Sermon and Comprehensive Report on the Madoff Scandal

Sermon and Comprehensive Report on the Madoff Scandal
December 26, 2008
Rabbi David Jay Kaufman

Who is he anyhow, an actor?" "No." "A dentist?"
"...No, he's a gambler." Gatsby hesitated, then added cooly:
"He's the man who fixed the World Series back in 1919."
"Fixed the World Series?" I repeated. The idea staggered me.
I remembered, of course, that the World Series had been fixed in 1919, but if I had thought of it at all I would have thought of it as something that merely happened, the end of an inevitable chain. It never occurred to me that one man could start to play with the faith of fifty million people--with the single-mindedness of a burglar blowing a safe.
"How did he happen to do that?" I asked after a minute.
"He just saw the opportunity."
[F. Scott Fitzgerald, The Great Gatsby]

The man in question in the Great Gatsby was Arnold Rothstein, the reputed funder of the Black-Sox Scandal. The words used by Fitzgerald could hardly be more apt in reference to Bernard Madoff.

In the wake of the $50 billion Madoff scandal charitable foundations are bankrupt, many others struggling to survive, and a multitude facing significant losses either to their assets through losses involving investments with Bernard Madoff or to their income because their benefactors suffered losses. This all comes at horrible time for the economy, when both assets and income were already depressed.

The scheme itself was simple, pay off older investors with deposits made by newer investors. I was recently sent a cartoon in which a policeman asks Madoff where he got this idea. His answer? "Social Security."

To an extent, investing in Madoff's fund was like buying an annuity. He paid 8-12% on your money every year. Those individuals and organizations who had been long invested with Madoff made off, I just couldn't resist, with more money than they otherwise would have gotten. Had they known that they were receiving money that they should keep to rebuild their corpus, some would have easily done so. Many reinvested the dividend which meant that not only did Madoff take their principal and hand it over to others, but their reinvestments were treated the same way. Some investors were worried about Madoff and took their money out over the past few years. Of these, a few saw their investments increase substantially, now known to have come largely, if not solely, through robbing one investor to pay another. Of these, several have said that they were worried that they had made the wrong decision as Madoff’s returns just kept coming.

It seems that of the investors who did flock to Madoff, virtually all of them saw Bernie Madoff's fund as a way to receive a steady income and maintain wealth. They saw it as a hedge fund, a safe investment.

Philanthropies and philanthropists entrusted their money with Madoff and spread their 10% dividends around the world. A grossly disproportional amount of those funds went to Jewish institutions and causes. Of those, a high percentage involved Orthodox institutions and Zionist causes.

But Madoff also wiped out pension funds for firefighters and teachers. He eliminated or dramatically reduced foundations that helped to fund bone marrow research, constructed hospitals, funded educational institutions, created libraries in poor communities, fought domestic violence, fed the hungry, clothed the naked and lifted the fallen. To put it bluntly, he grasped the hands that were doing God's work in making our world a better place, took the money that they gave him, and then chopped those hands off.

What are the implications for Jews? It is almost laughable to ask.

I delivered sermons and wrote articles about Shalom Rubashkin and the concept of Shandeh fur de Goyim, an embarrassment for the Jews. How can I even begin to address Madoff? Rubashkin was like leaving the bathroom with toilet paper stuck to your shoe whereas Madoff was like leaving home forgetting to put on clothes.

That story by Hans Christian Andersen may be perfectly apt here. Madoff sold investors on a vision that was entirely fictitious. He left the Jewish philanthropic world parading proudly without any clothes.

The damage to Jewish philanthropies has been catastrophic. The damage to Jewish philanthropists equally as bad at a minimum. We may never know the true extent of the personal wealth lost. The damage done to the concept of the philanthropic Jew and to Jewish communal trust is tremendous, after all he was a Member of the Tribe who moved through elite Tribal circles like a financial messiah. The damage done to the concept of Or L'goyim, being a light unto the nations, is yet to be determined. In Rubashkin and Madoff, the Jewish world has two prominent Jews whose Jewishness is worn on their sleeves, who publicly served the Jewish community and the Orthodox Jewish community in particular and who have done such egregious wrongs that they tarnished everyone connected to the Jewish community.

Bradley Burston may have said it best in his Haaretz Article published less than a week after the scandal broke:

For the true anti-Semite, Christmas came early this year. The anti-Semite's new Santa is Bernard Madoff. The answer to every Jew-hater's wish list.

