Madoff Wall St. Fraud
Leaves Charities Reeling

STEPHANIE STROM /New York Times 16dec2008

When Jeanne Levy-Church created the JEHT Foundation in 2002 to promote justice, equality, human dignity and tolerance, she tapped into investments run by Bernard L. Madoff.

Those investments were initially made more than three decades ago by her father, Norman Levy, who entrusted his real estate fortune to Mr. Madoff. Financed solely by regular contributions from Ms. Levy-Church, the foundation gave away more than $75 million over the next few years.

But on Monday, the young foundation announced that it would cease operations by the end of January — a victim of the same investments that made it a star in liberal philanthropic circles. “The returns had been steady and strong for all these years,” said Robert Crane, the foundation’s chief executive. “It was shocking.”

Mr. Madoff’s investment firm, Bernard L Madoff Investment Securities, collapsed last Thursday when federal regulators arrested him on charges that he had masterminded a scheme defrauding investors of $50 billion by his own estimate.

Elite Swiss banks, prominent billionaires, asset management companies and wealthy retirees have lost billions in the scandal.

Around the country, the nonprofit community is reeling from the Madoff scandal. At least two other foundations have been forced to close their doors, having lost virtually all their assets to what authorities describe as a Ponzi scheme that depended on new investment money to pay off on earlier investments.

Charities that depended on those foundations for financing, like the Innocence Project and the UJA Federation, and wealthy donors like Norman Braman, Mort Zuckerman and J. Ezra Merkin have now added the Madoff scandal to the list of reasons that fund-raising has been crimped this fall. In some cases, the foundations had placed their money with Mr. Madoff directly; others had invested with funds that turned assets over to him. And some nonprofits relied on a steady stream of money from donors, like Ms. Levy-Church, with now vanishing fortunes.

“It’s not catastrophic, but it does hurt us,” said Madeline deLone, executive director of the Innocence Project, which was supported by JEHT in its work to use DNA evidence to exonerate improperly convicted criminals and to reform criminal justice.

The Elie Wiesel Foundation for Humanity, the Ramaz School and Yeshiva University are among the charities that invested in the Madoff funds, often on the advice of wealthy donors on their boards, and are now grappling with the fallout.

“We are just waiting to understand exactly what’s going on,” Marc Winkelman, the chief of the Texas-based chain of Calendar Club stores and the treasurer of the Wiesel organization, said on Friday. “It’s of course an upsetting thing.”

According to its 2006 tax form, the most recent available, the Wiesel Foundation realized a $310,520 gain that year on some $37 million of securities traded on its behalf by Mr. Madoff. It is unclear what portion of the organization’s endowment that $37 million represents. Mr. Winkelman did not return a call seeking clarification.

The tax forms show trading of well-known stocks like Johnson & Johnson, PepsiCo and I.B.M., as well as government bonds, all of which may have led the Wiesel organization to believe that its portfolio was well diversified.

Yeshiva University lost $100 million to $110 million on investments in Madoff’s funds, having already seen its endowment drop to $1.4 billion, from $1.8 billion, after turmoil in the markets.

In a letter to donors, the Jewish Federation of Greater Washington said it had $10 million invested with Mr. Madoff, about 8 percent of its endowment as of Nov. 30. The organization said it would work to recover the money.

The North Shore-Long Island Jewish Health System reported that it had a $5.7 million exposure to Madoff Securities in the form of a gift from a donor who insisted that it be invested that way. “The donor who contributed the funds has graciously agreed to reimburse the health system for any financial loss,” the organization said in a statement.

The Ramaz School, where Mr. Merkin was on the investment committee, lost some $6 million invested with Mr. Madoff, according to a letter sent to board members and two parents whose children attend the school.

“It is a small part of our endowment," said Rabbi Haskel Lookstein, the Ramaz principal. “We will be able to continue functioning normally.”

Miriam Rinn, a spokeswoman for the Jewish Community Centers Association of North America, the umbrella organization for J.C.C. organizations in the United States and Canada, said it was still working to determine how much it might have lost in the Madoff scandal.

“We’re shocked,” Ms. Rinn said. But “we’re still going ahead with all of our services.”

The Carl and Ruth Shapiro Family Foundation, which supports organizations like the Brigham and Women’s Hospital in Boston and the Jewish Federation of Palm Beach in Florida, said it lost $145 million, or 45 percent of its assets at the end of last year, because of investments with Mr. Madoff.

“I was stunned and saddened to learn about the allegations against Bernie Madoff,” Carl Shapiro said in a statement. “It is devastating to think that so many charities, individuals and institutions that had put their trust in Mr. Madoff have had their lives so negatively impacted.”

He said his foundation would work to recover its investment and would honor all its commitments.

The SAR Academy, a Jewish school in the Bronx, had roughly a third of its $3.7 million in assets invested with Mr. Madoff, according to an e-mail message it sent to donors and parents. That exposure was through the Ascot Partners, an investment fund run by Mr. Merkin, the chairman of GMAC.

And Steven Spielberg’s Wunderkinder Foundation, which supports organizations like the Cedars-Sinai Medical Center and the Chabad charity Children of Chernobyl, had investments with Mr. Madoff, although a spokesman said he did not know how much.

