Another Revisit to Madoff and His Charity Stakeholders - Hadassah and Yeshiva University: Now A Perplexing Tale of Three Forms 990 - Part II - Installment 23

Sun, 14 Feb 2010 17:36:26 GMT

This is the twenty-third in a series of installments on this blog that are discussing issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Madoff”). Installments 3 through 8, Installment 10 and Installments 14 through 22 of this series focused on the concerns of charities that were investors with Madoff and similar schemes. All potential stakeholders should consult professional advisors to have their positions evaluated.

This Installment presents in tabular form and expands Installments 14 and 22 relative to the comparison as to how Hadassah and Yeshiva have disclosed publicly their respective investments with Madoff. Defined terms and links not otherwise contained herein are included in Installments 14 and 22. Readers are encouraged to consult the earlier blog posts as a background for this Installment.

As stated in Installments 14 and 22, it is my view that Yeshiva provided significantly greater disclosure and transparency relative to Madoff and related matters through its Form 990 filing than Hadassah did in its Forms 990. As a result I believe that Yeshiva has been more successful than Hadassah in using the Form 990 reporting process proactively to build new credibility.

The following table updates the tabular information contained in Installment 14 based upon the December Hadassah Form 990 that was first discussed in Installment 22.

A COMPARISON OF HADASSAH AND YESHIVA FORMS 990

(Information in the Hadassah and Yeshiva columns is from the Hadassah Forms 990 and the Yeshiva Form 990, unless otherwise noted; readers may access Forms 990 by visiting Guidestar after making a free online registration. The table below should be read in conjunction with the definitions, links and discussion in Installments 14 and 21 of this series.)

CATEGORY	HADASSAH	YESHIVA
Fiscal Year End	May 31, 2008 and December 31, 2008	June 30, 2008
Dates of Form 990	April 3, 2009 for Form 990 for the fiscal year ended May 31, 2008 (“May Form 990”) and November 16, 2009 for Form 990 for the fiscal year ended December 31, 2008 (“Dec Form 990”)	May 14, 2009 (“Yeshiva Form 990”)
Final Due Date for Form 990 Filing with IRS, Including All Allowed Extensions	April 15, 2009 for May Form 990 and November 16, 2009 for Dec Form 990	May 15, 2009
Office Where Financial Books are Kept	50 West 58^th Street New York, NY 10019	500 West 185^th Street New York, NY 10033
Paid Preparer of Form 990	Alan Kluger KPMG LLP 345 Park Avenue New York, NY 10154-0102	Alan Kluger KPMG LLP 345 Park Avenue New York, NY 10154-0102
Potential Conflicts of Interest Involving Madoff	The Henriques/Strom Article reported the allegation by former CFO of Hadassah, Sheryl Weinstein, that she had an affair with Madoff while she was CFO at a time that Hadassah was investing with him.	Madoff was a Trustee and Treasurer of Yeshiva while Yeshiva was investing indirectly with Madoff. J. Ezra Merkin, a principal of a putative feeder fund for Madoff, was a Trustee while Yeshiva was investing through him with Madoff.
Resolution of Potential Conflicts of Interest Involving Madoff	The Henriques/Strom Article reported that Sheryl Weinstein left Hadassah in 1997.	Madoff and Merkin each resigned in all fiduciary capacities from Yeshiva in December 2008.
Extent of Form 990 Disclosure of Assets Exposed for Loss as a Result of Madoff–related Investments	No disclosure of the extent of potential asset loss from Madoff-related investments was included in any note in the May Form 990, although the financial statements audited by KPMG for the fiscal year ended May 31, 2008 (and the fiscal year ended December 31, 2008), disclosed in a lengthy footnote that Hadassah wrote off, as of May 31, 2008, $88,725,362 of carrying value of Madoff-related investments. Disclosure was made in the December Form 990 in a lengthy footnote (substantially similar to those in the financial statements audited by KPMG for the years ended May 31, 2008 and December 31, 2008) that Yeshiva wrote off, as of May 31, 2008, $88,725,362 of carrying value of Madoff-related investments.	Disclosure was made in the Yeshiva Form 990 that Yeshiva wrote off, as of June 30, 2008, $95,290,000 of carrying value of Madoff/Merkin-related investments.
Disclosure of Exposure Potential for Recovery of Assets by Bankruptcy Trustee for Madoff	No disclosure was made in either the May Form 990 or the Dec Form 990 (or the financial statements audited by KPMG for the years ended May 31, 2008 and December 31, 2008) of actual dollar amounts of cash contributions and cash withdrawals made by Hadassah in connection with Madoff-related investments. (The Ain Article and the Henriques/Strom Article reported that Hadassah withdrew more than $130 million from Madoff accounts over the years and a potential for seeking of recovery of withdrawals by the trustee for Madoff.) The Dec Form 990 (as did the financial statements audited by KPMG for both the years ended May 31, 2008 and December 31, 2008), but not the May Form 990, states that Hadassah management was unable to determine whether, or the extent to which, distributions to Hadassah from Madoff-related investments are recoverable by the trustee for Madoff.	A lengthy descriptive paragraph is contained in the Yeshiva Form 990 about Madoff, Merkin and Madoff/Merkin-related investments. There is a disclosure in the Yeshiva Form 990 of actual dollar amounts of cash contributions and cash withdrawals made in connection with Madoff/Merkin-related investments. The Yeshiva Form 990 states that management of Yeshiva was unable to determine whether, or the extent to which, distributions to Yeshiva from Madoff/Merkin-related investments are recoverable by the trustee for Madoff.
Miscellaneous Disclosure Matters relating to Forms 990	The Dec Form 990 states that Hadassah does not make its governing documents or conflict of interest policy available to the public; in the Dec Form 990 for a related Hadassah organization, however, there is a summary of procedures for resolving potential conflicts of interest involving trustees and officers. The Dec Form 990 states that the financial statements of Hadassah are available upon request. The May Form 990 is signed “[u]nder penalties of perjury” by, and after examination to the best knowledge and belief of, the National Treasurer of Hadassah, who is identified as being uncompensated and appears to be a volunteer. The Dec Form 990 does not disclose the officer who signed, but the same National Treasurer signed the Dec Form 990 for a related Hadassah organization.	Public disclosure has been made by Yeshiva that it is revising its conflicts of interest policy in the aftermath of the Madoff scandal. The Yeshiva Form 990 is signed “[u]nder penalties of perjury” by, and after examination to the best knowledge and belief of, the VP and CFO of Yeshiva, who is a compensated full-time employee.

[To be continued in Installment 24]

(With appreciation to Michael J. Kline, Esq., the author of this entry and author of an on-going analysis of the concerns of Madoff stakeholders. Mr. Kline is a partner with Fox Rothschild LLP, based in its Princeton, NJ office, and a past Chair of the firm's Corporate Department. He concentrates his practice in the areas of corporate, securities, and health law and frequently writes and speaks on topics such as corporate compliance, governance and business and nonprofit law and ethics)

Another Revisit to Madoff and His Charity Stakeholders - Hadassah and Yeshiva University: Now A Perplexing Tale of Three Forms 990 - Part I - Installment 22

Fri, 15 Jan 2010 18:37:19 GMT

This is the twenty-second in a series of installments on this blog that are discussing issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Madoff”). Installments 3 through 8, Installment 10 and Installments 14 through 21 of this series focused on the concerns of charities that were investors with Madoff and similar schemes. All potential stakeholders should consult professional advisors to have their positions evaluated.

