10 years after Madoff ripped off the Jewish world, a sort of happy ending
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10 years after Madoff ripped off the Jewish world, a sort of happy ending

Deep scars remain in the US Jewish community because of the Ponzi scheme, with some left financially ruined or worse, but many groups have managed to find their feet again

Bernard Madoff leaves Federal Court Wednesday, Jan. 14, 2009 in New York. (AP/Frank Franklin II)
Bernard Madoff leaves Federal Court Wednesday, Jan. 14, 2009 in New York. (AP/Frank Franklin II)

NEW YORK (JTA) — Robert Lappin was in Palm Beach when he found out that his charity was broke and his money was gone.

It was the same small, moneyed Florida town where he would see Bernie Madoff at the Breakers Palm Beach, the golf resort where both men stayed during the winter. Although the hotel was a social scene for older, wealthy Jews, Lappin didn’t play golf or eat dinners with Madoff — in fact, he called the investment adviser “standoffish.” But Lappin wasn’t interested in Madoff’s personality. All he cared about was the man’s reputation as a Wall Street genius.

For 17 years, Lappin had trusted Madoff with nearly all of his money, pouring as much as $30 million of investments into five accounts at Bernard L. Madoff Investment Securities. Lappin made his money at first making vacuum cleaners, then grew his wealth through real estate and finance. Madoff, he thought, was only making him richer — managing accounts for his charitable foundations, his employees’ retirement plans and much of his personal wealth.

“He did make sure that I understood that he was doing us a service and a benefit by allowing us to invest with him,” Lappin told JTA this month from his home in the Boston suburbs. ”Everything always checked out beautifully and his reputation as a money manager and as a person was unblemished.”

His last account statement said he had $83 million in the accounts, including $8 million for the Robert I. Lappin Charitable Foundation, which supported Jewish causes across Boston’s north shore.

Investors inquiring about their money, and others, gather in the lobby of where Bernard L. Madoff Investment Securities LLC, have their offices Friday, Dec. 12, 2008, in New York. (AP/Diane Bondareff)

Then, on the afternoon of December 11, 2008, Lappin got a call from his investment portfolio manager.

Madoff had been arrested for fraud. And just like that, Lappin realized that he didn’t have $83 million in investments with Madoff, or even $8 million. He had nothing.

“I was totally shocked,” he said. “I couldn’t believe it. I said to her, ‘Are we wiped out?’ She said, ‘I’m sorry to say we’re wiped out.’”

An American Jewish catastrophe

It’s been a decade since Bernie Madoff’s arrest stunned Wall Street and sent the Jewish world reeling. Investors — from retirees to small Jewish nonprofits to day schools to universities to large European hedge funds — believed they had made a safe bet with Madoff. By December 2008, on paper, he was purportedly managing $67 billion of other people’s money.

Then it all evaporated. Really, it was never there. Madoff’s Ponzi scheme, where he used money from newer investors to pay off older ones, never actually trading stocks with it, came crashing down with the Great Recession. And it brought a host of Jewish people and institutions down with it.

Among those investors were Jewish foundations, leading Jewish institutions and public figures who met Madoff in the intimate world of Jewish philanthropy and saw his money management as a force multiplier for their charitable causes and retirement accounts. That made Madoff’s fraud particularly tragic for the Jewish world – an erasure of perhaps more than a billion dollars on top of the losses suffered in the Great Recession.

“The individual repercussions of it are extreme and heartbreaking and in certain cases fatal,” said Temple University Professor Lila Corwin-Berman, author of the forthcoming book “The American Jewish Philanthropic Complex.” “Families and individuals and even certain organizations were really dealt blows they could not absorb because of his crime.”

Yeshiva University’s Department of Communications and Public Affairs, New York (Scaligera/Wikimedia Commons)

It’s hard to come by an estimate of the total amount of Jewish wealth destroyed by Madoff. But those who invested, and lost, with Madoff included some of the most prominent names in American Jewry. Yeshiva University lost about $100 million with Madoff. The Ramaz School of New York City and Maimonides School near Boston, two elite Jewish day schools, lost $6 million and $5 million, respectively. Elie Wiesel’s charitable foundation lost $15 million.

