On Thursday, Wall Street financier Bernard L. Madoff was arrested on charges of fraud totaling losses of $50 billion. A former head of the Nasdaq stock market, Madoff was a prominent leader in the New York Jewish community and served as Chairmen of the School of Business at Yeshiva University. His fund, Bernard L. Madoff Investment Securities LLC, supported several large Jewish organizations, advised wealthy members in the Jewish community, and managed funds for two major European banks. One Jewish charity, The Robert I. Lappin Charitable Foundation, has already closed down and let go of its staff, having lost all of the money needed to fund its programs with the collapse of Madoff’s fund. And just this morning, The JEHT Foundation, a charity that supports reform of the criminal and juvenile justice systems, announced that it will close its doors next month because its donors, Jeanne and Kenneth Levy-Church, were investors in Madoff’s firm. There are fears that other prominent charities funded by Madoff will soon collapse as well – see the list of those involved here.
Madoff confessed to running a Ponzi-scheme, where early investors were paid with money collected from later investors. The NY Times says Madoff’s scheme likely succeeded for as long as it did because “Madoff sent detailed brokerage statements to investors whose money he managed, sometimes reporting hundreds of individual stock trades per month. Investors who asked for their money back could have it returned within days. And while typical Ponzi schemes promise very high returns, Mr. Madoff’s promised returns were relatively realistic — about 10 percent a year — though they were unrealistically steady.”
While it is still unclear what lasting effects this scandal may have on Jewish philanthropy in the long term, it could open the door for ‘new philanthropists’ to pick up the financial slack left by more traditional foundations that had their assets managed by Madoff that are now struggling, if not collapsing. We may see a shift away from large, traditional foundation investments in the Jewish community, to smaller, more strategic gifts with much more active donor involvement.