Installment 14 of this series compared and contrasted recent Forms 990 filed with the Internal Revenue Service (the “IRS”) for fiscal 2008 by two of the most significant and respected charities that invested with Madoff: Hadassah, The Women’s Zionist Organization of America, Inc. (“Hadassah”), and Yeshiva University (“Yeshiva”). While the missions of Hadassah and Yeshiva (collectively, the “Charities”) are different, they provide a basis for comparison of transparency, and share as part of their missions the advancement of education and Jewish awareness in the United States and Israel. For disclosure purposes, readers are again advised that the spouse of the author of this blog contributor has been a Life Member of Hadassah for many years.

Because of the decision by Hadassah to change its fiscal year from a year ending May 31 to the calendar year, Hadassah was required to file a Form 990 with the IRS for the seven-month period ended December 31, 2008 (the “December Hadassah Form 990”). The filing by Hadassah of the December Hadassah Form 990 within approximately seven months after having filed its Form 990 for the fiscal year ended May 31, 2008 (the “May Hadassah Form 990” and, collectively with the December Hadassah Form 990, the “Hadassah 2008 Forms 990”) within such a short period has enabled an unusual insight into Hadassah’s public financial disclosure decisions.

These Forms 990 filings come at a time in history when Hadassah has been endeavoring to repair its post-Madoff image. In a widely-reprinted January 2010 Associated Press article by David B. Caruso, Hadassah President Nancy Falchuk was quoted as saying that the group has sought to streamline and refocus itself and that she has worked hard to rebuild the nonprofit's reputation.

Nonetheless, it would appear that positive image-building for Hadassah did not extend to best practices in transparency in the May Hadassah Form 990 regarding its dealings with Madoff. The May Hadassah Form 990 contained no disclosure relative to Madoff investments and distributions for Hadassah.

As stated in Installment 14 of this series, Hadassah did not measure up to the level of transparency regarding Madoff provided by Yeshiva in its Form 990 filing with the IRS for the fiscal year ended June 30, 2008 (the “Yeshiva Form 990”). While Hadassah did not mention its Madoff financial complexities at all in the May Hadassah Form 990, the Yeshiva Form 990 clearly laid out the dollar amounts involved with Madoff. Curiously the contrasting methods of presentation were in Forms 990 whose professional Preparer was the Park Avenue, New York, office of KPMG LLP, and the same professional at KPMG signed all of such Forms 990.

There is an even more perplexing point about the Hadassah 2008 Forms 990 when they are compared to Hadassah’s consolidated financial statements for the fiscal years ended May 31, 2008 and December 31, 2008, with the auditors’ report of KPMG LLP (collectively, the “2008 Financial Statements”). Hadassah is to be commended for voluntarily making the 2008 Financial Statements available to the public on request.

Both of the 2008 Financial Statements contains a note as to the Hadassah/Madoff involvement. The note in the Hadassah December 31, 2008 financial statements about Madoff is substantially the same as the note in the December 2008 Hadassah Form 990. However, the May Hadassah Form 990 was silent as to Madoff, and that Form 990 actually related to the fiscal year in which Hadassah took the substantial write-down in Madoff “assets”. In contrast to the May Hadassah Form 990, the following statement is part of Note (15) Subsequent Events to the Hadassah May 31, 2008 audited financial statements (“Note 15”):

Subsequent to year-end, Hadassah learned that it has been a victim of the fraudulent scheme perpetrated by Bernard L. Madoff Securities LLC (Madoff) which resulted in write-off of an investment amounting to $88,725,362 as of May 31, 2008. Investor statements received from Madoff reported total investments at fair value of $88,725,362 and $80,684,460 at May 31, 2008 and 2007, respectively, and investment return of $8,040,902 and $11,405,448 for the years ended May 31, 2008 and 2007, respectively. . . .

It is puzzling that Hadassah and its Form 990 Preparer would determine not to include in the May Hadassah Form 990 the language of Note 15 when they deemed it material enough to explain the substantial write off in the corresponding 2008 Financial Statements. It is especially perplexing that the contemporary Yeshiva Form 990 for which KPMG LLP was also the Preparer did have a comprehensive note explaining its write-down of investments with Madoff. Again, I believe that Yeshiva has been more successful than Hadassah in using the Yeshiva Form 990 to build new credibility and repair a damaged reputation than Hadassah has done with the Hadassah 2008 Forms 990.

[To be continued in Installment 23]

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

Petters and Ponzi Schemes!

gavin@gavincraiglaw.com (Gavin Craig) — Mon, 28 Dec 2009 21:53:06 GMT

When Tom Petters was convicted in US District court of multiple counts of fraud, I wondered why a supposedly smart person would resort to fraud. Bernie Madoff essential did the same thing. They paid the early investors with the money invested by later investors. Petters created phoney documents to show business activity that was a fiction, and was able to get other people to invest in his enterprise. Both Petters and Madoff became very wealthy, with other peoples money. Now they are both enjoying life at taxpayers expense.

What troubles me, besides the very fact that they would defraud innocent people, is that they were operating a scheme that could not succeed in the long run. Madoff's operation was surprisingly long lived, but wouldn't have lasted quite so long had the regulatory agencies done their jobs. But these schemes can not be successful in the long term. You can't keep bring in more money to pay off prior investors. Eventually you will run out of willing investors, and the truth will come out.

So, why would supposedly smart people do this? The only answer is that they were not smart enough to figure out that the fraud had a limited life, or they planned to leave the country. In the Petters case, Star Tribune reporters David Phelps and Aimee Blanchette had an interesting interview with the foreman of the Petters jury. In the end, Petters own e-mails were his undoing.

Since Petters contended that he was innocent, there was no revelation about the why, and what he would do once it became clear he was going to be caught. However, most of the money is still missing. Petters isn't talking, so perhaps he had plans but he was not able to leave before he was arrested. We probably will never know.

Year-end Advice on Obtaining 2008 Forms 990 by Charity Stakeholders - Installment 21

Wed, 23 Dec 2009 19:06:53 GMT

This is the twenty-first in a series of installments on this blog that are discussing some issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Madoff”). Installments 3 through 8, Installment 10 and Installments 14 through 20 of this series focused on the concerns of charities that were investors with Madoff and similar schemes. All potential stakeholders should consult professional advisors to have their positions evaluated.

Installment 19 of this series pointed out that Monday, November 16, 2009 was a critical day for Section 501(c)(3) public charities and private foundations (collectively, “501(c) Entities”) with a calendar fiscal year. It was the final day on which such 501(c) Entities could file their Forms 990 and 990-PF (collectively, “Forms 990”) with the Internal Revenue Service (the “IRS”) for calendar year 2008 on a timely basis to avoid possible IRS penalties.

There were reports that there was such a high volume of Forms 990 filed electronically with the IRS that day that some charities experienced substantial delays in their filing efforts.

Installment 19 also pointed out that over the course of the next several months it will be interesting and informative to visit www.guidestar.org to review and analyze the 2008 Forms 990 filings as they are posted. Many calendar year Forms 990 have not yet been posted on www.guidestar.org, presumably because of the crush of last minute November filings,

Nonetheless, for those who want or need to get the Forms 990 information immediately, including potential donors who want to make decisions about 2009 charitable gifts, there are other alternatives. Generally the IRS says that the Forms 990 copies should be made available by the 501(c)(3) Entity for public inspection and copying on the same day if the request is made by appearing in person at the principal offices of the charity. The charity has up to thirty (30) days to respond to written requests made by regular mail, e-mail, facsimile or private delivery. The charity is allowed to charge for actual postage and modest copying fees.

A request for Forms 990 made at the principal headquarters of 501(c)(3) Entities should get a prompt response within 24 hours. Many charities are highly sensitive to their obligations to make Forms 990 available and may even respond within a day to a telephone, facsimile or e-mail request.