Wiesel himself also lost millions in his life savings. Famed Dodgers pitcher Sandy Koufax and disgraced former New York Governor Eliot Spitzer also lost money with Madoff. Ira Rennert, a billionaire financier, reportedly lost at least $100 million. New Jersey State Senator Loretta Weinberg lost more than a million.

“Friends and family from Long Island and Palm Beach had been with Madoff for so long that they viewed him almost like a bank,” said Matthew Schwartz, a former federal prosecutor in the Southern District of New York who led the criminal investigation of Madoff. “That provided a kernel of so much money to this Ponzi scheme that it gave him the ability to thrive for so long.”

Getting money back from ‘net winners’

But this story has a happy ending — sort of. Most of the $65 billion Madoff was accused of losing turned out to be fictitious profits — fake gains on stocks that never existed. In the end, Madoff stole $17.5 billion of money that investors had put in. And 10 years later, they’ve gotten almost all of that money back.

The trustee for the liquidation of Madoff’s company, Irving Picard, has recovered more than $13 billion, about 75 percent of the stolen money, and is still pursuing claims.

“It went on for so long, and there were institutions as well as a lot of people invested,” Picard told JTA. “They still had money that we were able to recover … We’re striving to collect as much as we can. My goal originally was 100 percent. It still is.”

In this Dec. 17, 2010 file photo, Irving Picard, Securities Investor Protection Act Trustee, left, is joined by U.S. Attorney for the Southern District of New York Preet Bharara during a news conference, in New York. (AP/Mary Altaffer, file)

That money comes from so-called “net winners,” clients who withdrew more fictitious profits than they invested. These include the Hadassah Women’s Zionist Organization of America, which withdrew nearly $100 million more than the $40 million it put in (and paid back $45 million in a settlement). Lawyer Jeffry Picower, who paid back $7.2 billion of fictitious profits, gave back the largest lump sum of any investor.

Even though Hadassah withdrew more than it invested, it shouldn’t be seen as complicit in the fraud, says Steve Rabinowitz, who handled public relations for Hadassah at the time of the Madoff scandal and was let go in 2013. After all, like so many other investors, the organization thought it was tapping into legitimate investment gains.

“The Madoff investment wasn’t really their fault,” Rabinowitz said. “Lots of good people got taken in by Madoff and I never thought they got taken in by any nefarious reasons. They made an unfortunate investment for not bad reasons. They were just unlucky.”

That’s why investors had a hard time wrapping their heads around the fraud, said Richard Greenfield, a lawyer who consulted for a handful of Madoff victims in Palm Beach. For so long, they had treated their fictitious profits as real and legitimate. Now, they were learning that they had always been fabricated.

Some who needed cash immediately sold their debt for pennies on the dollar, Greenfield said. Others have stuck it out to recover money via Picard or the Madoff Victim Fund, another entity, established by the Department of Justice, that is distributing money directly to individual victims.

“They really felt that they had so much more money in their accounts,” Greenfield said. “When they talk about their losses, they talk about the fictitious numbers in their accounts, and for some of them, it’s hard to explain: Your real loss wasn’t $200,000, it’s $10,000, which is what you put in.”

Judith Welling, left center, a Manhattan resident who lost money investing with Bernard Madoff, talks to the media outside the courthouse Thursday, March 12, 2009 in New York. (AP/Henny Ray Abrams)

Beyond the legal efforts, the organized Jewish community performed triage to help some of Madoff’s nonprofit victims get through the period after his scheme came to light. Two weeks after the news broke, the Jewish Funders Network, an umbrella for donors, convened 35 of the country’s biggest Jewish foundations to make a plan to provide bridge funding to bereft organizations.

