Staff Writer

The United Jewish Endowment Fund has established two committees to review organization-wide investment policies and examine how the fund came to invest with Bernard Madoff's $50 billion "Ponzi" scheme, according to Jewish Federation of Greater Washington documents.

An independent special committee is set to review "all aspects of the endowment fund's investment with Bernard Madoff," states one document, and will be chaired by Debbie Cohn, an endowment fund trustee. Michael Levy, a D.C.-based lawyer with Covington & Burling LLP and former federation board member, will also serve as the committee's counsel. Richard Dine, a chair of the federation's audit committee, and David Eppler, a UJEF trustee, will serve on the special committee.

"These are the right people to ask to serve in this capacity," said David Butler, the UJEF's president. "I chose them in consultation with others, but I made the appointments [and] they are the right people to handle this assignment."

Cohn and Levy both declined to comment on their respective roles on the committee.

A separate investment policy committee, now being formed, will be charged with examining the UJEF's current investment practices and procedures "to determine whether changes to our processes should be made," according to the documents. It will be comprised of members of the UJEF's investment committee, endowment fund trustees and, potentially, members of the federation's board, according to the documents.

In addition, the review committee will include one member who has no association or ties to the federation. Paul Berger and Sheldon Cohen, who serve as counsels to the federation and endowment fund, respectively, are to serve as ex-officio members of this body.

Butler said there is no specific timeframe for either committee.

To manage the media and public relations fallout, the UJEF has hired The Harbour Group, a D.C-based public relations firm that specializes in "issues management" and "crisis communications," according to the firm's Web site. Among the clients listed on the Web site are Pfizer, Inc., U.S. Airways and the United Arab Emirates.

The Harbour Group also is helping the UJEF respond to critics upset by the fund's entanglement with Madoff. "We have concluded that the best response to our critics is to educate them about the stringent and rigorous policies we have in place," read the federation documents, called "talking points for federation board members regarding Madoff."

According to one UJEF official, the fund received some critical letters after sending out correspondence to the federation's entire donor list, detailing the fund's involvement with Madoff.

"The fact is, it's not all that surprising, people generally are offended by this whole Madoff situation and troubled that our fund made that investment," the official said, noting the UJEF does not anticipate facing any lawsuits. "I don't think any of [the critics] are considering doing anything more than complaining that they're troubled by it. I'm not terribly concerned about a lawsuit," said the official.

UJEF's communications wth donors, board members and other interested parties during the past two weeks have stated that the investment committee adheres to strict policies meant to ensure the safety of all funds and investments.

The investment committee itself, by and large, is "comprised of people involved in investment activity both professionally and personally and have an interest, capacity and capability in that area," said the UJEF official. There are 12 members on the committee, several of whom are also endowment fund trustees. Together, the 12 are charged with analyzing, researching and deciding where all UJEF-managed funds will be invested.

The committee meets monthly to review the UJEF's investment portfolio in conjunction with two advisers from Prime Buchholz and Associates, an investment advisory firm based in Portsmouth, N.H. In those meetings, Prime Buchholz typically informs the committee if special attention should be paid to a specific fund manager, stock or bond. "Everyone is very familiar with what their responsibilities are, and careful about adhering to the highest level of fiduciary activity," the official said.

The federation's advisers at Buchholz were not available for comment.

Generally, before any specific investment area is chosen, "there's lots of discussion" about performance, transparency and business strategies, according to a source familiar with how the UJEF works. Prime Buchholz, the source explained, investigates "potential investments and provides detailed information for evaluation," ranking its long-term safety and potential for return.

In the case of the UJEF's initial involvement with Madoff in 2004, the source explained that the investment committee was diversifying the UJEF's "alternative investments." Unlike typical stocks and bonds, these types of investments seek to be less volatile than the general day-to-day markets. Madoff's firm specialized in these types of financial instruments.

The committee "knew that the [stock market] bubble was not going to last," the source said. Thus, the goal at that time was to branch off into new areas in an effort to maintain the fund's long-term health.

Prime Buchholz was tasked with researching and presenting several types of alternative investment strategies. According to the source, the firm offered several investment suggestions, only one of which was Madoff's firm, generally regarded at the time as "a good investment."

Yet Madoff's firm was not one of Prime Buchholz's top choices due to its lack of transparency regarding techniques and strategies for investing. "You couldn't meet the guy [and Prime Buccholz] couldn't talk to him. ... It wasn't a transparent fund," the source explained. This is the norm with many alternative investment firms, the source said, which seek to keep their strategies private to avoid revealing their money-making secrets.

The investment committee, however, decided to invest "a small percentage" with Madoff, "to put their toe in the water," since some committee members had heard of Madoff's success from wealthy friends. Thus, an initial investment of more than $1 million was placed into Madoff's firm, according to the source, along with two other investments in similar types of funds.

Once involved with Madoff, the source says the committee was impressed with "the performance ... consistency and ability to verify every single trade" on monthly statements that detailed the firm's transactions.

Yet not everyone on the investment committee was comfortable with Madoff's hesitance to reveal his exact practices.

"They were satisfied with the performance, [but] they were still nervous about their inability to verify the strategy ... they were sort of regularly questioning, 'Have you heard any more about how Madoff does it?' " explained the source. "They were willing to overlook, or set aside their discomfort because the investment was thought to be for the good of the fund and the good of the community," the source said.