The Aryan Nation at its most delusional couldn't have come up with anything to rival this: The former chairman of Nasdaq turns out, also, to be treasurer of the board of trustees at Yeshiva University and chairman of the university's business school. Rich beyond human comprehension, he handles fortunes for others, buying and selling in a trading empire that skirts investment banks and other possible sources of regulation. He redefines avarice, knowingly and personally bilking charities and retirees in the most classic of con games.

Even better, for those obsessed with the idea that Jews control finance, entertainment and the media, is the idea that Madoff's greed was uncontrollable enough that he targeted fellow Jews, even Holocaust survivors, some of them his own friends, as well as Israeli companies who insured Jews, including Holocaust survivors.

The beauty part, for the anti-Semite: Madoff's machinations, which could have been put to use for the sake of humanity, have directly harmed Jewish welfare and charity institutions. He has managed to harm contemporary Jewry in ways anti-Semites could only dream about...In the words of prominent educator Avraham Infeld, he "obliterated" long-standing charitable foundations for Jewish causes in Israel, Eastern Europe and North America.

The New York Post was more direct. "Working the so-called "Jewish circuit" of well-heeled Jews he met at country clubs on Long Island and in Palm Beach, and through his position on the boards of directors of several prominent Jewish institutions, he was entrusted with entire family fortunes. "The guy was totally respected. He was a heymishe Jewish guy. He had sweet old ladies and he let their children in," said a Manhattan lawyer who invested with Madoff.

Rabbi David Wolpe, commenting on the scandal, noted that Madoff violated the Ten Commandments, thou shall not steal.

In my mind, he made a mockery of the Ten Commandments. Thou shalt not steal--$50 billion. But not only that. Thou shalt not murder—it might be stretching it slightly, but there already was a suicide directly connected to the Madoff scandal and the loss of charitable contributions and programs for hospitals and other human services will certainly cost lives. Honor thy mother and father—Madoff destroyed family foundations, programs caring for the elderly, foundations giving to museums, religious institutions, schools, etc... Thou shalt not covet—country clubs, mansions, parties, social status. He made himself an idol, bowed down to wealth, and forgot all about God, truth, righteousness and kindness. He bore false witness with almost every utterance, swindling the haughty and the humble alike.

I have complied numerous articles on the Madoff scandal and as comprehensive an accounting of the damages as I could. I cannot share it all with you tonight, because I cannot ask you to stay here that long.

Schools, universities, hospitals, museums, synagogues, social services and other institutions in the Jewish world and beyond will pay an enormous price for this scandal. Gabrielle Berkner wrote on last week in the Forward that:

The president of the Jewish Funders Network, Mark Charendoff, has called Madoff’s collapse “the atomic bomb in the world of Jewish philanthropy.” The president of the Institute for Jewish & Community Research, Gary Tobin, spoke in equally dire terms: “For the philanthropic elite who invested with him, the means they would be giving away for many more years is gone. The long-term effects of dollars that would have been contributed is severe.”

I will speak about several organizations and if you would like a copy of the entire compilation taken from various articles, I would be happy to share it with you.

SEE BELOW

In The Jewish Daily Foward, Anthony Weiss quoted a victim of the scandal as saying, "It's like finding out that your father is a felon."

Madoff’s collapse has gone off like an atomic blast in the midst of that world, leaving behind the wreckage of shattered lives and fortunes, and creating a gaping hole where there were once billions of dollars — and, more importantly, implicit trust.

It is this trust that makes possible the very existence of the relatively intimate world of Jewish philanthropy, where charity and business often mix. The loss of money and trust together has dealt Jewish philanthropy — a pillar of American philanthropy — a blow from which it will not recover anytime soon.

“He has savaged Jewish civil society for a decade,” said one philanthropic recipient, who spoke of receiving “30, 40 calls from longtime donor friends who told me about the money they lost.” The recipient spoke on condition of anonymity to protect his donors and his institution.

The fraud has also wiped out or severely damaged the finances of wealthy Jews who, though less famous, are among the most reliable donors to Jewish causes. At the exclusive Palm Beach Country Club, where Madoff recruited many of his clients, philanthropic giving was a requirement for membership.

“This scandal has wiped out a generation of Jewish wealth,” said Brad Friedman, a lawyer representing a number of the victims of the alleged Madoff scam. “Let’s not kid ourselves, this is the most philanthropic community in America.”