Other 501(c)(3) Entities may be unaware of their Forms 990 public inspection responsibilities or may even be evasive or unwilling to provide the Forms 990. Potential donors should have a healthy skepticism about such behavior and can advise the IRS, if necessary. 501(c)(3) Entities can be subject to IRS penalties and potential adverse publicity for failure to respond promptly.

Best wishes to all for a happy and healthy holiday season.

[To be continued in Installment 22]

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

The Madoff Loss Game: Will Some Charity and Other Stakeholders Become Even Bigger Losers as a Result of One District Judge's Analysis - Installment 20

Mon, 21 Dec 2009 17:12:45 GMT

This is the twentieth in a series of installments on this blog that are discussing some issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Madoff”). Installments 3 through 8, Installment 10 and Installments 14 through 19 of this series focused on the specific concerns of charities that were victims of Madoff and similar schemes. All potential stakeholders should consult professional advisors to have their positions evaluated.

On December 15, 2009, United States District Court Judge Paul S. Diamond for the Eastern District of Pennsylvania raised serious questions in the case of the Securities and Exchange Commission (“SEC”) et. al. v. Forte, regarding limitations on recoveries from those who received distributions in Ponzi schemes like that of Madoff. Specifically, Judge Diamond questioned the position of the SEC and the Commodity Futures Trading Commission (“CFTC”) that “clawback” from early investors in Ponzi schemes was limited to the illusory “profits” but not the principal that such investors had recovered. In analyzing the impact of the Pennsylvania Uniform Fraudulent Transfer Act (“PUFTA”) in a lengthy Memorandum Opinion, Judge Diamond observed,

The SEC and CFTC have apparently adopted a nationwide policy that there can be no recovery of principal from winning Ponzi scheme investors even when the investors should have seen “red flags” alerting them to the true nature of their “investments.” . . . Accordingly, it could well be more equitable and legally supportable for the SEC and the CFTC to support . . . as PUFTA provides, [to file] suit to recover the entire fraudulent transfer from all . . . net winners - both the profits and the principal.

The position of Judge Diamond may be starkly contrasted to statements made on October 27, 2009, by Irving Picard, the trustee in the Madoff liquidation proceeding. During the course of the questioning by reporters, the “clawback” issue was raised and the following response was given by Mr. Picard, as previously reported in Installment 18 of this series:

At the moment, as I indicated of the accounts that were active at the end of last December, there were 2,568 accounts that received more than was deposited. . . . That’s an area that we are looking at. . . . No final decisions have been made; it’s a matter that again, over a period of the next six to eight or nine months, we’re going to be taking a very close look and, quite frankly, those will be looked at virtually on an individual basis before we make some final decisions. . . . if we determine that that’s a matter that we’re going to pursue, then we will pursue them for what we believe is the appropriate amount that we should be seeking from them.

It is noteworthy that Mr. Picard simply assumed that he would be limiting recovery efforts from “winners” to their excess distributions but not to the principal that these winners would have recovered in full. He did not address at all in his response whether he will pursue the widely-publicized “profits” from investing with Madoff that have been reported for some charities like Hadassah, as discussed in Installment 14 of this blog series. If Judge Diamond’s position were to be followed in the Madoff proceeding, the result could be to expose such charities to millions of dollars more in potential “clawback.”

Mr. Picard interestingly went even further in his statements regarding pursuit of “winners” than the SEC and CFTC. He has indicated that he will pick and choose among the winners, depending on currently unstated individual qualitative and quantitative standards that may have no firm legal basis.

It is clear that the Madoff case will continue to create controversy and new law as it unfolds.

[To be continued in Installment 21]

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

"To every con artist, he is the godfather, the don."

annalthouse@gmail.com (Ann Althouse) — Fri, 11 Dec 2009 15:59:40 GMT

Madoff in prison.

Look Who's Getting Sued Now

dandodiary@gmail.com (Kevin LaCroix) — Wed, 18 Nov 2009 09:07:14 GMT

One interesting thing about the most recently filed securities class action lawsuits is what they have in common – that is, that while the companies sued are drawn from a surprising diversity of industries, none of them are in the financial services sector. The absence of new securities suits against financially related companies is quite a contrast to the lawsuits that were being filed a year ago, and for that matter that were being filed in the first few months of 2009. There is an increasingly strong suggestion that after more than two and a half years, the subprime and credit crisis-related litigation wave may have finally just about played itself out.

The latest securities lawsuit is representative. That is, on November 17, 2009, plaintiffs’ lawyers announced (here) that they had filed a lawsuit in the District of Rhode Island against CVS Caremark and certain of its directors and offices. The complaint, which can be found here, alleges that the defendants failed to disclose operating problems the company was having in its pharmacy benefits management (PBM) business, which the company acquired in 2007. On November 5, 2009, the company disclosed (here) the PBM problems and also disclosed that the company was the subject of an FTC investigation into the company’s drug benefits practices.

Whatever else might be said about the new CVS lawsuit, the suit clearly was not filed against a financial services company and the allegations appear unrelated to the financial crisis.

The several new securities cases filed over the last two weeks share both these traits. That is, the defendant companies are outside the financial sector and the allegations generally do not appear to specifically relate to the global financial crisis.

A case in point is the lawsuit filed last week against The Boeing Corporation and certain of its directors and officers. The plaintiffs’ lawyers’ November 13, 2009 press release (here) describes the securities suit that was filed in the Northern District of Illinois. According to the press release, the complaint (which can be found here) alleges that the company misrepresented the production timeline and anticipated delivery dates of the company’s Dreamliner 787 commercial aircraft.

Similarly, on November 6, 2009, plaintiffs’ lawyer initiated a securities class action lawsuit against jewelry retailer Zale Corp. (about which refer here) alleging that the company had improperly recorded certain prepaid advertising expenses and intercompany accounts receivable.

Other examples include the November 10, 2009 action against Hemispherix Biopharma, (refer here) alleging misrepresentations in connection with the new drug application of one of the company’s clincal stage products; the action filed on November 6, 2009 against STEC, Inc.(refer here), the memory drive manufacturer, which is alleged to have overstated demand for one of its products; and the November 6, 2009 action filed against specialty women’s clothing retailer Limited Brands (refer here), which is alleged to have made misrepresentations regarding the company’s direct-to-consumer ecommerce initiative.

Again, none of these cases involve financial companies and none are directly related to the financial crisis.

To be sure, all along as the subprime and credit crisis litigation wave unfolded over the last two and a half (actually nearly three) years, there have been cases that didn’t involve financial companies and that were unrelated to the credit crisis. However, this recent collection of cases, particularly the absence of any financial related suits, seems to represent a categorically different filing pattern.

At the same time, there are still some cases being filed that unquestionably reflect back to the credit crisis. Indeed, late last week I noted (here) that a credit crisis-related lawsuit had been filed against VeraSun Energy. Even though the company itself is not financially related, the claims in the complaint relate to the company’s alleged problems arising from the company’s wrong way bets on certain financial derivative hedging contracts.

There undoubtedly are other cases yet to come like that filed against VeraSun, where the allegations reflect back on the events of the financial crisis – particularly, as was the case with the VeraSun filing, if the plaintiffs’ lawyers’ continue to file suits where the proposed class period cutoff date is well in the past, and accordingly the lawsuits involved long past events. As I noted in my post about VeraSun, those kinds of cases could continue to arrive for some time to come.

But while there could and likely will be further additional cases relating to or arising from the financial crisis, it seems increasingly likely that the mix of cases will be much more diverse that has been the case for almost three years now. This may entail some adjustment for D&O insurance underwriters, who have been very defensive against financial company risks, but much more agreeable to accepting other kinds of risks. The pattern over the last few weeks suggest that securities litigation risk may once again be dispersed across a wide variety of sectors and industries, and a more generalized underwriting approach to risk selection may be required going forward.