The Chais Family Foundation in Encino, Calif., announced over the weekend that its losses had forced it to stop operating, according to the Jewish Telegraphic Agency. The foundation had $178 million in assets in May 2007, according to its tax form.

The Robert I. Lappin Charitable Foundation of Salem, Mass., had about $7 million at the end of 2006, but was forced to shut down at the end of last week.

Ms. Levy-Church and her husband, Ken Levy-Church, supported JEHT each year with a contribution from their Madoff funds. There will be no more.

“Our programming is totally dependent on the ongoing funding, so for all intents and purposes it has ceased,” said Mr. Crane, JEHT’s chief executive. “People with grants currently in hand will keep that money, of course, but we can’t make good on pledges and grants that are for multiple years.”

The foundation’s 24 employees are losing their jobs, and organizations like Human Rights First and the Juvenile Law Center are losing revenue.

Elisa Massimino, the executive director and chief executive of Human Rights First, said JEHT had been a “significant” supporter of the organization, particularly its work on national security and civil liberties.

Reporting was contributed by Javier C. Hernandez, Eric Konigsberg, Christine Haughney and Glenn Collins.

This article has been revised to reflect the following correction:

Correction: December 18, 2008

Because of an editing error, an article on Tuesday about the effect on several charities of a fraud involving a Wall Street investment fund run by Bernard L. Madoff misidentified an investment concern that worked with Mr. Madoff’s fund on behalf of the SAR Academy, a Jewish school in the Bronx. It is Ascot Partners, an investment fund operated by J. Ezra Merkin — not the Ascot Fund, which is a charity affiliated with the National Alopecia Areata Foundation.

Also because of an editing error, the article misstated the effect of the closing of the JEHT Foundation, whose money was invested in Mr. Madoff’s fund, on the Center for Investigative Reporting. The center has received significant grants over the years from the foundation and its budget this year includes money from previous JEHT grants, but the center is not “losing revenue.”

source:18dec2008

Ripples of Madoff Scandal Spread Everywhere

ADAM GELLER / AP 20dec2008

NEW YORK – In the nonprofit legal center Steven Schwartz runs from a converted furniture store in Northampton, Mass., the e-mail was very good news: By week's end, a check for $243,000 would be on its way.

The money couldn't come soon enough. The sharp downturn in the economy had put Schwartz's group — working to improve treatment of teen offenders with mental illnesses — under very tight budget pressure. At least the check was a promise he could count on.

By that Thursday, though, events were unfolding 160 miles away that would upend those assumptions and assurances. In a federal courtroom in lower Manhattan, a Wall Street wizard stood before a judge, charged with running a $50 billion fraud that targeted scores of wealthy and powerful investors.

The name of the accused, Bernard L. Madoff, meant nothing to Schwartz and why should it? He'd never heard of the money manager with the beachfront mansion and the 55-foot yacht. They'd certainly never met. There was no reason to think they had anything in common.

Except, it turned out, the money.

In the days since Madoff's Dec. 11 arrest, the tale has repeatedly been told of wealthy victims who, perhaps naively, invested their trust in a man who promised financial miracles.

But the scale of the Madoff scandal can just as well be measured in its still-widening ripples, reaching far-flung people and causes — from a group helping just-released inmates find jobs in Rhode Island to another working to provide fresh food in poor neighborhoods in Detroit and Oakland, Calif.

Their future is now in jeopardy — a painful reminder of the financial web linking very different worlds.

___

Signing up companies for office space in Manhattan skyscrapers made Norman F. Levy a very rich man.

In the hotly competitive but tight-knit world of New York commercial real estate, Levy worked across more than seven decades brokering leases in midtown's towers. When he died in 2005 at 93, he was hailed as an elder statesman of the trade whose zest for the deal was matched by his generosity with both friendship and money.

"Your spirit and love of life have touched and changed all who knew you," one friend of 40 years wrote in a paid death notice for Levy that ran in The New York Times. "You taught me so much. I'll cherish our relationship forever."

The friend was Bernard Madoff.

The real estate broker and the money manager were separated by 26 years, but they and their families had formed a friendship reinforced by shared interests, social circles — and trust.

Levy and Madoff were active in some of the same organizations, like New York's Yeshiva University. They donated their money to many of the same causes — groups including the Lincoln Center Theater and Gift of Life, a South Florida charity that tries to save Jewish leukemia victims by matching them with bone marrow donors.

In the summer, both families headed to the Hamptons. When Norman F. Levy died, he was staying at his daughter's house fronting the Atlantic in Montauk, just a few sprawling lots away from the mansion owned by the Madoffs.

For more than 30 years, the Levys also entrusted their personal investments to Madoff. When they chartered the Betty and Norman F. Levy Foundation — which reported assets last year of $244.4 million — as the vehicle for their charitable giving, they again put their trust in their longtime friend.

"My father believed in Bernie Madoff," Norman Levy's son, Francis — who declined to comment for this article — said in a recent interview with FOX Business News. "The one thing he said about Bernie (was), "If there's one honorable person, it's Bernie."

