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Mostly Cloudy Lawsuits to quickly follow financial crisis named Bernard Madoff
Dual role as YU treasurer and money manager raising questions (UPDATED)
By Michael Orbach and Mayer Fertig
Issue of Dec. 19, 2008 / 22 Kislev 5769
Let the lawsuits begin.
A law firm with a large practice in class action suits related to securities fraud now represents some of the alleged victims of Bernard Madoff, who is accused of masterminding a $50 billion Ponzi scheme rip-off.
David Rosenfeld, a partner in Coughlin Stoia Geller Rudman & Robbins LLP, said the firm planned to pursue multiple lawsuits against Madoff, Bernard L. Madoff Investment Securities LLC, and the hedge funds that invested in Madoff's fund.
The hedge funds did not perform due diligence and are therefore liable for the losses, Rosenfeld told The Jewish Star Monday night.
"The reason you pay the hedge funds the money they demand is you expect them to conduct proper due diligence of wherever they invest your money," he said. He declined to identify the funds the lawsuits might target.
Several other attorneys have also come forward to say they are representing victims of the massive scam.
Investors in Madoff's fund who withdrew their money before the alleged fraud was revealed could also be sued, Rosenfeld added.
Madoff, 70, admitted to his sons that his financial empire was "just one big lie" and that he ran a "giant Ponzi scheme" that bilked investors of over $50 billion, and that he was "finished," according to a federal complaint filed last Thursday.
Madoff was released on his own recognizance Wednesday, but was required to wear an electronic monitoring bracelet on his ankle and abide by a 7:00 p.m. curfew.
Madoff, who was once the chairman of NASDAQ, resigned last Friday as treasurer of Yeshiva University and chairman of its Sy Syms School of Business.
"Bernard Madoff is no longer associated with our institution in any way," said Yeshiva University President Richard Joel.
Yeshiva's endowment fund has lost $110 million — about eight percent of its total value — Joel said Tuesday night in an e-mail addressed to the "Yeshiva University community."
The endowment is now valued at approximately $1.2 billion, Joel said, down from about $1.7 billion on January 1, 2008 — the result not only of Madoff's alleged fraud, but of the plummeting losses in the financial markets.
Joel sought a positive spin, noting, "That loss of 28 percent, calendar year to date, compares with an S&P loss of 38 percent and Dow Jones loss of 32 percent. While certainly this represents a painful decline, we are in the same position or better as many universities."
The losses would have no affect on Yeshiva's day to day operations, Joel said.
Another possible target of lawsuits is J. Ezra Merkin, a Yeshiva University trustee, and founder of the $1.8 billion Ascot Partners LLP hedge fund, which invested significantly in Madoff's fund. Merkin, who owns a home in Atlantic Beach, also resigned from YU's board on Friday.
The endowment funds were not placed directly with Madoff, said Joel, but had been placed in Merkin's fund which, in turn, was almost entirely invested with Madoff, a fact reportedly unknown to most, if not, all of Merkin's investors.
The fact that Madoff, who was managing hundreds of millions of dollars belonging to the university, was also its treasurer is raising eyebrows in the world of finance.
"People were so trusting of this guy," said an investment banker who asked to not be identified. "He was part of their social fabric.”
Another investment banker, a Five Towns man who also asked to not be named, said, "The treasurer of the institution should in no way be profiting from the investments because ultimately the treasurer is the one who has a fiduciary responsibility on the disbursement of funds."
"In the Modern Orthodox world we like to criticize the yeshiva world for being 'too heimish,'" he noted, "but this is about the most heimish type of insider transaction you can imagine. It's crazy."
"In light of recent developments," Joel pledged a complete review of Yeshiva's "existing conflicts policies and procedures, and governance structures."
A law firm and a consulting group have been engaged to conduct the review which Joel promised would ensure that YU's future practices would "reflect not only best practices, but the gold standard."
Moody's Investor Services put Yeshiva on a watch for a possible downgrade in its credit rating Wednesday, according to Crain's New York Business. If the credit rating is downgrades the university's costs to borrow money could increase.
Hadassah revealed it took a massive hit in the Madoff affair.
"It appears that at the time of his arrest, Hadassah had approximately $90 million invested with his firm,” the organization said Wednesday in a statement.
The organization that while the loss would require "adjustments" it would not affect its plans to construct a new $210 million towerat its main hospital campus in Ein Kerem in Israel. Hadassah's announcement was first reported by JTA.
Banks and non-profits around the world have lost money to the alleged fraud; some smaller non-profits have been hard hit, as have some individual investors including a number of residents of the Five Towns.
The Elie Wiesel Foundation for Humanity, founded by the Nobel Laureate and famed Holocaust survivor, is reported to suffered heavy losses. A foundation belonging to Steven Spielberg had a significant portion of its assets invested with Madoff.
The Robert I. Lappin Foundation, which funded trips to Israel for Jewish youth, was worth $7.1 million as of 2006. The Chais Family Foundation, which funded a variety of Jewish projects, was worth a reported $178 million in 2007. Both were wiped out and have shut down.
SAR Academy, a yeshiva day school in Riverdale, had about a third of its endowment in Merkin's Ascot fund, its president, Jack Bendheim, said in a letter to parents Monday. [sar-madoff-letter-12-14-08] Ascot placed the $1.3 million with Madoff, the letter said, and the school considers the money lost. The loss represents approximately $65,000 from the school's annual cash flow, said Bendheim, a loss from which the institution will recover.
Rena Mosak, a Cedarhurst resident, said that an elderly extended family member who had their life savings with Madoff had been completely wiped out. "It's kind of tragic that somebody so affiliated with Jewish charities and Jewish good could do such a thing," she said.
At least two very charitable families have lost everything, a prominent fundraiser told The Jewish Star. "People who were giving hundreds of thousands in the last years to charity have put their homes on the market," he said, "They've put their art up for sale and have moved in with their children."
This article has been modified with information that became available after the print edition of The Jewish Star went to press on Tuesday evening, December 16, 2008.