Jewish philanthropic experts estimate that the total losses in Jewish giving — to both Jewish and non-Jewish causes — could run into billions of dollars.

“You’ll see organizations going out of business,” said Mark Charendoff, president of the Jewish Funders Network, which advises wealthy Jewish donors. “Staff will get fired, programs will get slashed. In some cases, you could see organizations merge. We just don’t know yet.”

The idea still staggers me. "It never occurred to me that one man could start to play with the faith of the Jewish people—with the single-mindedness of a burglar blowing a safe." Then again this week we mark the holiday celebrating the defeat of such a man, Antiochus IV, who looted the Temple in Jerusalem. Now, like then, we have to band together, rebuild, and dedicate ourselves anew. That is the very meaning of Chanukah.

"Who can retell the things that befell us, who can count them?"

Happy Chanukah and Shabbat Shalom,

-David

A compilation of articles and resources on the Madoff scandal follows

Initially this was a word document and there were indented paragraphs and regular ones. One cannot tell the difference in this format. Articles are taken from the NYTimes, Jewish Week, Haaretz Daily, NYPost, Forward, Wall Street Journal, Jerusalem Post, Telegraph and many other newspapers and sites. Very little below is original to me.

As I have worked to compile information on the Bernard Madoff Ponzi scheme, estimated by Madoff himself to involve approximately $50 billion in wealth lost, it has been difficult to find a comprehensive article. The scope of the scandal reaches into so many different corners and goes so deeply in the exclusive worlds of high society and private banking that it is only the public face of the scandal that seems accessible, few beyond those who must be held accountable to reveal their losses seem to be doing so. Individual investors have lost hundreds of millions, if not billions, of dollars and very little of those losses have been reported publically.

Initially, he tapped local money pulled in from country clubs and charity dinners, where investors sought him out to casually plead with him to manage their savings so they could start reaping the steady, solid returns their envied friends were getting.
Whatever else Mr. Madoff’s game was, it was certainly this: The first worldwide Ponzi scheme — a fraud that lasted longer, reached wider and cut deeper than any similar scheme in history, entirely eclipsing the puny regional ambitions of Charles Ponzi, the Boston swindler who gave his name to the scheme nearly a century ago.
“Absolutely — there has been nothing like this, nothing that we could call truly global,” said Mitchell Zuckoff, the author of “Ponzi’s Scheme: The True Story of a Financial Legend” and a professor at Boston University. These classic schemes typically prey on local trust, he added. “So this says what we increasingly know to be true about the world: The barriers have come down; money knows no borders, no limits.”
While many of the known victims of Bernard L. Madoff Investment Securities are prominent Jewish executives and organizations — Jeffrey Katzenberg, the Spitzers, Yeshiva University, the Elie Wiesel Foundation and charities set up by the publisher Mortimer B. Zuckerman and the Hollywood director Steven Spielberg — it now appears that anyone with money was a potential target. Indeed, at one point, the Abu Dhabi Investment Authority, a large sovereign wealth fund in the Middle East, had entrusted some $400 million to Mr. Madoff’s firm.
Regulators say Mr. Madoff himself estimated that $50 billion in personal and institutional wealth from around the world was gone. It vanished from the estates of the North Shore of Long Island, from the beachfront suites of Palm Beach, from the exclusive enclaves of Europe. Before it evaporated, it helped finance Mr. Madoff’s coddled lifestyle, with a Manhattan apartment, a beachfront mansion in the Hamptons, a small villa overlooking Cap d’Antibes on the French Riviera, a Mayfair office in London and yachts in New York, Florida and the Mediterranean.
At Oak Ridge Country Club, in suburban Hopkins, Minn., known for a prosperous Jewish membership, many who belonged were introduced to the Madoff firm by one of his friends, Mike Engler.
The quiet message became familiar in similar pockets of Jewish wealth and trust: “I know Bernie. I can get you in.” Mr. Engler died in 1994, but many Oak Ridge members remained clients of Mr. Madoff. One elderly member, who said he was too embarrassed to be named, said he had lost tens of millions of dollars, and had friends who had been “completely wiped out.”
"It's easy to remember how to pronounce his name now, he made off with our money." That was a statement that I heard in the days shortly after the scandal broke.

"There is no innocent explanation." That was Bernard Madoff's response when asked about the money missing from his investment accounts. "One big lie" was another.

