Tuesday, December 16, 2008

Madoff Fallout

A guest post by JS:

With every passing day, new information comes out identifying the victims of former Nasdaq Chairman, Bernard Madoff's, $50 billion Ponzi scheme. Essentially, Madoff promised investors high returns on their investment to his fund. However, those high returns were paid, not from actual profits, but from other investors' contributions to the fund. A is paid from B, B is paid from C, and so on. Eventually the number at the bottom gets to be too large and the scheme collapses. In this case, $50 billion was stolen from the people at the bottom.

One of the hardest hit appears to be HSBC which lost $1 billion. Fraud is fraud and people should be upset whenever anyone, no matter how rich, is defrauded. But the fraud is particularly acute here due to the sheer volume of charities (in particular Jewish charities) that were invested in Madoff's funds.

Madoff was the treasurer of Yeshiva University's Board of Trustees. YU won't disclose how much it lost, but sources say they were hit particularly hard. See here.

Others hit include Steven Spielberg's charity and Elie Wiesel's charity.

The Robert I. Lappin Foundation which was involved in programming to keep children Jewish will be forced to close their doors as will The Chais Family Foundation which was involved in supporting Jewish causes in Israel and the former Soviet Union. See here and here.

Other prominent people who have been hurt include Mort Zuckerman, Fred Wilpon, and J. Ezra Merkin. The last name, Merkin, is a big concern for the Jewish community. Many Jewish organizations invested in Merkin's fund which was invested with Madoff. Yeshivas SAR and Ramaz reportedly lost millions of dollars. Several Jewish Federations are also thought to be hit hard.

See here for a list of all identified victims.

Charities were already in trouble due to the poor economy which led to lowered giving. This tragedy is going to mean the death knell for many more of them. When charities suffer, we all suffer. The fallout from this is going to be immeasurable as services our communities have all come to rely on suddenly stop.

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