 prior to its filing with the IRS. Because both Hadassah and Yeshiva have fiscal years other than the calendar year, they were able to use the old Form 990 for 2007. 

Some circumstances differ, and some are similar, for the Charities. As will be shown in the table below, it is my view that the 2007 Yeshiva  Form 990 has significantly greater disclosure and transparency relative to Madoff than the 2007 Hadassah Form 990. Either of the divergent approaches to disclosure chosen by each of the Charities in its 2007 Forms 990 may be compliant and supportable and were reviewed by the same “Big Four” accounting firm. However, this blog series has strongly recommended that early and complete transparency is advisable to maximize the value of utilizing the Form 990 in rebuilding public confidence in a charity that was affected by Madoff. Earlier disclosure will also get the “bad news” out into the open faster and allow the charity to move on. I believe that Yeshiva has been more successful than Hadassah in using its 2007 Form 990 for this purpose. 

The following table will highlight a comparison of some of the relevant factors drawn from the respective 2007 Forms 990 of the Charities that led to the views of the author. 

A COMPARISON OF HADASSAH AND YESHIVA 2007 FORMS 990

(Information in the Hadassah and Yeshiva columns is from their respective 2007 Form 990 unless otherwise noted; readers may access the 2007 Forms 990 by visiting GuideStar and completing a free online registration. Other noted sources in the table have the Internet links designated in the foregoing article.)

[To be continued in Installment 15]

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

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