So What About Bernard Madoff’s Insurance?: If you are like me, you have probably wondered since the very beginning of the Madoff scandal what kind of insurance his firm carried. It turns out that, other than a bond, his firm didn’t carry professional liability insurance.

As reflected in Susan Sclafane’s November 17, 2009 National Underwriter article (here), Madoff apparently had for years refused to buy D&O insurance, and instead carried only a $25 million financial institutions bond because he was required to do so by participants in his legitimate clearing trade business. (The bond carrier, which reportedly was on the risk for 15 years, apparently has filed a rescission action.)

Not that the D&O insurance would have gone very far, even if there had been D&O insurance in place, in view of the massive scale of the losses. For that matter, given Madoff’s guilty plea, coverage for claims against Madoff or his firm would have been excluded under most D&O policies anyway.

Perhaps it was Madoff’s awareness that of the unlikelihood of coverage that convinced him not to squander his ill-gotten gains on insurance designed to protect his victims.

Special thanks to a loyal reader for providing the link to the National Undewriter article.

Today’s Grammar Question: Observant readers may have noticed that in discussing the recent securities filings I used the plural form of the verb "to be" in connection with my use of the noun, "none" – as in, "none of them are," rather than "none of them is."

While I have no particularly strong feelings on the question of the proper verb form to be used with the noun "none," a little bit of Internet research convinced me there are quite a number of people who feel quite strongly on the subject.

I also am persuaded that the plural verb form is generally proper (as discussed here), and that even for those who feel that either usage is proper, the plural form is in any event most appropriate when the word "none" is used in the sense in which I used it – that is, to mean "not any, " in reference to plural entities (about which refer here).

If there are any readers out there who have a strong reaction to my resolution of this grammatical issue, I suggest that the best response is either a long walk or a short drink. (Or if you prefer, a short walk and a long drink. Better yet, skip the walk.)

Further Apologies: I apologize to everyone for continuing service problems with this site, particularly with respect to the delivery of email notifications. LexBlog, my blog hosting service, is continuing to suffer ill effects from a sustained spambot attack a few days ago. Along with everyone else, I sure hope things return to normal soon, if for no other reason than for the sake of my sanity.

November 16, 2009 - A Critical Date for Madoff Charity Stakeholders with Calendar Fiscal Years - Installment 19

ALeibman@foxrothschild.com (Alain Leibman) — Tue, 17 Nov 2009 14:10:16 GMT

This is the nineteenth in a series of installments on this blog that are discussing some issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Madoff”). Installments 3 through 8, Installment 10 and Installments 14 through 18 of this series focused on the specific concerns of charities that were victims of Madoff and similar schemes. All potential stakeholders should consult professional advisors to have their positions evaluated.

Monday, November 16, 2009 is a critical day for Section 501(c)(3) public charities and private foundations with a calendar fiscal year that invested with Madoff. As a matter of fact, it is a critical day for all Section 501(c)(3) charitable organizations with a calendar fiscal year. It is the final day on which such public charities and private foundations can file their Forms 990 and 990-PF, respectively, with the Internal Revenue Service (the “IRS”) for calendar year 2008 on a timely basis after using both of the two potentially available extension periods. A fling after that date is delinquent and can lead to penalties by the IRS.

While this blog series has strongly advocated filings with the IRS by charitable organizations for 2008 as early as possible, many have delayed their filings until the deadline. A number of factors may have led to this approach, including the following:

1. The new Form 990 for 2008 added probing questions on governance, executive compensation, charitable mission, policies, etc., which required many of the charities to institute or update protocols and procedures.

2. The accounting and auditing firms that assist charities in preparing Forms 990 and 990-PF were under great pressure to deal with the complexities of the new Forms and the financial challenges facing many charities.

3. During 2008 many charities suffered substantial losses in endowment fund values and declines in fundraising that led some of them to delay potentially embarrassing disclosures to the public as long as possible.

4. A number of those charities that invested with Madoff and similar alleged Ponzi schemes had hoped that the IRS would give greater guidance on the uncertainties in treatment of losses and distributions in their filings for 2008 and prior years.

5. Charities that have invested with Madoff or suffered large losses during 2008 may have wanted to see how other Forms 990 and 990-PF filers that filed earlier in the year with the IRS treated the subjects in their financial statements and textual materials.

6. Even charities that did not suffer losses in 2008 may have wanted to see how other Forms 990 and 990-PF filers that filed earlier treated subjects such as description of mission, conflicts of interest and whistleblower policies, executive compensation and other potentially sensitive new areas of disclosure.

Over the course of the next several months it will be interesting and informative to visit Guidestar to review and analyze the 2008 Form 990 and 990-PF filings as they are posted. This blog series will continue to monitor and report on such developments.

[To be continued in Installment 20]

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

The Madoff Loss Game: Will Some Charity Stakeholders Become Even Bigger Losers? - Installment 18

ALeibman@foxrothschild.com (Alain Leibman) — Fri, 30 Oct 2009 14:05:47 GMT

This is the eighteenth in a series of installments on this blog that are discussing some issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Madoff”). Installments 3 through 8, Installment 10 and Installments 14 through 17 of this series focused on the specific concerns of charities that were victims of Madoff and similar schemes. All potential stakeholders should consult professional advisors to have their positions evaluated.

On October 27, 2009, Irving Picard, the trustee in the Madoff liquidation proceeding under the Securities Investor Protection Act (the “Madoff Proceeding”), together with Securities Investor Protection Corporation (“SIPC”) President Stephen Harbeck, held a telephone briefing with reporters on progress to date of the Madoff Proceeding. During the course of his prepared remarks, Mr. Picard did not discuss efforts in the Madoff Proceeding to “clawback,” that is, recover assets from Madoff investors who received more in cash distributions than they invested with him.

During the course of the questioning by reporters, the “clawback” issue was raised and the following response was given by Mr. Picard:

At the moment, as I indicated of the accounts that were active at the end of last December, there were 2,568 accounts that received more than was deposited. . . . That’s an area that we are looking at. We’re not going to be suing people who don’t have money. We’re not going to be able to collect. We’re not going to sue people where we become familiar with the fact that they have hardships, medical problems, losing their homes and other things like that. No final decisions have been made; it’s a matter that again, over a period of the next six to eight or nine months, we’re going to be taking a very close look and, quite frankly, those will be looked at virtually on an individual basis before we make some final decisions. . . . if we determine that that’s a matter that we’re going to pursue, then we will pursue them for what we believe is the appropriate amount that we should be seeking from them.

It is noteworthy that Mr. Picard did not address in his response the widely-publicized “profits” from investing with Madoff that have been reported for charities like Hadassah, as discussed in Installment 14 of this series.

Mr. Picard’s response may be compared to the report by Diana B. Henriques on May 28, 2009 in The New York Times that “[t]here is the widespread fear among some — unfounded, Mr. Picard says — that he will sue struggling charities or people of limited means for money they withdrew in the past but no longer have.”

Has Picard now evidenced by his silence a subtle shift from his earlier position with respect to not pursuing ‘struggling charities” that made profits from investing with Madoff? The October 29,2009 issue of The Chronicle of Philanthropy has disclosed that Hadassah suffered a decline of almost 50% in donations during 2008 to just over $85 million as compared to the 2007 level. Does that loss in revenues qualify Hadassah to be exonerated from clawback as a “struggling charity” under Mr. Picard’s earlier position? A significant portion of the decline in Hadassah donations may be due to the economy generally. However, ironically, some of the decline may be attributable to the adverse publicity for Hadassah from having invested with Madoff. Moreover, a number of its major donors may have incurred heavy losses with Madoff and could not maintain their contributions to Hadassah.