And even though a decade has passed, victims in the Jewish world are still hesitant to talk about Madoff. Ramaz and YU declined to speak to JTA, as did Hadassah, the Elie Wiesel Foundation, the Carl and Ruth Shapiro Family Foundation and several others.

Ruth Madoff, Bernie’s wife, politely declined a phone interview.

How Madoff did it: The short version

Madoff got his start as a stockbroker as early as 1959, when he was still in college. His firm made its name over the ensuing decades by investing in computerized trading on the NASDAQ market and by being a “market maker,” or a firm that buys and sells stocks at specific prices. He started managing wealth in the 1970s, beginning with a group of clients from his father-in-law’s accounting practice.

Madoff claims his Ponzi scheme began in 1992, according to “The Wizard of Lies,” a 2011 book on the scandal by Diana B. Henriques. But Schwartz says it started as far back as the money management business itself, some two decades earlier.

Even as he built an increasingly elaborate fraud, Madoff maintained a sterling reputation. He had served as the chairman of NASDAQ and was seen as a pioneer in computerizing the market. A lot of the money for the fraud came from feeder funds, or hedge funds that funneled all of their money straight into his hands. Other friends and colleagues of his, like Carl Shapiro or Jeffry Picower, invested their own money with him and encouraged friends to do the same.

Nearly all of these people have since insisted that they had no idea Madoff was running a sham, though many have had to pay hundreds of millions in settlements. Shapiro had to pay $625 million in an agreement with the FBI. Picower’s estate gave back more than $7 billion soon after he died in 2009.

And as his ostensible success grew, so did his aura in the Jewish community. Madoff was the treasurer of Yeshiva University. He met some of his Jewish investors in the wealthy social circles of Manhattan and the elite Jewish Palm Beach Country Club.

Many others, including Rennert and media mogul Mort Zuckerman, invested in Madoff through J. Ezra Merkin, a fixture in Jewish life on the Upper East Side of Manhattan who ran a group of hedge funds that invested heavily with Madoff. Members of the Fifth Avenue Synagogue invested perhaps a billion dollars with Merkin, a former president of the congregation, according to The New York Times.

(Merkin has paid two separate settlements as a result of his investing with Madoff. He paid $410 million in 2012 to New York State, and $280 million in a settlement with Picard this year.)

This Dec. 17, 2008 file photo shows Bernard Madoff, chairman of Madoff Investment Securities, returning to his Manhattan apartment after making a court appearance in New York. (AP/Jason DeCrow)

In addition to his perceived record of success, Madoff drew investors in with an unassuming and reserved personality. Investors thought they were gaining access to an exclusive club. And Madoff’s returns were not flashy either — coming in at about 10 to 12 percent per year — which also made investors think they were making a safe, conservative choice.

There were whistleblowers along the way: Harry Markopolos, a finance executive in Boston, repeatedly encouraged the Securities and Exchange Commission to investigate Madoff for running a Ponzi scheme, though those warnings went nowhere. A couple of articles in financial publications in 2001 also cast doubt on Madoff. And, in fact, all of his numbers were made up. The totals people thought they had — like Lappin’s $83 million — were just fabrications.

When people began withdrawing large amounts of money as the economy tanked at the end of 2008, Madoff finally ran out of cash. He confessed his crime, was arrested, pleaded guilty and in 2009 was sentenced to 150 years in prison. Now 80, Madoff is serving time in a federal correctional complex in Butner, North Carolina.

Madoff’s family has also suffered tragedy since his arrest. On the second anniversary of his arrest, his son Mark died by suicide in his Manhattan apartment. In 2014, his other son, Andrew, died of lymphoma. Ruth Madoff, who was allowed to keep $2.5 million, lives in Connecticut.

“We were snookered into his trap,” Lappin said of Madoff. “But of course we didn’t realize that until he was exposed.”

