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Bernie Madoff
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Kicking Us When We Are Down
A response from the president and CEO of the Jewish Community Foundation of Los Angeles.
Daniel Loeb’s commentary, Who Made Off with Our Tzedakkah?, in which he points a finger toward the victims of the Bernard Madoff investment fraud, serves no apparent purpose other than to tear at the fabric of a Jewish community already reeling from this scheme and, to a greater extent, the sharp downturn in the U.S. economy.
As president and CEO of the Jewish Community Foundation of Los Angeles, which lost $18 million to the Madoff fraud, I feel compelled to address
Loeb’s uninformed mis-characterization that our organization’s loss was fueled by “naiveté and greed,” as well as other inaccuracies in his article. Such descriptions seek solely to inflame and do a grave injustice to generous donors, a tireless lay leadership and a committed professional staff who seek to build and sustain a strong, vibrant Jewish and general community.
While fiduciary obligations preclude me from delving into specifics, suffice to say that our investment in the Madoff firm was made only following considerable due diligence and discussion by a committee comprised of some of our community’s most distinguished investment professionals. The investment and its purported returns were routinely monitored. The description of “naiveté” could not be further from the truth. Much to our embarrassment, what had been characterized to the Foundation as a sound, prudent investment ultimately was—plain and simple—intentional fraud. Sadly, when someone sets out intent on perpetrating a crime as Madoff appears to, they usually succeed, in this case on an epic level—despite Loeb’s contentions to the contrary.
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Marvin I. Schotland, President and Chief Executive Office, Jewish Community Foundation of Los Angeles.
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Falling prey to Madoff’s scheme tarnishes an otherwise sterling 55-year track record of managing charitable funds for the benefit of our community. However, this same expertise and track record ensured that the monies entrusted to Madoff represented only a small percentage of the Foundation’s total assets. We are and always have been conservative, stable and diversified stewards of charitable assets. If “greed,” as Loeb recklessly alleges, were a driver and motivation, would not our organization have invested far more? To my knowledge, Loeb has no direct knowledge of our Foundation’s investment policies and practices, due diligence or stewardship of managed assets and simply speaks out of turn.
This diligent oversight of assets—which at Dec. 31, 2008 stood at $670 million, not the $458 million Loeb includes in his article, another factual error—has enabled our Foundation and its donors to dispense approximately $250 million over the past five years alone to deserving causes in the Jewish and general communities, as well as in Israel. Loeb’s factual errors aside, if we or the other charities he castigates in his article failed to build endowments, and instead dispensed monies as quickly as it came in (as the author seems to be advocating), institutions would be out of business in troubled times like now, when need is clearly greatest. Such logic defies me and calls to mind the old adage about burning the furniture to stay warm for winter.
Loeb clearly seeks to be recognized as a big thinker fostering new ideas. At a time when our Jewish communities need new inspiration most, his editorial platform could serve as a formidable megaphone for coalescence. Instead, in kicking our collective community and institutions when they are already down, he seems intent only on pulling us apart.
-- Marvin I. Schotland, President and Chief Executive Office, Jewish Community Foundation of Los Angeles, Los Angeles, California
Response by Rabbi Goldie Milgram, Living Judaism Editor of the Philadelphia Jewish Voice and Former Executive Director of the Jewish Federation of Greater Cumberland County
In these economically traumatic times, my heart goes out not only to all those who seek services that will no longer be available, but also to all the incredibly hard-working, dedicated Jewish federation staff at present and those being laid off at Jewish federations and agencies across the country. While my present day happiness is heading the small non-profit, Reclaiming Judaism, which I founded about a decade ago in order to more efficiently innovate on behalf of the Jewish future, I retain the utmost respect for those who work in the world of Federation, the New Israel Fund, and the wide-array of Federated and independent Jewish social service agencies, educational and cultural institutions. It has been the incredibly rare exception where those I have been privileged to serve among in Jewish communal service have ever had anything other than the highest, deepest and most-informed concern, passion and intentions about the Jewish people’s needs and resources.