As the Madoff Proceeding continues to unfold, these issues should become clearer.

[To be continued in Installment 19]

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

The Madoff Profit Game: Will the Mets End up Losers Off the Field While Charity Stakeholders Become Winners? - Installment 17

ALeibman@foxrothschild.com (Alain Leibman) — Mon, 26 Oct 2009 14:12:11 GMT

This is the seventeenth in a series of installments on this blog that are discussing some of the issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Madoff”). Installments 3 through 8, Installment 10 and Installments 14 through 16 of this series focused on the specific concerns of charities that were victims of Madoff and similar schemes. All potential stakeholders should consult professional advisors to have their positions evaluated.

On October 21, 2009, an article in The New York Times by Ken Belson and Richard Sandomir disclosed that a Madoff bankruptcy proceeding report had contradicted earlier information about large losses with Madoff purportedly suffered by the New York Mets and their owners, the Wilpon family. The article states that the report shows that

Mets LP, one of the team’s financial arms, withdrew $570.5 million from two accounts it held with Madoff’s company, $47.8 million more than it put in. The accounts were part of a list of more than 30 in which more money was withdrawn than was deposited with Bernard L. Madoff Investment Securities. As a result, Mets LP and the others were deemed “net winners” ineligible for compensation and potentially liable to being sued by Irving H. Picard, the court-appointed liquidator who is trying to recover money lost in Madoff’s $65 billion Ponzi scheme. A spokesman for Picard declined to comment.

Thus the Mets and the Wilpon family may become the subject of “clawback” by Mr. Picard and end up losers, especially if they have paid now-unrecoverable federal and state income taxes on the illusory Madoff “gains.” This situation can be contrasted to the position stated by Picard with respect to seeking recovery from charities. As reported in Installment 16 of this blog series http://whitecollarcrime.foxrothschild.com/, Diana B. Henriques wrote on May 28, 2009 in The New York Times that “[t]here is the widespread fear among some — unfounded, Mr. [Irving] Picard [the trustee in the Madoff bankruptcy proceeding] says — that he will sue struggling charities or people of limited means for money they withdrew in the past but no longer have.”

Installment 14 of this blog series discussed reports of large profits by Hadassah from its investments with Madoff. Will Picard choose to pursue the Mets and the Wilpon family while passing on Hadassah? All charities, especially those providing social services like Hadassah, are “struggling” with materially reduced contributions because of the economy, increased demands by individuals who are unemployed and suffering financially, losses in endowment funds from the substantial market declines and increased regulatory activity.

While the position earlier stated by Picard as to charities may be humanitarian and emotionally appealing, there is little basis in the law for the disparity in treatment between charities and for-profit entities. This inequality of approach will more likely than not lead to protracted litigation and uncertainty in the Madoff matter.

[To be continued in Installment 18]

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

The Match King (interview with Prof. Frank Partnoy)

mstocker@labaton.com (Michael Stocker) — Thu, 24 Sep 2009 02:00:01 GMT

Eyes welcomes Professor Frank Partnoy of the University of California San Diego, author of The Match King (PublicAffairs April 2009). The Match King is a tautly paced and erudite account of the life and times of Ivar Kreuger, one of the twentieth century's greatest financial innovators—and one of its most notorious scam artists. Partnoy talks to Eyes about lessons investors could learn from Kreuger, and the similarities and profound differences between Kreuger and Bernie Madoff.

Eyes: Why do investors need to know about Kreuger, a man who died nearly eighty years ago?

Partnoy: One of the lessons all of us take away from this financial crisis is that we need to remember history. So many of the financial innovations that recently brought down the banks and AIG are echoed in Kreuger’s story. He was a creator of complex off-balance sheet transactions, he used special purpose entities, he incorporated subsidiaries in regulatory havens. And he manipulated financial statements so that investors wouldn’t understand the truth about what was happening in the bowels of his companies. I think the tragedy is that we should have known about and understood Ivar Kreuger’s story several years ago.

Eyes: In your book you give an account of Kreuger’s key role as an innovator of financial products, and you have a great quote from Keynes, who called Kreuger “the greatest constructive business intelligence” of his age. With that in mind, is it fair to compare Kreuger to Bernie Madoff?

Partnoy: In many ways I think it’s unfair to Kreuger. He, for much longer than Madoff, sustained legitimate businesses. The core of his operations was a compelling idea – the lending of money raised in America to struggling post-World War I European governments in exchange for a match monopoly. He put together these three actors – American investors, European governments, and match producers – in a way that generated gains for all three groups. And he sustained those businesses for many, many years.

Eyes: Despite their reputations as criminal geniuses, one of the things that is striking about both Kreuger and Madoff is that the frauds they perpetrated were in some ways very crude. How did they go undetected for so long?

Partnoy: One of the most perplexing aspects of confidence games is that it’s so hard for the people involved in them to see what is happening. Both schemes basically involved paying out very steady, low double-digit payments to people over time, even when markets were volatile. And once people know that there’s a track record of steady, 10 percent payments, they run screaming to get in. One of the lessons of Ivar Kreuger and of Bernie Madoff is that investors should run when they see steady reported returns from a fund. That's a sign not of a well-run business but of danger lurking in the shadows.

One of the lessons of Ivar Kreuger and of Bernie Madoff is that investors should run when they see steady reported returns from a fund. That’s a sign not of a well-run business but of danger lurking in the shadows.

Eyes: Looking back both at the 1920s and at the decade preceding our current crisis, how large a role do you think market booms played in the success of Kreuger and Madoff’s schemes?

Partnoy: The booms are important because they run parallel with investor psychology. As stocks rise, as companies develop new business models, as financial innovations spread, markets become ripe for financial fraud. Years of stock gains are like the fertilizer that enables fraudulent schemes to flourish and grow. Such gains prime the pump for fraud because they make it easier for companies to come along and tell a believable story about how they can deliver outsized returns.

Eyes: If there’s one silver lining to be found when that massive frauds are finally exposed, it’s that briefly there is an appetite for reform. And one of the interesting points that you make in your book is that the Securities Act of 1933 and the Securities Exchange Act of 1934 were directly inspired by Kreuger’s fraud . How likely is it, do you think, that Bernie Madoff will inspire similar kinds of reform?

Partnoy: I’m not especially optimistic. We didn’t get reform immediately after the 1929 crash. We only got reform after the public became very upset about the frauds of Ivar Kreuger and Samuel Insull, and after the federal investigative commission under Ferdinand Pecora started to publicly flog bankers and bring them to their knees. Whether or not we ultimately get reform will turn on whether we experience more scandal and on whether there is someone like Pecora who can galvanize public opinion. It might be the case that Thomas Greene is able to do that with the current version of the financial crisis inquiry commission, but we’ll have to wait and see.

Another Revisit to Madoff and His Charity Stakeholders - Lautenberg Private Foundation Suit vs. Peter Madoff - Installment 15

ALeibman@foxrothschild.com (Alain Leibman) — Tue, 15 Sep 2009 20:45:03 GMT

This is the fifteenth in a series of installments on this blog that are discussing some of the issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Bernard”). Installments 3 through 8 and Installments 10 and 14 of this series focused on the specific concerns of charities that were victims of Madoff and similar schemes. All potential stakeholders should consult professional advisors promptly to have their positions evaluated.