"One big lie" led to an estimated $50 billion lost by banks, hedge funds, insurance companies, schools, pension funds, universities, hospitals, charitable organizations, philanthropists and more than a few individuals who had felt blessed to have their money handled by Bernard Madoff and to have those assets make relatively high 10% returns year after year whether the economy was good or bad. A grossly disproportionate percentage of the investors with Madoff were Jews and of them a large percentage were Orthodox Jews. Of the institutions and organizations affected, Jewish organizations were in the overwhelming majority.

Schools, universities, hospitals, museums, synagogues, social services and other institutions in the Jewish world and beyond will pay an enormous price for this scandal. Gabrielle Berkner wrote on last week in the Forward that:
The president of the Jewish Funders Network, Mark Charendoff, has called Madoff’s collapse “the atomic bomb in the world of Jewish philanthropy.” The president of the Institute for Jewish & Community Research, Gary Tobin, spoke in equally dire terms: “For the philanthropic elite who invested with him, the means they would be giving away for many more years is gone. The long-term effects of dollars that would have been contributed is severe.”

The Information below concerning organizations affected by the Madoff scandal primarily comes from the Forward:

The Chais Family Foundation which supported numerous educational programs to the tune of $12.5 million per year was "completely obliterated," losing approximately $178 million, and has now closed its doors. Haaretz Daily, one of the major Israeli newspapers, showed a picture of the Chais Family Foundation library in Mevasseret, Israel as it detailed the mounting philanthropic losses caused by the scandal.
The Yeshaya Horowitz Foundation disbursed about $140 million over the past 15 years in Israel. Started by an anonymous donor, it funded basic medical research - advancing theoretical knowledge in science and medicine with no immediate commercial value. Such work, however, often sets the stage for private industry to take over. Horowitz money paid for doctoral and post-doctoral fellowships, and was just now covering the completion of a lab to be jointly operated by Hadassah Hospital and the Hebrew University. Now it appears that the Yeshaya Horowitz Foundation has been wiped out.
Yeshiva University, upon whose board Bernard Madoff served for years as treasurer, lost at least $110 million. Madoff also chaired the school's business school.
Technion, Israel's Institute of Technology, approximately $7 million, but its American fundraising arm, American Technion Society lost an additional $72 million.

Members of "Fifth Avenue Synagogue" in New York City, with 300 members, estimate combined personal and foundational losses approaching $2 billion. Ira Rennert, chairman of the synagogue's board estimates losses of $200 million personally.

Elie Wiesel's Foundation for Humanity which ran enrichment centers for Ethiopian-Jewish youth in Israel, funded programs that promote cross-cultural dialogue and awarded an annual ethics prize lost “Substantially all” of the foundation’s assets according to its Web site, an estimated $37 million.
Hadassah, the Women's organization, estimates losses of $90 million dollars or one-third of the organization's endowment. Hadassah funds the Hadassah Medical Organization in Jerusalem and numerous health care initiatives, education, and at risk youth enrichment programs in Israel and the United States.

The Carl and Ruth Shapiro Family Foundation of Boston lost some $145 million. In 2006, this $324 million foundation gave away $12.9 million; of that much went to Jewish causes— including Boston’s Combined Jewish Philanthropies, the Anti-Defamation League and the Jewish Home for the Aged in Palm Beach. Brandeis University received some $3 million in support.
Bloomberg News reports that all but $1 million of the funds in New Jersey Senator Frank Lautenberg’s charitable foundation were invested with Madoff. In 2006, Lautenberg gave hundreds of thousands of dollars to Jewish causes — including a total of $357,000 to United Jewish Communities of MetroWest NJ, tax returns show. The foundation is estimated to have lost approximately $13 million.
Robert I. Lappin says that both his foundation's $8 million in assets and no small amount of his own wealth were invested with Madoff and are now gone. The 16-year-old charity funded teen trips to Israel, enrichment programs for Jewish educators, and interfaith outreach initiatives. The foundation closed on December 12.

According to the Wall Street Journal, Steven Spielberg's Charity, "the Wunderkinder Foundation, in the past appears to have invested a significant portion of its assets with Mr. Madoff, based on regulatory filings." It said that in 2006, profits from Madoff's firm accounted for some 70 percent of the interest and dividend income of the foundation. Wunderkinder Foundation is estimated to have lost tens of millions of dollars. Tax returns from 2007 show that director Steven Spielberg’s charitable organization gave a total of $8.6 million to hospitals, universities, synagogues, the U.S. Holocaust Memorial Museum and other institutions and organizations.

