Hadassah Continues To Spread Little Light for Its Donors About the Real Costs of Its Madoff Involvement – Installment 44January 12, 2011 – Articles White Collar Defense & Compliance Blog
Several Installments in this series about the long-running, global Ponzi scheme of Bernard L. Madoff (“Madoff”), the most recent of which was Installment 42, have discussed Hadassah and its unfortunate involvements with Madoff. The matters covered include Hadassah’s potential “clawback” exposure, the questionable approach that Hadassah has used to disclose its investments with Madoff in Forms 990 filed with the Internal Revenue Service (the “IRS”), its proposed settlement with the Madoff Trustee and other matters.
On December 21, 2010, my spouse, who has been a life member of Hadassah for decades, received in the mail (the “Mailing”) from Nancy Falchuk, National President of Hadassah, the letter respecting the Madoff scandal that Installment 42 reported Hadassah had posted on its website (the “Posting”). The Mailing and the Posting (collectively, the “Falchuk Letter”) reported the $45 million Hadassah settlement in the Madoff matter (the “Settlement”).
The Mailing is identical to the Posting with one notable exception. In the Mailing the second sentence of the following paragraph is in bold type while it is not in bold type in the Posting:
“Hadassah’s fiscal discipline will allow it to pay this obligation from existing unrestricted funds. As always, Hadassah gifts will continue to be used for their intended purpose.”
The paragraph, and especially the bold sentence, suggest that the payment of the Settlement will be made from funds other than gifts to Hadassah. In my view, the suggestion is specious, almost to the point of being disingenuous. Hadassah’s “existing unrestricted funds” are the aggregation of gifts over many years from the generosity of past donors to the mission of Hadassah, together with the income earned on such gifts.
In addition, the Falchuk Letter does not shed light on the entire Settlement picture, as the costs of achieving the Settlement go far beyond the actual payment of the $45 million dollars to be made to the Madoff bankruptcy estate. Statement 4 of the Hadassah Form 990 for the fiscal year ended December 31, 2009 (the “2009 Form 990”), which has not yet been posted on GuideStar, reports the compensation of the five highest paid independent contractors that received $100,000. The 2009 Form 990 reveals that during 2009 Hadassah spent an aggregate of $2,753,922 on legal, accounting and consulting fees.
In contrast, Statement 4 of the Form 990 filed by Hadassah for its newly-designated fiscal year ended December 31, 2008 (the “December 2008 Form 990”), revealed a total of $497,280 for legal and accounting fees for the seven month short period that was covered. (The Madoff scandal did not come to light until December 11, 2008.) The December 2008 Form 990 was the first year that the Form 990 required reporting of compensation for professional services of the type reported on Statement 4.
Even if the amount for professionals reported in the December 2008 Form 990 is doubled to $1 million to take into account a full year, the huge increase in 2009 in professional costs for Hadassah must be largely attributable to the legal, accounting, governance and public relations issues flowing from the Madoff matter.
One can only speculate as to the amount of professional fees that are likely to be reported by Hadassah for 2010, as the Falchuk Letter points out that the Settlement of the “clawback” issue involved “many months of negotiation.” This would certainly translate into substantial professional fees, again perhaps running into the millions of dollars. The professional fees, like the Settlement itself, will have to be paid, presumably from “existing unrestricted funds.” Hadassah should be forthcoming in revealing such costs of the Settlement to its donors.
Nonetheless, the professionals will have certainly earned their fees if, as noted in the Falchuk Letter, the required bankruptcy court approval is obtained by Hadassah. However, even that remains to be seen. For example, Thom Weidlich reported on January 6, 2011, in businessweek.com that a group of Madoff victims has already objected in the bankruptcy court to a settlement in which the estate of Jeffry Picower agreed to return $7.2 billion he allegedly made in the Madoff scandal. An objection to the Settlement could be filed in the Hadassah case as well.
Many, like my wife, who support or belong to this venerable charitable organization should be acutely disappointed that Hadassah has not been more accurate and forthright with its donors in its public statements and IRS filings. As stated in earlier Installments, I believe that Hadassah would be far better served to make prompt, visible, clear and consistent disclosures to regain the confidence of its loyal supporters who faithfully fund its historic mission.
[To be continued in Installment 45]
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