A Cliffview Pilot report on September 15, 2009 by Jerry DeMarco reported that U.S. District Judge Stanley Chesler in Newark declined to dismiss a lawsuit brought by two children of, and the private charitable foundation (the “Foundation”) formed by, Senator Frank Lautenberg, who was its President. The claims in the lawsuit include allegations that Peter Madoff violated the Securities Exchange Act of 1934 by failing to disclose to investors that the company of his brother Bernard was engaged in a fraud. The plaintiffs are claiming losses aggregating almost $9 million.

Concerns about the profound financial and other impacts on charities, both public and private, from investments with Bernard were published soon after the Bernard scandal became public in December 2008. See, for example, “Charities Now Seek Bankruptcy Protection,” by Stephanie Strom in The New York Times on February 20, 2009.

The progress of the lawsuit brought by the Foundation raises several interesting points, some of which were discussed in previous Installments of this blog series.

First, it does appear that actions brought against other members of the Madoff family than Bernard may bear some fruit, separate and apart from the much-publicized Bernard bankruptcy proceedings in New York. Query whether the preliminary success of the Foundation will spur other stakeholders to sue members of the Madoff family, thereby exposing them to the potential for very large claims that could precipitate bankruptcy filings for them as well.

Second, as was discussed in an earlier Installment, private foundations such as the Foundation and their managers have potential liability for excise taxes that may be levied by the Internal Revenue Service (“IRS”) for improvident investing. Query whether success in the lawsuit would generate a compelling argument for the Foundation and its managers for avoidance of the excise taxes because of the alleged securities fraud. Alternatively, if the lawsuit is lost by the Foundation, does it increase the potential for success by the IRS in possibly imposing excise taxes on the Foundation and its managers?

Third, a check of the charity information website Guidestar indicates that the Form 990-PF of the Foundation for the 2007 calendar year was filed with the IRS on August 15, 2008. The Form 990-PF for the Foundation for 2008 has not yet been posted on Guidestar. The nature and extent of disclosures that will be made regarding the Foundation in its 2008 Form 990-PF should be illuminating about the litigation, financial status and contingencies respecting the Foundation.

[To be continued in Installment 16]

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

The GoldDigger’s Guide To The Galaxy

brian.cuban@dallasmavs.com (Brian Cuban) — Tue, 01 Sep 2009 01:21:41 GMT

In all the hubbub about Cougars and this declining economy I began to wonder to myself. What ever happened to the good old fashioned Gold Digger?

Cougars have been all over the news. Not the four legged kind. The 40+ female kind prowling the darkness of the night in search of the their prey. The 25-30 year old hard bodied pool boy playing the part of the 30k millionaire douche-bag. Polo sleeves rolled up. Phony bank statement in back pocket. Leases the 60k Maserati while sharing an apartment with 4 roommates. Tribal tattoo and a cheat card for local gangster rapper signs in the other pocket. The illusion becomes reality. There is even a television show touting the cat like prowess and desirability of 21st Century Cougar babes.

In all the hubbub about Cougars and this declining economy I began to wonder to myself. What ever happened to the good old fashioned Gold Digger? Are they shrinking in numbers? The number of available millionaires has declined rapidly in this economic free-fall. Did the fall of Bernie Madoff put them all out of business? They are even forming support groups now. Former Hedge-Fund and trust fund girlfriends trying to predict the next “Gold Digger Bubble”. I heard that the Gold Diggers Association of America(GAA) had applied for federal bailout funds.

What has happened to the good old 20-30 year old hot bodied secretary by day, stripper by night, sharing an apartment with 4 roomies, three rented dresses and looking for all the sweetness and viagra us 45-65 year old sugar-daddies have to offer. My home of Dallas, Texas was once the gold-digging capital of the world but now seems to have shifted to the big games of Cougars. I thought all was lost until I read this article(pdf) in Glamour Magazine.

The article is about this lady name Jennifer Binder. She is talking about her thoughts and experiences in having dated the multi-millionaire “ultimate big shot”, disgraced former Enron big wig, Jeff Skilling, who has been convicted of numerous crimes related to the Enron collapse and is currently serving a federal 24-year, 4-month prison sentence. As I read the article, it occurred to me that this Binder lady was really Ashley Dupre and Eliot Spitzer five years removed. I am not saying that Jennifer was a “call girl” in the literal sense of the word. She appears to be educated and fairly successful in her own right. That however does not disqualify her from gold-digger status. If you could read between the lines what your really had was “The Goldigger’s Guide To The Galaxy”

I have been able to successfully decipher the galactic meaning of this article. I am going to translate it for everyone by outlining what she says and giving my “take” as to the universal meaning for all “GDITs” (Gold Diggers In Training). Here are her quotes from the article and what she was really saying after applying my Star Trek Universal Translator:

Binder: “Jeff did indeed fly me to England for our first date; later he bought me jewelry and even helped with the down-payment on my house”

Galactic Translation: I am a professional gold-digger. I have no other means of support. I would not even look at you twice unless you had a “Gulfstream” waiting to whisk me off to an exotic location that went over one ocean or the other before we landed.

Binder: “that (the money) really blinded me to the age difference…”

Galactic Translation: Unlike Cougars, professional Gold Diggers have no age requirements. If you are 90 years old and still breathing, I’m all yours if that Gulfstream is fueled and ready. If you’re a trust fund baby, I will “babysit” you until you are old enough to appreciate Cougars.

Binder: “Greed is not good for a relationship”

Galactic Translation: Lots of money will kill a relationship if you no longer have it.

Binder: “If it seems like has something to hide, he has something to hide”

Galactic Translation: If you pay for my condo; seed my bank account; buy my Lexus and fly me to London every week for dinner, I don’t care if you are a ponzi king, hiding eight ex-wives, five illegitimate children, and are a registered sex offender.

Binder: “When friends don’t have anything nice to say about your boyfriend, listen”

Galactic Translation: If he is doing all of the above, WHO NEED FRIENDS!

Binder: “You really can learn from every experience”

Galactic Translation: When you have your next billionaire ‘”mark” in your sites, and he is about to be indicted for anything or pass away from old age, get as many assets as possible including the jet, transferred to your name before he goes to jail or dies.

There you have it. There is no longer any need to take Dramamine every night to combat pole swinging motion sickness. Follow the simple rules above and the world of rich geezers, Ponzi Kings and insider trading felons is yours for the taking.

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Another Revisit to Madoff and His Charity Stakeholders - Hadassah and Yeshiva University: A Tale of Two Forms 990 - Installment 14

ALeibman@foxrothschild.com (Alain Leibman) — Tue, 25 Aug 2009 19:23:33 GMT

This is the fourteenth in a series of installments on this blog that are discussing some of the issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff. Installments 3 through 8 and Installment 10 of this series focused on the specific concerns of charities that were victims of Madoff and similar schemes. It generally advocated that every charity should respond pro-actively in the wake of the Madoff scandal and the current adverse economic climate. Such action should include a filing of its Form 990 with the Internal Revenue Service (the “IRS”) as promptly as practicable with appropriate disclosures, whether or not it was a Madoff stakeholder itself. All potential stakeholders should consult professional advisors promptly to have their positions evaluated.

This Installment 14 is designed to compare and contrast the most recent Forms 990 filed with the IRS for fiscal 2008 by two of the most significant and respected charities that invested with Madoff: Hadassah, The Women’s Zionist Organization of America, Inc. (“Hadassah”) and Yeshiva University (“Yeshiva”). While the missions of Hadassah and Yeshiva (collectively, the “Charities”) are different, they provide a basis for comparison, and share as part of their missions the advancement of education and Jewish awareness in the United States and Israel. For disclosure purposes, readers are advised that the spouse of the author of this blog post has been a Life Member of Hadassah for many years.