Mortimer Zuckerman, a real estate mogul in New York, and past Chairman of the Conference of Presidents of Major American Jewish Organizations, says that his charitable foundation lost an estimated $30 million of its $300 million endowment with Madoff.

Charles I. and Mary Kaplan Foundation of Rockville, Maryland lost $29 million. It was a major donor to the JCC of Greater Washington and to the Jewish Federation of Greater Washington.

United Jewish Endowment Fund of the Jewish Federation of Greater Washington is said to have lost $10 million. The fund supports Jewish institutions and services, and general social services, in and around the nation’s capital. The losses represent less than 10% of the fund’s investment portfolio, according to a press release from the organization.
The Madoff Family Foundation of New York set up by Bernard for his family had $19 million in theoretical assets evaporate, but in the real world, Jewish charities as the Gift of Life Bone Marrow Foundation and the Solomon Schechter School of Manhattan were counting on receiving donations from it.
The Jewish Community Foundation of Los Angeles lost $18 million. The foundation manages the endowments of the Jewish Federation of Greater Los Angeles and Jewish Family Service of Los Angeles, among other local Jewish social services providers. Madoff-related losses represent about 5% of the foundation’s assets; the federation is said to have lost $6.4 million, or 11% of its endowment funds.
Jerome Fisher, founder of Nine West fashion house and a major donor to Jewish and Israeli causes estimates at least a $150 million loss.
J. Ezra Merkin personally and Ascot Partners, a hedge fund, lost an estimated $1.8 billion. Merkin, the scion of a philanthropic family known for its support of Modern Orthodox causes, resigned as a YU trustee and as chairman of its investment committee on Friday following Madoff's arrest a day earlier.
The Ramaz School in New York is said to have lost $6 million. At the Modern Orthodox day school affiliated with Congregation Kehilath Jeshurun, Madoff-related losses have impacted the endowment, but they will not affect its faculty and staff pension program, school officials said.
North Shore-Long Island Jewish Health System says that it lost $5.7 million in assets.
Mitzi & Warren Eisenberg Family Foundation of Union, N.J. lost $5.1 million of a $100 million-plus endowment. The foundation gives to educational and health care institutions, and to scores of Jewish and Israel charities. In 2006, it donated $950,000 to the Jewish Federation of Central New Jersey.
L Bravmann Foundation of Riverdale, N.Y. lost $5 million with Madoff. In 2006, the $20 million charitable foundation gave more than $1 million to the donor-advised Jewish Communal Fund, and smaller sums to other Jewish organizations.
Jewish Funds for Justice of New York, Philadelphia, and Baltimore lost $3.9 million. The social justice organization funds congregation-based community organizing initiatives and other programs.
Maimonides School of Boston estimates its loss to be $3–5 million. The Modern Orthodox day school, founded in 1937 by Rabbi Joseph Soloveitchik, lost an estimated 60% of a bequest that helps pay for operating costs.
Arthur and Sydelle F. Meyer Charitable Foundation of West Palm Beach,Florida lost $3.7 million. The charity gives to a wide range of cultural and educational causes and Jewish and Israeli institutions. The Meyer family reportedly lost additional funds that were in a charitable trust. The foundation will close, according to The Chronicle of Philanthropy.
Congregation Kehilath Jeshurun an Upper East Side Modern Orthodox synagogue affiliated with the Ramaz School lost $3.5 of its endowment.
Yad Sarah in Jerusalem lost $1.5 million. The organization provides health care and welfare services for disabled and elderly individuals.
SAR a Modern Orthodox Jewish day school Riverdale, N.Y. had $1.3 million invested or about one-third of its $3.7 million endowment.
American Jewish Congress which supports upgrading Israel’s role in NATO and advocates on behalf of religious freedom stateside sustained significant but unspecified losses. A trust fund left to the organization by Lillian and Martin Steinberg was managed by Madoff, as was a second part of the American Jewish Congress’s endowment fund.
Philip and Murial Berman Foundation of Allentown, Pa. lost a substantial amount of its estimated $42 million in assets. Last year, the foundation gave a total of $318,000 to a wide range of Jewish and arts organizations; donations included $50,000 to Hadassah, and smaller five-figure gifts to American Friends of Hebrew University, United Jewish Communities and the World Union for Progressive Judaism.
The Betty and Norman F. Levy Foundation of New York also lost substantially. A portion of its $244 million in assets was invested with Madoff. Among the Foundation’s contributions last year were a $100,00 to the vehicle Gift of Life Bone Marrow Foundation, $100,000 to the UJA-Federation New York, and nearly $30 million to the JEHT Foundation — a criminal justice reform organization that is expected to close in the wake of Madoff’s collapse.