“I just felt like there was a death”

Ten years ago, that trap seemed like it might have left Debbie Coltin out of a job. The executive director of Lappin’s family foundation, as of December 11, 2008, Coltin was focused on replicating the foundation’s free teen tours to Israel in cities across the country. The night after Madoff was arrested, she had just returned from her husband’s workplace holiday party when she heard an ominous voicemail from Lappin on her home phone. But because she never dealt in detail with investments (all the money came from Lappin) she wasn’t sure what was going on.

“Something in his voice just sounded horrible,” she recalled. “I got a really sick feeling and I couldn’t sleep. I was at the office by 6 a.m. and people were already there, and they just told me what had happened.”

Coltin then had the distasteful experience of calling in her four part-time employees, one-by-one, and telling them that they were laid off, effective immediately. She expected to lock the door that day, a Friday, and see the foundation disappear.

‘I just remember crying and feeling a sense of deep, deep loss and pain’

Meanwhile, reporters were bombarding her for an angle on the story. Katie Couric, at the time a CBS news anchor, called Coltin’s house. When she went to synagogue the next day, she said, “I just felt like there was a death.”

“I just remember crying and feeling a sense of deep, deep loss and pain,” she said. “Monday morning is going to come, and I don’t have a job.”

But then something strange happened: The broke charity stayed open. Over that weekend, another local philanthropist, David Lederman, pledged $100,000 so that the Lappin Foundation could run the 2009 Youth To Israel trip, which took some 100 teens on a summer tour of Israel each year. With that money in place, Coltin and all of her employees came back to the office Monday and began doing something they had never done before: fundraising.

Coltin worked without pay for a while, but in the end they raised a total of about $400,000, enough to make the 2009 trip happen. A decade later, the foundation is still operating the trips and a range of other local programs in Boston. The staff is leaner, the salaries are lower and more time is spent meeting with donors, but for Coltin, the work goes on.

The headquarters of the Robert I. Lappin Charitable Foundation appears behind a parking spot marker, in Salem, Mass., Monday, Dec. 15, 2008. (AP/Steven Senne)

“I just did what I had to do,” she said. “It was asking for money, stuffing envelopes and putting stamps on them and staffing telethons … I was learning so much on the job, but it kept me going.”

While the Lappin Foundation was treading water, Lappin himself also had to deal with the staggering loss of some 90 percent of his wealth. Madoff’s arrest sent his net worth plummeting from $22 million to $2 million. It was enough for the then-86-year-old to live on, but he was more worried about his employees’ retirement accounts, which were also invested in the scam.

So, using his own funds, plus some held independently by his wife and children, Lappin began reconstituting the 401(k)s. By the end of 2009, he’d spent more than $5 million and made all of them whole.

“I was very shocked by my losses, OK?” he said. “But what bothered me the most was that my employees, about 50 of them, really had all of their life savings in the 401(k) plan … So I just made up my mind that somehow I would restore their assets. So I proceeded to do that.”

The never-ending saga of Hadassah

The story has not had such a neat resolution for everyone. In 2014, Hadassah found itself in an existential crisis.

For more than a century, the group had organized Jewish women in America and funded the leading research hospital in Jerusalem, the Hadassah Medical Organization. But now the hospital was running large deficits and was on the brink of collapse. By 2014, its accumulated deficit was more than $350 million. The Israeli government was complaining, and the hospital and women’s organization were pointing fingers at each other.

An Israeli Health Ministry report issued that year planted the crisis, at least in part, at the feet of Bernie Madoff.

“In 2008, following the global financial crisis and the collapse of Bernard Madoff, with whom the Hadassah Women’s Organization has invested money, there was a decline in the ability of the women’s organization to donate to the hospital,” the report said. “This period represented a turning point in the character and scope of the organization’s support of the hospital.”

Madoff’s role in the hospital collapse was just one way that the Ponzi scheme has continued to haunt Hadassah, perhaps the highest-profile Jewish nonprofit victim of the fraud. It didn’t lose the most money or collapse like other groups, but for Hadassah, the Madoff story has never really ended.

