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Madoff, fire and theft: How Jewish nonprofits lost money

The Bernie Madoff Ponzi helped spur changes in how Jewish federations do business.  (U.S. Department of Justice)

The Bernie Madoff Ponzi helped spur changes in how Jewish federations do business. (U.S. Department of Justice)

WASHINGTON (JTA) — Bernard Madoff. An unscrupulous contractor. Art that disappeared or was destroyed by fire — it’s not clear which. Bad, bad bookkeepers. And did we mention Bernard Madoff?

These were among the causes of “material diversion” of assets — tax-speak for lost funds or property totaling $250,000 or 5 percent — reported by Jewish organizations on their tax returns.

Since 2008, the IRS has asked nonprofit organizations to indicate on their tax returns whether they have become aware of such losses in the past year. According to an investigation of 1,000 nonprofits published Sunday in the Washington Post, 21 Jewish organizations answered yes.

The year 2008 happened to be when Madoff’s massive Ponzi scheme came to light. In the two years that followed, at least 13 Jewish organizations  that were victims of Madoff answered yes to the question on their tax returns.

Several of the organizations provided explanations of the losses.

Yeshiva University’s 2008 return noted that Madoff was a former university trustee and described how multiple investments wended their way into Madoff’s portfolio, eventually adding up to a $95 million loss. The return also described the steps taken by Y.U. in response.

“The university enhanced its conflict of interest policy,” the university reported. “Under the enhanced conflict of interest policy, members of the university board of trustees may not be engaged in business with the university.”

Other Madoff victims are terser in describing their relationships with the swindler, in some cases not even naming him. The America Israel Cultural Foundation’s explanation of how it lost $14 million to Madoff amounted to this: “The custodian of the investment pool did not invest the funds and stole the remaining moneys under his custody.”

Some were hit indirectly by Madoff. The Jewish Federation of Greater Los Angeles and at least three California family foundations reported millions of dollars in losses through investments made through the Jewish Community Foundation, which reported in its 2008 return an overall loss of more than $23 million to the Ponzi scheme.

One of the filers, the American Jewish Congress, reported $18.2 million in losses to Madoff in its 2008 return. Missing is the poignant follow-up: The American Jewish Congress has largely ceased operations, but it has continued to operate in a mostly nominal fashion under the leadership of philanthropist Jack Rosen.

Madoff does not account for all of the 21 Jewish organizations reporting losses. The Conference on Jewish Material Claims Against Germany in 2009 reported $42.5 million in losses from fraudulent claims orchestrated by former staffers.

“Because the nature of irregularities is outside the scope of the Claims Conference, it is limited in its ability to investigate such matters,” the return says, concluding: “In the opinion of legal counsel, the Claims Conference has acted with appropriate business diligence in the disbursements of these funds.”

Touro College, a Jewish-affiliated school based in New York, disclosed in 2009 that a “former construction manager” had used a “sophisticated kickback scheme to defraud” the school.

Hedy Shulman, a Touro spokeswoman, declined to elaborate or say how much was lost, adding that the matter was subject to further litigation. Shulman noted, however, that the loss was related to the development at Touro’s facility on 125th Street in Manhattan.

The Jewish Community Center of Dutchess County, in Poughkeepsie, N.Y., reported in 2009 that its bookkeeper was “involved in an embezzlement scheme and has stolen company assets.” Officials did not reply to requests for comment.

Other reports are harder to comprehend. American Friends of the Tel Aviv Museum of Art reported in 2009 that “certain works of art were stolen and destroyed by fire in the current year.” The group’s director, Enid Shapiro, was in Paris and unavailable for immediate comment, a staffer said.

Colorado-based Chessed Rifka, which raises money for yeshivas in Israel, answered yes to the diversion question but did not provide any explanation of what monies were lost.

One Jewish group reported a happy ending — kind of. Advancing Women Professionals and the Jewish Community recovered $62,000 and legal fees from an independent contractor in 2011 after having reported its loss in 2010.

Shifra Bronznick, the group’s president, said the settlement with the contractor, who was terminated, kept her from adding information, but she said she was satisfied with the outcome.

“It’s not something you would want to happen,” Bronznick said, “but the restitution is the best possible scenario.”

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