___

Francis Levy, a novelist, and his sister, Jeanne Levy Church, had no reason to think otherwise.

When Norman Levy died, they took the helm of the family philanthropy, leaving the funds invested with Madoff, whose offices were housed in the same Third Avenue tower as the foundation.

The Levy Foundation continued donations to longtime favorite charities. But its biggest checks went to a new set of organizations created by Norman Levy's children to champion causes they embraced.

In 2000, Jeanne set up the JEHT Foundation, whose name is an acronym for Justice, Equality, Human dignity and Tolerance — originally to work on criminal justice reform, an area where funds are scarce. Last year, the Levy family financed JEHT to the tune of $29.9 million.

Levy Church, and her husband, Kenneth, "felt that they were fortunate in their life to have this remarkable amount of money and they felt they wanted to use it for less fortunate people," said Robert Crane, president of the JEHT Foundation.

Francis Levy co-founded the Philoctetes Center, a group dedicated to fostering discussions of everything from literature to economics. In 2007, the Levy Foundation financed Philoctetes with $950,000. Last year, Francis Levy invited his family's longtime friend, Madoff, to appear on a panel at the center to talk about the workings of Wall Street.

More recently, the Levy Churches formed another group, the Fair Food Foundation, based in Ann Arbor, Mich., which set out to find ways to get fresher, healthy food to residents of poor city neighborhoods starting with Detroit and Oakland, Calif.

None of the Levys' foundations are well-known to the general public. But they got an enthusiastic reception from groups across the country that were hungry for funding.

At the walk-in counseling office run by Rhode Island Family Life Center in a poor neighborhood in South Providence, a JEHT grant of $500,000 over two years paid staffers who help inmates just released from prison find housing and jobs. In 2007, the group provided services to 1,000 people.

A New Orleans group, Advocates for Environmental Human Rights, used a grant from JEHT to pursue a lawsuit charging "environmental racism" in the predominantly black Louisiana town of Mossville, where the soil and water are polluted by 14 surrounding factories.

And in Schwartz's program in Massachusetts, JEHT offered a three-year grant for work in Connecticut, Texas, Alabama and elsewhere to get states to reconsider treatment of teen offenders with mental health problems, encouraging them to send some home with therapy or provide it in detention centers.

The JEHT grant accounted for 26 percent of the Center for Public Representation's annual budget. Its importance became even more clear this fall when a state tax on real estate transactions that provides nearly as much of the group's funding dropped sharply with the collapse of the housing market, Schwartz said.

Still, Schwartz's staff of 11 was so certain of JEHT's backing that they moved ahead with new projects, spending about $25,000 in advance.

"We just trusted that we would get the money, and so rather than suspend the work until the check was in hand ... we do the work and expected the check will follow," Schwartz said.

___

Crane, the director of the JEHT Foundation, was working late that Thursday evening when his cell phone rang. His benefactors, Jeanne and Kenneth Levy Church, were on the line.

"Are you sitting down?" they asked.

The couple told him they'd just come across a story online about the arrest of a New York money manager whose name soundly vaguely familiar to Crane. All the Levy Church's money was invested with Bernie Madoff. If it was gone, so was the foundation.

On Monday morning Crane sent an e-mail to people at nearly 150 groups around the country that count on his foundation for $25 to $30 million in funding each year. The checks they had been expecting would not be coming, he told them, and JEHT would close by the end of January.

Francis Levy's group, the Philoctetes Center, also announced it could not continue without a cash infusion. The Fair Food Foundation, announced it would close, delivering what its president, Oran Hesterman called "a stinging blow" to activists working to improve nutrition in poor neighborhoods.

Leaders of some of the groups funded by the foundations said they had not even been aware that their money came from the Levy family. Nor had they ever heard of Madoff.

Some groups, like the Rhode Island center that finds jobs and housing for former inmates, were relatively lucky. JEHT provides a third of its annual budget, but the check for 2009 had already been cashed. The impact will become clear next year when the group tries to replace that money in an economy that has made fundraising increasingly difficult, Executive Director Sol Rodriguez said.

For others, the impact was immediate. Between the JEHT closure and the drop in tax revenues, Schwartz's group has seen 48 percent of its budget vanish. On Wednesday, he called an emergency meeting with his staff. They've put juvenile justice projects in Texas and Alabama on hold. But those are emergency measures, not a solution.

"We don't have any money," he said. "I'm not sure what we're going to do."

It's a strange paradox, Schwartz and others in his situation say. All the attention swirling around Madoff has been about his wealthy lifestyle and the ultra-rich investors in places like Palm Beach and Hollywood and New York who lost their shirts. But few seem to understand the repercussions.

"It's very ironic that the very wealthiest in the country can have such a severe impact on kids on the low end of the totem pole," said Mark Steward, whose Missouri Youth Services Institute has relied on funding from the Levy family to help improve juvenile detention centers in Santa Clara County, California, Washington, D.C. and elsewhere.

If only Madoff knew, Steward mused — "Or maybe he does know."

"Sometimes, they just don't care."

source:20dec2008