Concerns about profound financial and other impacts on these Charities from their investments with Madoff were published soon after the Madoff scandal became public in December 2008. For example, an article by Stewart Ain entitled “Hadassah Reveals $130 Million Windfall from Madoff,” was published in The Jewish Week on January 14, 2009 (the “Ain Article”). A more recent article on Hadassah and its involvement with Madoff that contains some is “Woman Tells of Affair with Madoff in New Book,” by Diana B. Henriques and Stephanie Strohm, published in The New York Times on August 14, 2009 (the “Henriques/Strohm Article”). An article about the impact of Madoff on Yeshiva entitled “Betrayed by Madoff, Yeshiva U. Adds a Lesson,” by Javier C. Hernandez was published in The New York Times on December, 23, 2008 (the “Hernandez Article”).

Several weeks ago, the charity information website Guidestar posted the Hadassah Form 990 for the fiscal year ended May 31, 2008 (the “2007 Hadassah Form 990”). This past weekend the Website posted the Yeshiva Form 990 for the fiscal year ended June 30, 2008 (the “2007 Yeshiva Form 990” and collectively with the 2007 Hadassah Form 990, the “2007 Forms 990”).

This blog series has already covered the newly-designed Form 990 for 2008 (the “2008 Form 990”) that requires 501(c)(3) entities to provide greatly expanded disclosure through answering questions that require “yes” or ‘no” responses about governance and business operations of charities. Questions that are answered “no” require explanation in the 2008 Form 990.

One of the questions for each of the Charities that would have required a response in the 2008 Form 990 (but not the 2007 Forms 990 recently filed with the IRS by the Charities) is whether the respective Board of Trustees and Audit Committee reviewed the 2007 Form 990 prior to its filing with the IRS. Because both Hadassah and Yeshiva have fiscal years other than the calendar year, they were able to use the old Form 990 for 2007.

Some circumstances differ, and some are similar, for the Charities. As will be shown in the table below, it is my view that the 2007 Yeshiva Form 990 has significantly greater disclosure and transparency relative to Madoff than the 2007 Hadassah Form 990. Either of the divergent approaches to disclosure chosen by each of the Charities in its 2007 Forms 990 may be compliant and supportable and were reviewed by the same “Big Four” accounting firm. However, this blog series has strongly recommended that early and complete transparency is advisable to maximize the value of utilizing the Form 990 in rebuilding public confidence in a charity that was affected by Madoff. Earlier disclosure will also get the “bad news” out into the open faster and allow the charity to move on. I believe that Yeshiva has been more successful than Hadassah in using its 2007 Form 990 for this purpose.

The following table will highlight a comparison of some of the relevant factors drawn from the respective 2007 Forms 990 of the Charities that led to the views of the author.

A COMPARISON OF HADASSAH AND YESHIVA 2007 FORMS 990

(Information in the Hadassah and Yeshiva columns is from their respective 2007 Form 990 unless otherwise noted; readers may access the 2007 Forms 990 by visiting Guidestar and completing a free online registration. Other noted sources in the table have the Internet links designated in the foregoing article.)

CATEGORY	HADASSAH	YESHIVA
Fiscal Year End	May 31, 2008	June 30, 2008
Date of 2007 Form 990	April 3, 2009	May 14, 2009
Final Due Date for 2007 Form 990 Filing with IRS, Including All Allowed Extensions	April 15, 2009	May 15, 2009
Office where financial books are kept	500 West 185^th Street New York, NY 10033	50 West 58^th Street New York, NY 10019
Paid Preparer of 2007 Form 990	KPMG LLP 345 Park Avenue New York, NY 10154-0102	KPMG LLP 345 Park Avenue New York, NY 10154-0102
Potential Conflicts of Interest Involving Madoff	Recent allegation by former CFO of Hadassah, Sheryl Weinstein, that she had an affair with Madoff while she was CFO at a time that Hadassah was investing with him	Madoff was a Trustee and Treasurer of Yeshiva while Yeshiva was investing indirectly with Madoff; J. Ezra Merkin, a principal of a putative feeder fund for Madoff, was a Trustee while Yeshiva was investing through him with Madoff
Resolution of Potential Conflicts of Interest Involving Madoff	Sheryl Weinstein left Hadassah in 1997, 12 years ago	Madoff and Merkin each resigned in all capacities from Yeshiva in December 2008
Extent of Disclosure of Assets Exposed for Loss as a Result of Madoff–related Investments	No disclosure of extent of potential asset loss from Madoff-related investments in 2007 Form 990; The Ain Article and the Henriques/Strohm Article reported that, while Hadassah had a loss of assets from Madoff-related investments of $90 million, it had withdrawn $130 million over the two decades of investment with Madoff	Disclosure that Yeshiva wrote off, as of June 30, 2008, $95,290,000 of carrying value of Madoff-related investments
Disclosure of Exposure Potential for Recovery of Assets by Bankruptcy Trustee for Madoff	None apparent in 2007 Form 990; The Ain Article and the Henriques/Strohm Article reported that Hadassah took out more than $130 million from Madoff accounts over the years with the potential for seeking of recovery by trustee	2007 Form 990 indicated inability of Yeshiva management to determine whether distributions from Merkin-related investments that were turned over to Madoff are recoverable by the trustee for Madoff
Miscellaneous Disclosures in 2007 Form 990	Effective as of January 2009, Hadassah changed its fiscal year to a calendar year, thereby making it necessary for Hadassah to file a 2008 Form 990 with the IRS for its short seven-month year ended December 31, 2008, no later than November 15, 2009, including all permitted extensions	Lengthy descriptive paragraph in note to financial statements about Madoff, Merkin and Madoff-related investments

[To be continued in Installment 15]

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

Web Notes and Updates

dandodiary@gmail.com (Kevin LaCroix) — Mon, 03 Aug 2009 09:42:46 GMT

Another Subprime-Related Securities Lawsuit Dismissal: In yet another subprime-related securities class action lawsuit decision in defendants’ favor, on July 29, 2009, District of Connecticut Judge Stefan Underhill granted the defendants’ motion to dismiss in the securities lawsuit pending against CBRE Realty Finance and certain of its directors and officers. A copy of the opinion can be found here. Background regarding the case can be found here.

As reflected in Alison Frankel’s July 30, 2009 article about the decision in The American Lawyer Daily (here), the court’s order in the CBRE Realty case may be particularly noteworthy because the plaintiffs’ complaint asserts claims under the ’33 Act, in connection with which the plaintiffs would not have to plead scienter or even loss causation in order to survive a motion to dismiss -- they only need to plead a material misrepresentation or omission.

In his July 29 order, Judge Underhill found that the plaintiffs had not adequately pled that the alleged misrepresentations or omissions were material. The plaintiffs had alleged that in connection with company’s IPO, the company’s offering documents had not adequately disclosed the risk of default in connection with two Maryland condominium conversion projects known as Triton. Judge Underhilll concluded that plaintiffs had failed to allege that there was not sufficient collateral to back the $51 million loan to Triton.

Judge Underhill’s ruling does not indicate whether or not it is with or without prejudice; however, he did order the court clerk to close the file.

I have added the CBRE decision to my register of subprime and credit crisis-related lawsuit dismissal motion outcomes, which can be accessed here.

Still More Bank Failures: In case you missed it, this past Friday night, the FDIC closed five more banks, bringing the year to date total number of bank failures to 69. The FDIC has taken control of 32 banks just since June 19, 2009. An August 1, 2009 Bloomberg article detailing the latest bank closures can be found here.

The most recent round of bank closures continues the trend concentration of recent bank closures within the community banks. Four of the five latest bank closures involved institutions that had assets of under $1 billion. Of the 69 banks that have closed this year, 59 have had assets under $1 billion.