The Picower Foundation of Palm Beach, Florida which had nearly $1 billion in assets, will shutter amid Madoff woes. According to its 2007 tax return, the Foundation last year gave away $23 million — including $225,000 to the Limmud NY conference of Jewish learning; $185,000 to the Jewish Outreach Institute; $109,278 to the Foundation for Jewish Camping, and $100,000 to a program that aids children and families living in Sderot, Israel. Medical research centers, after-school programs, and human rights organizations were also beneficiaries. The foundation has given $268 million to groups like the Picower Institute for Learning and Memory at the Massachusetts Institute of Technology, Human Rights First, the New York Public Library and the Children’s Health Fund since it was established in 1989 by Barbara Picower and her husband, the investor Jeffry M. Picower, in Palm Beach, Fla.
Listed previously at $1 billion, the foundation’s assets were managed by Bernard L. Madoff, Mrs. Picower said in a statement, and his “act of fraud has had a devastating impact on tens of thousands of lives as well as numerous philanthropic foundations and nonprofit organizations.”
Jeff Wilpon, owner of the New York Mets, lost in the tens of millions of dollars invested with Madoff.
This list of woes does not even include pension funds. Pensions and Investments Online stated that:
The $6.5 billion New Mexico Educational Retirement Board, Santa Fe, stands to lose $8 million to $10 million through its $170 million investment in Austin Capital Partners’ Safe Harbor Fund. CIO Bob Jacksha said fund officials and trustees still are evaluating the impact.
The $270 million New Orleans City Employees’ Retirement System could lose about $350,000 from Madoff investments made in its combined $5 million allocation to hedge funds of funds managed by Meridian Capital Partners and UBP Asset Management, said Jerry Davis, chairman of the board of trustees.
The biggest institutional investor loss uncovered so far is $41 million by the Fairfield (Conn.) Town Retirement Fund. The $233 million plan had 17.6%, or $41 million, invested as of Nov. 30 in the MAXAM Absolute Return Fund, managed by Madoff Investment Securities.
Shell company's pension fund lost $45 million. Dr. Robert Dawe of Fairfield-based Orthopaedic Specialty Group said Tuesday the doctors have been in contact with lawyers trying to sort out this mess that blindsided them. The group's entire retirement fund, which covers more than 130 people, was invested with Bernard Madoff Investment Securities LLC.
Geneva-based Union Bancaire Privée is the best-known private bank to get hit, with $700 million of its clients’ money invested with Mr. Madoff. Large banks like HSBC and the Royal Bank of Scotland lent more than $1.5 billion to money management firms, which leveraged larger returns on their investments with Madoff. In return, these big banks received collateral in the form of assets in Madoff's firm, which are most likely worthless now.
The latest European victim to reveal losses is Bank Medici of Austria. Two funds at the bank, based in Vienna and 75 percent owned by its chairwoman, Sonja Kohn, invested $2.1 billion entirely in Madoff's firm, the bank said on Tuesday. So far, financial institutions on the Continent and in the United Kingdom have announced $10 billion worth of exposure.
BNP Paribas has nearly $500 million in exposure to Madoff, a major contributor to the $1.4 billion loss the Paris giant's corporate and investment banking unit announced on Tuesday for the first 11 months of 2008.
One of the hardest-hit European victims, Optimal Investment Services of Geneva, was unusually concentrated in Madoff's firm. A unit of Santander of Spain, Optimal had $3.1 billion invested with Madoff through its Optimal Strategic U.S. Equity Fund, out of a total of $10.5 billion under management.
Harel, Clal, and Phoenix, Israeli Insurance firms, lost millions of dollars with Madoff.
Investment firms handling retirement funds for hundreds of clients invested heavily and lost heavily. Brighton Co. of Beverly Hills, was sued this week in federal court in Los Angeles. In the suit, Michael Chaleff of Arlington, Va., said he and other investors had lost about $250 million on investment partnerships that Brighton placed with Madoff. The head of Brighton, according to the suit, is Stanley Chais of Beverly Hills, which bring us back to the Chais Family Foundation.
In The Jewish Daily Foward, Anthony Weiss quoted a victim of the scandal as saying, "It's like finding out that your father is a felon."
Madoff’s collapse has gone off like an atomic blast in the midst of that world, leaving behind the wreckage of shattered lives and fortunes, and creating a gaping hole where there were once billions of dollars — and, more importantly, implicit trust.