(Hadassah’s leadership declined to speak with JTA, and did not answer questions sent via email. Beyond the sources quoted here, JTA reviewed Hadassah documents and spoke with multiple former employees who asked not to be quoted.)

Hadassah, like many other Madoff investors, started relatively small, putting an initial stake of $7 million into his care in 1988. Then, based on the decisions of its investment committee, Hadassah added an additional $33 million over the following nine years, for a total investment of $40 million. When Madoff was arrested, the group thought it had $90 million in the account.

Former Hadassah National President Nancy Falchuk. (photo credit: Nati Shohat/Flash 90)
Former Hadassah National President Nancy Falchuk. (photo credit: Nati Shohat/Flash 90)

“While the loss of $90 million dollars is significant, let me reassure you that Hadassah will continue to carry out our mission in a cost effective manner,” the organization’s president, Nancy Falchuk, wrote in a confident email to her board soon after the scandal broke. “This is a painful moment, when, with the very best of intentions, we find ourselves victims of the actions of one man. But it is at these challenging junctures in the history of our people that the real story is written.”

In the years following the Madoff scandal, Hadassah began offloading assets: It closed its Washington, D.C. office and 16 other regional offices. It laid off a quarter of its staff. It sold property in Jerusalem in 2009 and midtown Manhattan in 2012. In 2011, it spun off Young Judaea, a Zionist youth movement that it used to fund.

Meanwhile, Madoff continued to dog the organization. In 2009, a former executive confessed to an 18-month affair with Madoff, though she had left the organization in 1997. And although the group lost $40 million in principal investments, it also had withdrawn $137 million in the 20 years between its first investment and Madoff’s arrest.

Hadassah, like all of Madoff’s other clients, thought that money was legitimate investment income. But the withdrawals meant Hadassah benefited to the tune of nearly $100 million dollars from Madoff, making it a “net winner” — and subject to a clawback.

Picard settled with the group in 2011, mandating that it pay back $45 million. Anything more would prevent Hadassah from being able to “continue to meet its charitable mission domestically and abroad,” according to a court document filed in 2011 by Picard’s office.

“It was never unstable, it was just bleeding,” said Rabinowitz, the former spokesman. “I think we managed to do all the selloffs and spinoffs slowly enough that people didn’t really notice that there was this wholesale selloff of everything Hadassah.”

In 2012, Hadassah appeared to turn a corner. The group celebrated its 100th anniversary and inaugurated a massive new medical tower in Jerusalem that had cost the organization $363 million. But the trouble had not ended there. The hospital descended into its debt crisis the next year.

Hadassah Hospital Ein Kerem in Jerusalem, on May 29, 2017. (Hadas Parush/Flash90)

The Health Ministry report, blaming the crisis partly on Madoff, also showed that in 2008, mostly before Madoff’s confession, the hospital was running a $45 million deficit. At that same time, Hadassah was in the process of scaling back its giving to the hospital.

In 2007, it lowered its annual funding to the hospital from $40 million to $25 million, a number that later fell to $19 million, where it’s at today. And the group was simultaneously raising its commission on dollars it funneled to the hospital. The organization used to take 8 percent of every dollar donated through it to the hospital. By 2016, that figure had risen to 14 percent.

Nurses and a clown protesting outside Hadassah Ein Kerem Hospital in 2014 (photo credit: Flash90)

The Hadassah organization, the hospital and the Israeli government reached a recovery agreement in 2014 for the hospital, which provided some relief. But Hadassah has seen rocky times since then, including a mass resignation of doctors in the pediatric hematology-oncology ward in 2017 and, this year, a  more than $20 million lawsuit against the organization from the man who says he’s responsible for guiding them through the debt crisis and that he was never properly paid.

Hadassah has had some good news in recent years. This October, it reopened its Washington, D.C. advocacy office. The same month, the hospital dedicated the Milstein Heart Center, a new cardiac division. The organization has also launched a new $92 million capital campaign for the hospital.

