Educational institutions brace for Madoff scandal fallout

"It's a domino effect. We don't know how our donors have been affected or how they're going to react."

technion 224.88 (photo credit: Courtesy)
technion 224.88
(photo credit: Courtesy)
As the damage from the Bernard Madoff scandal continues to unfold, educational institutions throughout the country are beginning to reveal just how badly they've been affected, and while the picture is still unclear, it's emerging as something less than pretty. Two large charity organizations - the Chais Family Foundation and the Yeshaya Horowitz Association - both of whom gave extensively to Israeli universities and educational initiatives and had invested heavily with Madoff, were forced to shut down last week in the wake of revelations that the bulk of their finances were tied up in Madoff's scam - the largest Ponzi scheme known to date. And while some Israeli educational institutions had invested directly with Madoff's firm - only to realize that those funds were gone the minute Madoff admitted to the depth of his scandal - even more of them were recipients of large donations from Chais and Horowitz, and are now reeling from the loss of not one but two donors who gave millions of dollars to their organizations over the years. While the final picture of the damage won't be known for weeks, or even months to come, The Technion Institute - Haifa's internationally acclaimed institute of technology - may emerge as one of the universities hardest hit by the scandal. While the university itself lost NIS 25 million in investments it had made with Madoff's firm, the institute's American fund-raising arm lost $29m. and tens of millions more in supposed profits through investing with Madoff, an organization spokesman said. The American Technion Society lost its original investment with the fraudulent fund - plus $43m. in gains it reinvested - for a net loss of $72m. The stock market's downfall had significantly affected the society's endowment, which on September 30 was at $305m. but by the end of October had fallen to $274m. With the Madoff loss, the endowment is down to approximately $200m. To help make up for the losses, the society in recent days has received $2.8m. in unrestricted gifts. A Technion spokesman downplayed the losses in a conversation with The Jerusalem Post on Monday, but did concede that the final tally of losses had yet to take into account funding that the university was counting on from Horowitz and Chais, which had earmarked the Technion for a large share of its philanthropic endeavors. "It's still unclear exactly how much we stand to lose from Horowitz and Chais," the spokesman said. "Overall, NIS 25m. isn't a significant blow to our institution, but it's obviously still very painful. It's not an amount that you can just throw away. "But now we're checking on what the loss of [donations from] Chais and Horowitz means, and we don't know how badly it's going to affect us." However, he continued, the university had weathered crises in the past and would carry on. "We've been going for 84 years and we'll keep on going," he said. Other universities across the country were also hit - if not by Madoff's firm than by the subsequent folding of Chais and Horowitz. The Hebrew University, which did not invest directly with Madoff, was however a recipient of donations from the Chais Foundation, through their American fundraising organization, the American Friends of Hebrew University. In 2006, AFHU received $275,000 from Chais, and a HU spokeswoman said that while the university had been spared losses resulting from direct involvement with Madoff's firm, the fallout from private donors who themselves may have been hit had yet to be seen. "It's a domino effect," the spokeswoman said. "We don't know how our donors have been affected or how they're going to react, but we'll see in the coming months as this situation plays out." But the effects of the Chais and Horowitz closings haven't been restricted to higher education alone. The ORT network of colleges and high schools throughout the country was slated to receive a million dollars from Chais over the next five years - a pledge the foundation will obviously no longer able to honor. The College 4 All association, a non-profit organization that provides supervised educational and cultural enrichment programs for children from broken homes, and which also relied on donations from both Chais and Horowitz, has begun to feel the brunt of the two foundations' closings as well. "Our first source of funding is foundations who give generously to educational institutions, like Chais and Horowitz," said Dr. Shula Recanati, College 4 All's chairwoman. "We were supposed to receive funding over the next three years from Chais, and to our sorrow, we won't be able to count on that anymore." Recanati explained that given the difficult circumstances, her association might have to begin a series of cutbacks. "Our main goal is to keep our core programs going," she said. "But if we had to begin cutting back, the first thing to go would be our summer programs, which include trips and hikes throughout the country which provide the kids with a great way of learning about their surroundings. From there, we'd have to cut back on the number of pupils that assist in tutoring the younger kids." Nonetheless, Recanati said that the association planned on opening three new centers soon, in strategic locations across the country. "We plan on opening a center in Sderot, Jerusalem and Beersheba," she said. "But that funding is coming from local sources, not international ones." Still, Recanati said she hoped that College 4 All could emerge as an example of how to deal with both the troubles brought on by the Madoff scandal and financial shortcomings resulting from the global financial crisis in general. "We're finding ways to move ahead," she said. "We're cooperating with other organizations, looking for other sources of funding, and I hope that we won't have to shut our program down, God forbid, because it provides both the children, their families and their communities with so much enrichment, it would really be a terrible loss." JTA Contributed to this report.