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12/17/2008 8:59:00 PM

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Madoff fraud hits locally
Federation endowment invested $10 m.
by Adam Kredo, Staff Writer

The Jewish Federation of Greater Washington's endowment fund could lose more than $10 million in active assets due to several outstanding investments with the now defunct Bernard L. Madoff Investment Securities firm, according to federation documents.

The United Jewish Endowment Fund, which is managed by the federation, has lost slightly more than 8 percent of its total endowment, valued at about $125 million, according to a UJEF official. Twelve local agencies, synagogues and schools, all of which have a stake in the endowment, could lose significant amounts of money used to deliver community services.

"This is a very serious circumstance for our community and for our endowment fund and it's something we are trying to address as directly and transparently as we can," said David Butler, the UJEF's president. "We have retained council and are pursuing recovery of whatever assets we can from Madoff's company."

The UJEF has invested with Madoff since 2004 in the form of stocks, bonds, cash and other holdings. The fund, which serves as the custodian for agency endowments and donor-designated contributions, provides funds for specific needs programs at local agencies. (Fourteen local institutions have monies invested through the endowment; see box, page 22.) It also provides capital for special federation programs.

UJEF is just one of many Jewish institution and investors across America to be caught up in Madoff's $50 billion Ponzi scheme, revealed late last week by federal investigators.

In Los Angeles, the Jewish Community Foundation's $238 million Common Investment Pool lost $18 million it had invested with Madoff, according to a letter sent out by the foundation.

Among other Jewish institutions and foundations believed to be hit by the Madoff scandal: the American Jewish Congress, the Technion-Israel Institute of Technology, Steven Spielberg's Wunderkinder Foundation, Elie Wiesel's Foundation for Humanity and Carl Shapiro's charitable foundation.

Immediately following Madoff's revelation that his advisory business was a fraud, two Jewish foundations were forced to close due to investments with the firm, and at least one local foundation appears set to lose its holdings.

The Charles I. and Mary Kaplan Foundation, based in Rockville and run by local philanthropists Irene and Edward Kaplan, listed more than $29 million in various investments with Madoff's firm, according to 2006 990 tax filings. With slightly more than $30 million in total assets, Madoff-controlled investments comprised the bulk of the foundation's investment capital, according to the 990 filing.

Reached at home, Edward Kaplan, a past president of the UJEF, declined to comment on the Kaplan foundation's assets, saying he has yet to review them. Irene Kaplan, the federation's immediate past president, did not return messages. The foundation contributed $100,000 to both the Jewish Community Center of Greater Washington in Rockville and the federation in 2006, according to the 990 filing. A donation of $655,000 also was made to the JCC Association that same year.

In an letter sent last week to the federation's board of directors, UJEF trustees and local agencies, Butler discussed the endowment's financial situation, saying that a formal request has been sent to Madoff's firm demanding "an immediate redemption of 100 percent of UJEF holdings," according to the letter. The letter also noted that damages could have been worse if it were not for a UJEF investment policy that states no more than 10 percent of the endowment's funds be invested with any single fund manager, according to the letter.

"It's incredibly painful to have to have this happen at any time, but particularly now," said Andy Stern, a member of the federation's executive board. Currently, community needs are so great that "any money coming out of charitable funds that are lost are going to have real world, terrible consequences," Stern said, adding that "somewhere down the road," the investment loss could affect agency services. "It's devastating for the community."

Stern explained that the revelations are so new that precise effects are difficult to determine. But "it's a large chunk of money so, in theory, there could be a significant loss of income."

"I don't think any of us expect that we will [ever] see any of that money," said Michael Feinstein, chief operating officer at the JCCGW, which has a $5.5 million stake in the UJEF. "Whatever loss they take" at the UJEF, the JCCGW takes, Feinstein said, adding that funding for special needs programs and financial assistance initiatives could be affected by funding disparities.

Other agency leaders expressed shock at Madoff's alleged widespread corruption and deceit.

"It's just this general sense of upset and disappointment," said David Gamse, executive director of the Jewish Council for the Aging, which has a portion of its endowment tied into the UJEF. "It certainly could not have come at a worse time, on top of all the other financial concerns," he said, adding that he expects "most of that [invested] money will be gone."

Though Gamse said it's too early to detail any concrete loss, he said scholarship programs for low-income seniors, transportation services and staff training sessions could all face funding discrepancies as a result of the fraud. The JCA's investment committee is set to meet in the upcoming weeks to determine "what we can do right now" to secure remaining funds and future investments, according to Gamse.

Until the collapse of Madoff's company last week, UJEF's investments with Madoff were apparently paying returns, according to one person familiar with how the UJEF operates. The source explained that all of those involved thought Madoff was a safe bet, and that investors were generally swayed by large, ongoing returns, which came despite the larger economic situation.

Now, two well-known Jewish foundations are facing certain demise.

The Robert I. Lappin Foundation in Salem, Mass., announced Friday that it would shut down after losing $8 million -- all of its money. 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 its closing on Sunday.

Sources close to Yeshiva University, where Madoff served as board treasurer and chaired the university's Syms School of Business until he resigned last week, said the school has lost at least $100 million. Y.U. officials declined to offer any specifics.

Locally, agency leaders are wondering how the community will be affected by what could be a multimillion dollar loss.

"The big question ... is the impact on our community and Jewish foundations throughout the country, if not the world," said JCCGW's Feinstein. "Fifty billion dollars of wealth has disappeared and the donors, the philanthropists in our community, may well have been affected to a large extent. ... We're concerned it's going to have an impact on donations going forward and concerned about the ramifications for community agencies that rely on them."

Ken Kozloff, the CEO of the Jewish Social Service Agency, which has none of its own endowment funds tied into Madoff or the UJEF, said local donors who make large donations regularly are already expressing panic. "I know it has affected some of our donors; I've already received phone calls," he said, explaining that they claim to have lost millions from investments with Madoff, and "won't be making contributions" to any institutions until the case is resolved in court.

The federation's Stern said that if local philanthropists lost a significant amount of money, community-wide donations could certainly drop dramatically. "It could have a major impact on Jewish communities across the nation if major donors had a lot of money tied up with him," but only time will tell, he said.

The JCA's Gamse concluded that in such a strained economic climate, "people are hungry for good news, and this is so far in the other direction."

The federation is to continue updating agencies and board members about the matter as developments occur, according to Butler's letter.

Meanwhile, reports continue to come out in the national media about prominent individuals from across the country who lost money in Madoff's scheme.

New York Mets owner Fred Wilpon, GMAC Financial Services chair J. Ezra Merkin and former Philadelphia Eagles owner Norman Braman all were reported to have taken significant hits due to their dealings with Madoff, who reportedly would not accept any investment in his fund below $10 million.

Reports have surfaced also that media magnate Mortimer Zuckerman was significantly hurt by investing with Madoff. Sen. Frank Lautenberg (D-N.J.) says his foundation has about $15 million invested with Madoff.

"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."

Jacob Berkman of JTA News and Features contributed to this article.