It is this trust that makes possible the very existence of the relatively intimate world of Jewish philanthropy, where charity and business often mix. The loss of money and trust together has dealt Jewish philanthropy — a pillar of American philanthropy — a blow from which it will not recover anytime soon.
“He has savaged Jewish civil society for a decade,” said one philanthropic recipient, who spoke of receiving “30, 40 calls from longtime donor friends who told me about the money they lost.” The recipient spoke on condition of anonymity to protect his donors and his institution.
The fraud has also wiped out or severely damaged the finances of wealthy Jews who, though less famous, are among the most reliable donors to Jewish causes. At the exclusive Palm Beach Country Club, where Madoff recruited many of his clients, philanthropic giving was a requirement for membership.
“This scandal has wiped out a generation of Jewish wealth,” said Brad Friedman, a lawyer representing a number of the victims of the alleged Madoff scam. “Let’s not kid ourselves, this is the most philanthropic community in America.”
Jewish philanthropic experts estimate that the total losses in Jewish giving — to both Jewish and non-Jewish causes — could run into billions of dollars.
“You’ll see organizations going out of business,” said Mark Charendoff, president of the Jewish Funders Network, which advises wealthy Jewish donors. “Staff will get fired, programs will get slashed. In some cases, you could see organizations merge. We just don’t know yet.”
Remember that many organizations were invested in organizations that invested their money with Madoff. For example, Tufts University which invested $20 million with Ascot Partners which was then invested with Madoff.
How did this all happen?
Mark Seal, a longtime veteran of Jewish organizations, in an interview by the Forward, recalls watching Madoff make his pitch twice to Jewish organizations — once in the early 1990s, and once 10 years later. Each time, Seal said, he was struck by Madoff’s combination of confidence and low-key charm, and by the sense of familiarity he conveyed.
“His pitch was one part technology and one part record and one part that he was a lovely guy and you felt that — it’s funny, in retrospect — you felt a certain amount of integrity,” Seal told the Forward. “That was his presentation, in essence — his reputation and his personality.”
Unlike some prominent Wall Street figures who built their fortunes during the heady 1980s and ’90s, Mr. Madoff never became a household name among American investors. But in the clubby world of Jewish philanthropy in the New York area, his increasing wealth and growing reputation among market insiders added polish to his personal prestige.
He became a generous donor, then a courted board member and, finally, the money manager of choice for many prominent regional charities.
Madoff’s sterling reputation, his affable personality and his apparent financial acumen allowed him to move easily through the clubby Jewish philanthropic circles of New York and Palm Beach, Fla. Madoff served on prominent boards, such as that of Yeshiva University; fellow board members, and even other money managers, sought after him to invest their money.
Dozens of now-outraged Madoff investors recall that special lure — the sense that they were being allowed into an inner circle, one that was not available to just anyone. A lawyer would call a client, saying: “I’m setting up a fund for Bernie Madoff. Do you want in?” Or an accountant at a golf club might tell his partner for the day: “I can make an introduction. Let me know.” Deals were struck in steakhouses and at charity events, sometimes by Mr. Madoff himself, but with increasing frequency by friends acting on his behalf.
He could not have had a more effective recruiter than Jacob Ezra Merkin, a lion of Wall Street who would be president of the Fifth Avenue Synagogue. Mr. Merkin’s father, Hermann, was the founding president of the synagogue and Herman Wouk, the author, wrote its constitution.
As a direct descendant of the founder of modern Orthodox Judaism and a graduate of Columbia’s English department and Harvard’s law school, Mr. Merkin easily held his own in a congregation that included such luminaries as the author Elie Wiesel, the deal maker Ronald O. Perelman and Ira Rennert, a wealthy financier perhaps best known for building one of the biggest houses and compounds in the Hamptons.
One source who sat on boards with Merkin told The New York Jewish Week, "You have to know Ezra to really understand how this could have happened. He is brilliant and incredibly well connected in the Jewish and financial community, with a long and incredible success rate in investments. Plus, he can be at times charming and considerate - as well as intimidating."
