The Jewish nonprofit world has been rocked by the securities fraud of Bernard Madoff, and the worst may be yet to come.
Madoff, the founder of Bernard L. Madoff Investment Securities LLC, was arrested Dec. 11 after admitting to his board that a hedge fund he ran was essentially a $50 billion "Ponzi" scheme.
Since then, at least two foundations have been forced to close their doors because they had invested most of their funds with Madoff: The Robert I. Lappin Foundation in Salem, Mass., announced Dec. 12 that it would close after losing $8 million - all of its money - through investments with Madoff. And the Chais Family Foundation, which gives out some $12.5 million each year to Jewish causes in Israel, the former Soviet Union and Eastern Europe, announced Dec. 14 that it had closed after losing all of its money through investments with Madoff.
At least one nonprofit is calling out for help in the wake of Madoff's collapse: The Gift of Life Foundation, a Jewish bone marrow registry that relied heavily on Madoff as a benefactor, announced on its Web site Sunday that it would immediately need to raise $1.8 million to make up for recent losses.
Sources close to Yeshiva University, where Madoff served as treasurer of the board of trustees and chairman of the board of Y.U.'s Sy Syms School of Business until he resigned last week, said that the school has lost tens of millions of dollars, if not more. But Y.U. officials declined to offer any specifics.
Just as the reverberations of the subprime mortgage collapse are still seen as contributing to the nation's wider economic meltdown, philanthropic insiders say the fallout from Madoff's scheme could be even greater. Philanthropy insiders note that Madoff and others heavily invested in his fraudulent fund were major supporters of a plethora of nonprofit organizations, served on their boards or advised those organizations on how to invest their money -- in some cases placing large sums of the groups' capital in Madoff's hands.
Reflecting this sense that the full extent of the damage is still unclear, the executive vice president and CEO of the UJA-Federation of New York said that even though its endowments were not exposed, the organization still could be hurt if donors lost money in the scheme.
"We do not yet know the full extent of the losses that supporters of UJA-Federation and other Jewish institutions have had," Ruskay said. "But we have already heard that many major institutions had substantial funds invested, as did foundations. Already in the context of a very challenging economic environment this will present another significant difficulty. "We don't know yet the extent of the wreckage."
Reports are trickling out in the national media about prominent businessmen from across the country who lost money in Madoff's scheme.
New York Mets owner Fred Wilpon, GMAC Financial Services chairman J. Ezra Merkin and former Philadelphia Eagles owner Norman Braman, were all reported to have taken significant hits due to their dealings with Madoff, who reportedly would not accept any investment in his fund of under $10 million.
Merkin, who last week told investors in his hedge fund, Ascot Partners, that all of their money had been defrauded by Madoff, is of particular interest to the Jewish community. He has philanthropic ties to a number of Jewish organizations and institutions, serving as an investment adviser for many of them, including Y.U. Among other causes that he is said to be connected to are the SAR Academy -- a Jewish day school in the Bronx - as well as the Bar-Ilan University in Israel, State of Israel Bonds, The Jewish Campus Life Fund, Elaine Kaufman Cultural Center, The Ramaz School, Congregation Kehilath Jeshurun and the Fifth Avenue Synagogue.
Sources say that several of these entities had money in Ascot, which they now stand to lose because of Merkin's decision to invest so heavily in Madoff's fund.
A woman who answered the phone at Merkin's home on Sunday suggested that he could be reached in the office on Monday.
An official at one major Jewish foundation told JTA that it had been advised to invest with Madoff, but decided against it after concluding that his return-on-investment forecasts seemed too good to be true.
Certainly, the extent of the damage to the philanthropic world could become more clear as details emerge in coming days and weeks of just who was invested with Madoff.
There is a lesson to be learned here for the philanthropy world, where Jewish businessmen and philanthropists directed their own private funds and the funds of institutions that they help oversee toward Madoff, said one philanthropic official.
"What really emerges out of this," said Jeffrey Solomon, the president of the Andrea and Charles Bronfman Philanthropies, is that "people sometimes forget to conduct the due diligence when dealing with others with social prominence - and especially in the hedge fund area where people think you have to be really smart to be in hedge funds. In many ways for all investments something like this is tragic, but for nonprofits where boards have the fiduciary responsibility of acting with great prudence, it is even more tragic."
According to a fund raiser who has been scouring recent 990 tax filings to see how this might affect his nonprofit, several other major philanthropists have put money in Madoff's hands: As of the end of 2007, Sandy Gottesman had $20 million of his foundation's $144 million invested with Madoff and Robert Beren had two foundations with more than that in endowments invested with Ascot. US Sen. Frank Lautenberg (D-N.J.) says his foundation has about $15 million invested with Madoff.
Y.U. issued a statement via e-mail to JTA on Sunday.
"We are shocked at this revelation," the university said. "Bernard Madoff has tendered his resignation from all positions affiliated with the university and involvement with the university. Our lawyers and accountants are investigating all aspects of his relationship to Yeshiva University. We reserve our comments until we complete our investigation."