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Madoff scheme hits Jewish charities hard

- The Washington Times - Wednesday, December 17, 2008

UPDATED:

The collapse of Wall Street legend Bernard L. Madoff's investment empire has generated scandal, bankruptcy, financial panic - and some socially awkward situations.

Ruined Madoff investors confront a prominent Madoff supporter at a tony Florida golf course built by Donald Trump. Yeshiva University hosts its gala Hanukkah dinner at New York's Waldorf Astoria the day after announcing huge losses and Mr. Madoff's abrupt resignation as a member of the board of trustees. And foundations and charities scramble for new donations as they try to calculate the hit to their bottom line.

"It's been a very surreal few days," said Jay Feinberg, founder and executive director of the Gift of Life Bone Marrow Foundation of Boca Raton, Fla., which maintains a computerized public record of potential donors for bone marrow transplants.

The foundation did not deal directly with Madoff Investment Securities, which federal regulators say was a giant Ponzi scheme that may have bilked investors of as much as $50 billion. But it has relied heavily on a network of largely Jewish donors who did employ Mr. Madoff's services. The nonprofit group already has issued an emergency appeal for $1.8 million in "alternative support," and Mr. Feinberg said in an interview that his group was tightening its belt for 2009.

"As soon as I heard the name Madoff on the news reports, I had a strong feeling we were going to get some calls," he said.

With the list of suspected victims growing almost by the hour, the 70-year-old Mr. Madoff could be back in a New York federal court as early as Wednesday if he does not meet conditions to guarantee a $10 million bond. He faces a prison term of up to 20 years and a fine of $5 million if convicted of criminal securities fraud.

On Tuesday, Securities and Exchange Commission Chairman Christopher Cox said his agency tried unsuccessfully for at least 10 years to pursue complaints about Mr. Madoff.

"I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them," Mr. Cox said.

The SEC's inspector general is looking into the collapse.

Giant hedge funds, Washington politicians, Hollywood celebrities such as director Steven Spielberg, charities and wealthy private individuals have all been caught up in the Madoff scandal.

Sens. Charles E. Schumer of New York and Frank R. Lautenberg of New Jersey, both Democrats, have said they will return political contributions from Mr. Madoff and his relatives. A foundation set up by Mr. Lautenberg reportedly has lost nearly all of its funding after having invested with Mr. Madoff.

But the scandal is creating anguish at a more personal level as well.

"People around here are pretty devastated. Everybody either is directly affected or knows a lot of people who are in trouble because of this," said Richard Rampell, principal of a leading accounting firm in Palm Beach, Fla., where Mr. Madoff lived part of the year.

"This is a very wealthy area, a place where there are a lot of philanthropic people. The fact that a lot of charity money has been lost is maybe the hardest thing for people to swallow," he said.

The local Palm Beach Post reported a frosty exchange at a birthday party Saturday night at Mr. Trump's ultra-exclusive Mar-a-Lago Club, where several furious Madoff clients confronted Robert Jaffe, who not only invested heavily in the disgraced financier but also received a fee for steering other clients to Mr. Madoff.

With Mr. Trump looking on, Mr. Jaffe came close to a physical confrontation with one particularly unhappy Madoff investor. "There were a lot of unhappy campers there," Mr. Trump told the newspaper.

On financial Web sites, anguished investors have scrounged for information on their savings and retirement funds even as federal investigators try to decipher Mr. Madoff's tangled books.

"Our dad passed away in August and he had his life savings of $2 million with Madoff," one poster wrote. "The trust is worthless and his dream of giving his three sons money has vanished."

Investigators getting their first look at Mr. Madoff's financial records said Tuesday that they suspect his firm falsified documents to hide massive losses, an official helping to oversee the firm's liquidation said.

Stephen Harbeck, chief executive of the nonprofit group Securities Investor Protection Corp., told the Associated Press that investigators have discovered the firm used different sets of books to avoid detection.

Veteran financial journalist Robert Powell of marketwatch.com had a first-person account of the Madoff scandal. Not only was his wife's retirement savings plan handled by Madoff Investment Securities, but her employer was pulled down by the scandal as well.

"In my household, the net effect of the Madoff scheme is that my wife has lost all the money in her 401(k) account and her job as well," Mr. Powell said.

Gail Hyman, a New York-based consultant to Jewish nonprofit groups, said the scandal has been made even more difficult as the list of victims grows relentlessly.

"It hits very close to home for my clients, and nobody knows when it's going to stop," she said. "A lot of good people, a lot of conservative organizations, are getting swept up in this."

The FBI said Tuesday that it had set up a hot line for investors who think they may have been victimized by Mr. Madoff. The hot-line number is 212/384-2359.

Because Mr. Madoff was prominent in Jewish philanthropic circles, the pain is even more intense among Jewish charitable organizations.

The assets of Massachusetts-based Robert I. Lappin Charitable Foundation, whose programs targeted Jewish youths in the state, was entirely invested with Mr. Madoff, and the charity shut its doors and fired all its employees last week.

Jonathan Sarna, professor of American Jewish history at Brandeis University, predicts the Madoff affair will leave many Jewish charities and foundations struggling for funds and facing closure.

Yeshiva University of New York has taken both a financial and public relations hit, as news of the Madoff indictment came two days before the 84th annual Hannukah banquet at the posh Waldorf Astoria in Manhattan. Mr. Madoff had just resigned as treasurer of the school's board of trustees amid reports that the scandal could cost the school $100 million or more, 10 percent of the school's endowment.

In a sign of the uncomfortable links the scandal has generated, the Fundamentalist newspaper reported that at least four of Yeshiva's other board members had foundations with funds invested with Mr. Madoff. And one of the night's honorees was the principal of the Jewish Ramaz Day School in New York, which had lost $6 million of its endowment because of Mr. Madoff.