According to The Jewish Week, several people noted that when questioned or challenged about the wisdom of investing heavily in one fund rather than diversifying, "Ezra would ask, 'Why would you reduce your concentration in your best performing fund?'"
Philanthropies embraced him. He headed the investment committee for the UJA-Federation of New York for 10 years and was on the boards of Yeshiva University, Carnegie Hall and other nonprofit organizations. He became the chairman of GMAC.
Installed in these lofty positions of trust, Ezra Merkin seemed to be a Wall Street wise man who could be trusted completely to manage other people’s money. One vehicle through which he did that was a fund called Ascot Partners.
Ascot itself attracted $1.8 billion in investments, almost all of which was entrusted to Mr. Madoff. New York Law School put $3 million into Ascot two years ago, and has now initiated a lawsuit in federal court that accuses Mr. Merkin of abdicating his duties to the partnership.
If the wealthy Jewish world he occupied was his launch pad, the wealthy promoters he cultivated at Fairfield Greenwich were his booster rocket.
The Fairfield Sentry fund was one of several so-called feeder funds that became portals through which money from wealthy foreign investors would could capitalize on Mr. Madoff’s investment prowess — collecting those exclusive, steady returns that had made him the toast of Palm Beach and the North Shore so many years ago.
The Sentry fund quickly became Fairfield’s signature product, and it boasted of stellar returns. In marketing materials, Fairfield trumpeted Sentry’s 11 percent annual return over the last 15 years, with only 13 losing months. It was a track record that grew increasingly attractive as markets grew more volatile in recent years.
Though Fairfield Greenwich has its headquarters in New York City and its founder, Mr. Noel, operated from his hometown, Greenwich, Conn., a recent report showed that foreign investors provided 95 percent of its managed assets — with 68 percent in Europe, 6 percent in Asia, and 4 percent in the Middle East.
One of his most visible representatives was Andrés Piedrahita, a Colombian who had married Mr. Noel’s eldest daughter, Corina, and was eventually named a Fairfield founding partner. Based in Madrid and London, Mr. Piedrahita became one of the firm’s most visible representatives in the world of European banking and investment. But his brothers-in-law also had international roots. Yanko Della Schiava, who married Lisina Noel, was the son of the editor of Cosmopolitan in Italy and of the editor of Harper’s Bazaar in Italy and France. Philip J. Toub, who married Alix Noel, is the son of a director of the Saronic Shipping Company, in Lausanne, Switzerland.
Thanks to the efforts of Mr. Piedrahita, Mr. Della Schiava and others, Fairfield reaped many millions of dollars in investor capital from Europe. The firm set up feeder programs with institutions like Banco Santander, Swedish Bank Nordea and Banque Benedict Hentsch. All became conduits that carried fresh money to Mr. Madoff.
There was also the small Austrian merchant bank, Bank Medici, which had $2.1 billion invested in funds that ultimately wound up under Mr. Madoff’s control. It collected those investments through two main funds, the Herald USA Fund and the smaller Herald Luxemburg Fund, sold to banks, insurance companies and pension funds since 2004.
Bank Medici sold the funds to investors around the world from its offices in New York, Vienna, Gibraltar, Zurich and Milan. About 93 percent of the funds’ investors are outside Austria. Just last month, the Herald USA fund won Germany’s annual Hedge Fund Awards for “proving consistency in turbulent times.“
Indeed, often with the assistance of feeder funds, Mr. Madoff was now in a position to seek and procure money from Arab investors, too. The Abu Dhabi Investment Authority, one of the largest of the world’s sovereign wealth funds, with assets estimated earlier this year to be approaching $700 billion, wound up in the same boat as Jewish charities in New York: caught in the collapse of Bernie Madoff.
In early 2005, the investment authority had invested approximately $400 million with Mr. Madoff, by way of the Fairfield Sentry Fund, according to a profile of the firm that it prepared for a prospective buyer in 2007. Fairfield Sentry had more than $7 billion invested with Mr. Madoff and was his largest investor; now, it says, it is his largest victim.
Early on Dec. 10, he shocked his sons by suggesting that the firm pay out several million dollars in bonuses two months ahead of schedule. When pressed by his sons for a reason, he grew agitated and insisted that they all leave the office and continue the conversation at his apartment on East 64th Street.
It was there, at midmorning, that he told his sons that his business was “a big lie” and, “basically, a giant Ponzi scheme.” There was nothing left, he told them — and he fully expected to go to jail.

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