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

August 25, 2009Articles White Collar Defense and Compliance Blog

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.


(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.)




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 185th Street
New York, NY 10033

50 West 58th Street
New York, NY 10019

Paid Preparer of 2007 Form 990

345 Park Avenue
New York, NY 10154-0102

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.