How I would love to see a pervasive ethic within the Jewish press of modeling a higher way of speaking of others, living a mitzvah-centered journalism, one might say by studying and applying the mitzvot of klal yisrael Jewish unity and ahavat yisrael love of other Jews. What might putting this into action mean? We could use positive critique, addressing an action and its consequences, rather than negative critique, which labels the actors and polarizes our people. Independent Jewish newspapers, while not Jewish Federation house organs, have the holy responsibility to undertake what Federation house organs have been understandably unlikely to do very often, to invite critique of the federation and publish thoughtful, balanced carefully researched pieces. Perhaps increasingly even Federation-funded papers will do so as well, it is in the community's best interest to be viewed as serious about TQI, total quality improvement. Not toxic, shaming critiques, but rather positive critique, which build up awareness, and are advisory of room for improvement, not condemnatory. We should remember what the Talmud wisely teaches: that to cause someone’s face to turn red, shaming them, is as though we killed them, no matter what they did or might have done.
Now that our financial system has placed both agencies and individuals into the wilderness of re-evaluation of our methods, modes, means, and might, may we be blessed for this to be yeridah l'torekh aliyah, as Reb Nahman of Breslov taught, "a descent for the necessity" of learning what it takes to "ascend" ever closer to what is holy and healthy.
-- Rabbi Goldie Milgram, Philadelphia, Pennsylvania
Response by Daniel Loeb, publisher of the Philadelphia Jewish Voice
It was not my attention to single out the Jewish Community Foundation of Los Angeles which stands in good company amongst many other victims of Madoff's deception. Indeed, in absolute terms among the nine charitable organization for which I was able to obtain definitive figures, the Jewish Community Foundation of Los Angeles ranks 3rd in absolute losses and a distant fourth in terms of percentage losses, since less than 4% of the total assets were stolen by Madoff. The figure of $458,232,577 for total assets on which I based my calculations was obtained from the latest available IRS Form 990 filing by the Foundation just as I did for all the other charitable organizations mentioned in my article. Their 2008 Form 990 filing is not yet due, so I used line 21 from their 2007 Form 990 filing which gives their total assets as of December 31, 2007.
Any suggestion of naïveté or greed was ill-considered, and I regret having embarassed Marvin Shotland and the Jewish Community Foundation of Los Angeles for which I have nothing but the greatest respect for their work in support of the Los Angeles and world Jewish communities. Indeed, Jewish Federations and charities across the country are in dire straights - even those who were not involved in Madoff's Ponzi scheme. Many of their regular donors are sufferring themselves either because of the general economic slowdown or because Madoff stole their savings, so money is not coming in like it used to.
Various charities are better or worse at raising money, and various charities are better or worse at investing money, and various charities are better or worse at providing services. As a donor, I look for charities that are good and resourceful and creative at providing services, that are reasonably prudent in investing their money, and are actually pretty mediocre at raising money. If they are bad at raising money, I feel that by seeking them out I am making a difference with them in giving them my money.
I do not recommend getting rid of endowments. As Noam Nuesner points out in his article Saving Our Money for Madoff? "endowments have value". They provide continuity and allow charitable organization to get through tough times like these. Like Joseph who provided for Egypt during its seven years of famine thanks to the reserves he had set aside during their seven years of bounty, our charitable organizations can depend upon their reserves to continue providing their services which are more necessary now than ever, even if their receipts fall short of their outlays for a few years.
My proposed legislation would require foundations to use at least 10% of their assets to support their charitable work each year for the next few years instead of the current 5%. This is a modest increase which would not mandate any change by the charities mentioned in my article - all of whom direct at least 14% of their assets each year towards program services. Nevertheless, by doing what they can, charitable organizations can play a key role in getting donations quickly to where the funds are most needed, and stimulate our economy in the process.
Perhaps we can learn from the story about the sailor who had an accident pulling a vessel into harbor. He was called to the office of his commander fully expecting to be relieved of duty knowing that he had caused millions of dollars worth of damage. He was surprised to learn that he was not dismissed, and asked why. His commander said "you just received millions of dollars worth of training. I know you will never do this again."
Our charitable organizations now have the opportunity to learn a lesson, a very expensive lesson, but a lesson nonetheless if we open up our eyes to what we could have done to avoid this tragedy, and make changes going forward.
-- Dr. Daniel Loeb, Wynnewood, Pennsylvania
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