But there’s still the possibility that old controversy could resurface. In 2014, the former deputy executive director of the hospital, Jacob Schreibman, wrote an email to the Israeli state comptroller claiming that the organization improperly took $100 million from the hospital in 1990. The comptroller passed the tip onto the attorney general.

JTA has learned that in the view of Hadassah, that money represented surplus donations that the hospital freely returned to the organization. But when it learned of the email, the organization decided not to comment on it publicly. Nor did it respond this week to a question about the $100 million.

“It appears that we are never going to have any peace and quiet,” wrote Audrey Shimron, executive director of the organization’s offices in Israel, in an internal email about the accusation in 2014. “Just when we think, that we are getting to a resolution, something new, unexpected and distasteful looms on the horizon.”

What doesn’t kill you makes you … more financially stable

At least one organization appears to have come out of the Madoff fraud more stable than before. Like other organizations, the America-Israel Cultural Foundation lost its entire endowment of $13.7 million.

But a year after Madoff’s arrest, the organization was celebrating at its 70th anniversary at a gala in Carnegie Hall.

“We have done remarkably well for coming out of the recession, to have a substantial impact for our mission,” said David Homan, executive director of the organization, which provides grants to promising Israelis studying the arts. Homan, who started in the job in 2006, is quick to note that he did not decide to invest AICF’s money with Madoff.

“We were able to raise and secure funds to support every commitment to our artists, hold new auditions and continue our programs,” he said.

When the news about Madoff broke, AICF found itself on the hook for hundreds of students’ tuition bills for the spring semester. The organization scrambled, and managed to replace its fraudulent Madoff funds with donations from a rising class of Israeli philanthropists, like the Ted Arison Foundation and the Azrieli family, heirs to a cruise line mogul and real estate developer, respectively.

‘We were an organization that had never asked for a lot from Israel, and then we were an organization that needed that in order to have an impact’

The Arison Foundation, says Homan, was particularly critical — pledging $2.5 million in funding over five years right after the Madoff scandal broke. That money helped grow the group’s operations as well. Now, it and its affiliates have boards in the United States and Canada as well as Israel, and it’s increasing its philanthropic base in Germany.

“There were some incredible Israelis who stepped forward philanthropically and placed great value on us,” Homan said. “It was a major catalyst. We were an organization that had never asked for a lot from Israel, and then we were an organization that needed that in order to have an impact.”

The organization has still not regained its full strength. Its budget is about $2.5 million, as opposed to $3 million before the fraud. And it’s scaled back the number of scholarships it gives from around 1,000 to 400, though Homan says that’s a matter of refocusing priorities as well as the smaller budget. And after a major dip in its employees following Madoff, AICF is back to a staff of 11 full- and part-time employees.

The foundation also got some good news last year when a clawback suit against it was dismissed. Despite the decreased numbers, Homan says he’s pleased with how the past decade has gone.

“We’re fortunately one of the only organizations to suffer those types of losses to come back and thrive,” he said.

‘He’s a miserable human being’

Before the Madoff scandal hit, Coltin was planning to write a book about the Lappin Foundation’s success in Boston — and how to take it national. Ten years later, she’s managed to keep the once-moribund organization alive. But scaling it nationally has remained out of the question — and the book’s manuscript still sits in a filing cabinet near her desk.

“Before Madoff, the sky was the limit in terms of the kind of programs we could create for Jewish living and learning,” she said. “In that sense, there’s a loss. But I feel proud that we’re doing so much. I can only imagine how much more we could have done.”

Bernard L. Madoff, the accused mastermind of a $50 billion Ponzi scheme, leaves Federal Court in New York, Wednesday, Jan. 14, 2009. ( AP/Stuart Ramson)

Robert Lappin is more sanguine. Having seen his fortunes rise and then abruptly fall, he’s just happy that his philanthropic work didn’t disappear. He said that even if he had the opportunity to talk to Madoff now, he’d just ignore him.

“He was a flawed character and I think he got caught up in his own machinations and he enjoyed the good life that that gave him,” Lappin said. “But he’s a miserable human being.”

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