The signs are that the bank closures will continue for some time to come. The July 31, 2009 Wall Street Journal reported (here) that banking regulators have already entered at least 285 memoranda of understanding with banking institutions this year, on pace for nearly 600 by year end, compared with 399 for the full year last year. While the MOUs are designed to try to direct the institutions away from closure, the sheer number of agreements is a reflection of the difficult circumstances that many banking institutions are facing.

The FDIC’s complete list of banking institutions that have failed since October 2000 can be found here.

Another Madoff-Related Insurance Coverage Action: In an earlier post (here), I noted the arrival of the Madoff-related insurance coverage litigation and suggested there would be much more similar coverage litigation ahead. Another Madoff-related coverage lawsuit has now arrived.

On July 20, 2009, Blezak Black filed an action (here) in New Jersey (Camden County) Superior Court against its crime insurers. The plaintiff alleges to have invested over $13 million with Madoff, which it lost. The plaintiffs’ crime insurers have denied coverage for the claim. The plaintiff’s complaint alleges breach of contract and seeks a judicial declaration of coverage.

I have added this lawsuit to my register of Madoff-related insurance coverage litigation, which can be found in Table V of my register of Madoff lawsuits. The register can be accessed here.

Special thanks to a loyal reader for providing a copy of the latest Madoff-related insurance coverage lawsuit complaint.

Madoff's Wife, Ruth, is now Sued for $44 Million!

gavin@gavincraiglaw.com (Gavin Craig) — Wed, 29 Jul 2009 21:24:30 GMT

In the almost never ending quest to squeeze blood out of a turnip, the Trustee has sued Madoff's wife in attempt to recover more assets. While I can understand the attempt, and she does have some money, I wonder how far they will get with the theory that she should have known that some of that vast wealth was obtained through fraud. Thanks to the WSJ Law Blog.

The Fed's have apparently already determined that Ruth could not be prosecuted, so the theory must be that even though she didn't have enough knowledge to support a criminal complaint, maybe a jury will give them something. The claim that she should have known that all that money could not have come from legitimate sources is, I think, weak. The first problem is that so many people on Wall Street were making so much money legitimately, or at least in ways that didn't violate criminal laws. What standard do you use to show that she should have known? It is not a situation where Bernie was the only one doing well. His success stood out, but people kept investing and they didn't suspect anything. So you must conclude that while he looked successful, he didn't didn't look so successful that most professionals were suspicious. Even though there were a few that raised flags of warnings, does this make Ruth liable?

I wish the Trustee well, and it would be nice if some more money or assets were recovered. But forcing Madoff's wife into bankruptcy will not solve the problem or make the creditors whole. Sure, she benefited greatly from the stolen money and it should be returned. Maybe she should be divested of the $2.5 million the Fed's allow her to keep. But the government has already seized all the assets they could find. So what is left for the Trustee?

Stakeholders in the Madoff Scandal and Their Need to Act Promptly and Proactively -Victims of a Ponzi Scheme Operated as a Charitable Gift Annuity Program by a Purported Charity - Installment 13

ALeibman@foxrothschild.com (Alain Leibman) — Tue, 28 Jul 2009 13:25:24 GMT

This is the thirteenth in a series of installments on this blog that is discussing issues that face the manifold stakeholders who have been materially affected by the long and worldwide Ponzi scheme scandal of Bernard L. Madoff. All potential stakeholders should consult professional advisors promptly to have their positions evaluated.

Installments 3 through 8 and Installment 10 of this series focused on the specific concerns of charities that were victims of Madoff and similar schemes. This installment is a little different in that it does not relate directly to the Madoff morass but rather addresses a recent court decision on a Ponzi/Madoff scheme operated as a charitable gift annuity (“CGA”) program by a purported charity. The victims and stakeholders in this case were not bona fide charities that were duped but rather well-meaning donors who were misled into purchasing bogus CGAs. It is being included to underscore the endless varieties of investment vehicles that are in reality Ponzi/Madoff schemes.

A CGA is a contract under which a charity, in return for a transfer of cash, marketable securities or other assets by a donor, contracts to pay a fixed amount of money to one or two individuals, usually 60 years of age or older, for their lifetime(s). A person who receives payments is called an “annuitant”. The payments are fixed and unchanged for the term of the contract. The CGA payments are not “income”, because a portion of the payments are considered to be a partial tax-free return of the donor's gift, which are spread over the life expectancy of the annuitant(s).
The contributed property (the gift), given irrevocably, becomes a part of the charity's assets, and the payments are a general obligation of the charity. The CGA is backed by the charity's entire assets, not just by the property contributed. In these uncertain and risky economic times, a number of charities, including some that have invested with Madoff, have declared bankruptcy, which would cause severe economic loss to annuitants.

A CGA should be deemed by the donor to be primarily a gift to the charity, not an investment. The total return on a CGA is significantly less than that which could be earned through an annuity issued by a commercial insurance company. The gift annuity rates recommended by the American Council on Gift Annuities (“ACGA”), which are widely used by bona fide charities, have been computed to produce an average gift to the organization at the expiration of the annuity agreement of approximately 50% of the amount originally donated under the contract.

On June 24, 2009, the United States Court of Appeals for the Ninth Circuit decided the case of Warfield v. Alaniz, wherein the Court held that “CGAs” sold in this case (“Sham CGAs”) were investment contracts illegally sold under federal securities laws. Outside contractors such as financial planners and insurance agents had sold Sham CGAs aggregating $55 million on a commission basis for an organization that was a putative charity but in reality was using funds raised from the Sham CGAs solely to pay contractual returns to earlier annuitants and make payments to the promoters and contractors. Selling materials used by the sellers trumpeted high rates of returns, tax benefits, and superiority to commercial annuities, not a charitable intent for the Sham CGAs.

This type of Ponzi/Madoff scheme unfortunately seeks to prey on senior citizens who have a charitable motivation while seeking to maintain a secure return for their lifetimes. Those who would purchase CGAs should visit the Web site of the ACGA at the link above for explanations on CGAs and how to be aware of risk and dangers in purchasing CGAs.

In addition, points raised in earlier installments of this blog series should be followed by those interested in purchasing a CGA, including the following:

1. Go to websites for Guidestar or Charity Navigator to obtain the most recent Forms 990 filed by the charity with the Internal Revenue Service and read about the charity’s mission, analyze its financial statements, see how much it pays for administrative and fundraising expenses and learn about its governance structure.

2. Contact the charitable registration agency or attorney general of the state in which you live to ascertain whether the charity that is selling the CGA is in good standing in the state.

3. If your state is one that requires registration and annual filings for CGA programs, contact the state office that oversees this process.

4. Buy a CGA directly from the charity that you wish to benefit through an officer, employee, trustee or director of the charity (each a “Charity Representative”). Never purchase a CGA through a third party, whether or not on commission.

5. To the extent possible, meet in person with the Charity Representative - find out how long the CGA program of the charity has been in existence and the number of annuitants that exist.

6. Ask the Charity Representative for the current disclosure statement for the CGA program under the Federal Philanthropy Protection Act of 1995. If the Charity Representative does not have such a statement or does not know what you are talking about, you may be well advised to consider another charity.

7. Take into account your total assets, income and obligations to carefully limit the amount of money you commit to a CGA, as you should for all charitable contributions and investments.

8. Seek advice from a lawyer, accountant, financial planner or other adviser that you trust to advise you on the purchase of the CGA.

9. If the CGA program returns sound too good to be true, they should be suspect.

10. If after doing all of the above, you do not understand how a legitimate CGA works or you have pause on making what should primarily be a charitable donation, your purchase of a CGA may be inadvisable.

[To be continued in Installment 14]