Charity Caught Up in Wall Street Ponzi Scandal

Saturday , December 13, 2008
By Roger Friedman

Charity Caught Up In Wall Street Ponzi Scandal

There was at least one warning sign everyone missed in the Bernard Madoff story. Madoff, a former Nasdaq chairman who reportedly created the largest swindle in Wall Street history, liked to spread around the money he allegedly stole to make himself look good.

Madoff was arrested on one charge of securities fraud Thursday and released on $10 million bail. He faces up to 20 years in jail in what authorities say was "a giant Ponzi scheme." Such a scheme can involve taking investments from clients, spending the money on yourself and repay the clients out of other clients' accounts. Readers of this column may recall such a case with Hollywood money manager Dana Giacchetto back in 2001.

Madoff kept his story secret for years, and got away with it. "Everyone wanted him to manage their money. They would say, If only I get with Bernie Madoff," a very rich media person told me Thursday night.

There were some indications that Madoff might have been in trouble. The signs were there. Last year, his own Madoff Family Foundation gave only $95,000 to other charity groups.

This was a significant drop from 2006, and from every year since 2000. In 2006, Madoff (which is pronounced "made-off," as in, made off with all our money) gave away a total $1,277,600. It's surprising no one noticed the difference in 2007 since it affected a number of hospitals and other health organizations.

The Madoff family established its charity in 1998 and since then have given multimillion-dollar donations to New York's big-league charities.

These donations afforded the Madoff family — Bernard, his wife, Ruth, their two sons and the sons' wives — the chance to play with the rich and powerful in various New York society circles.

The charity started out slowly with the Madoffs putting in around $4 million for each of the first two years. But in 2000, they parked an astounding $25 million in their tax-free Madoff Family Foundation. It was then that they turned into big-time givers.

Madoff's knack for largesse also spread to members of his family. One son, Andrew, has a tax-free foundation that lists $5 million in assets. Another son, Mark, has one with $2 million in assets.

But it's Bernard and Ruth Madoff's foundation that might be interesting for investigators to look at. In 2007, though they claimed on their federal tax Form 990 total assets in the fund of $19.1 million, the Madoffs also noted a "gross sales price for all assets" — meaning stocks, bonds, and securities — of $182 million.

However, the couple's annual charitable contributions have never exceeded $7 million and have dipped as low as $90,000.

Cancer, lymphoma especially, became a cause close to the Madoffs when son Andrew was diagnosed with it a few years ago. Ironically, according to reports, it was Andrew and his brother, Mark, who discovered their father's alleged pyramid scheme and may have alerted authorities.

In fact, the Madoffs have poured millions upon millions into lymphoma research — just under $6 million in just 2003, their peak year of total giving to charities.

In 2004, a year when their total donations came to almost $6 million, the Madoffs sent $2.5 million to Memorial Sloan Kettering Hospital and $1.7 million to the Leukemia and Lymphoma Society.

Some non-cancer charities made out pretty well in 2005. Girls Inc – a sort of "Big Sisters" group — got $25,000; Lincoln Center put $50,000 in its till; the Special Olympics had a gift of $25,000 and Robin Hood Foundation, $30,000.

Madoff wasn't stupid, either. In 2005, he donated $100,000 to the famous Manhattan private school for rich kids, Dalton; and $25,000 to Prep for Prep, which takes poor kids who are smart and sends them to boarding school on an Ivy League track.

In 2006, that huge total sum included one big winner: the Gift of Life Bone Marrow Foundation, which received $1 million. The contribution earned the couple the right to be chairmen of the charity's annual gala dinner. And son Andrew became chairman of the Lymphoma Research Foundation.

Meanwhile, New York's Lincoln Center — currently in a huge rebuilding phase — got a healthy additional $77,500; Jessica Seinfeld's Baby Buggy charity received $12,500; Madoff sent the Robin Hood Foundation another $30,000; and Girls Inc. $25,000 more. The latter two groups have received money from the Madoffs in most years.

Last year, things changed quite dramatically. Gone were the many millions for cancer research and other groups. Despite the $19.1 million in assets, the Madoffs gave away their least amount so far, divided among New York's Public Theater ($50,000), $25,000 to a Girls, Inc., $15,000 to a children's welfare group and $5,000 to The Door.

The significant drop from 2006 to 2007 should have been a signal to the Madoff's regular recipients that something bad was about to happen. And it did.