Madoff and Charities: Checking the Pulse After Three Years – Is the Hadassah Nightmare Finally Over? – Part 1 – Installment 65December 19, 2011 – Articles White Collar Defense & Compliance Blog
Numerous Installments, including Installments 48 and 42, in this blog series about the Ponzi scheme of Bernard L. Madoff (“Madoff”) have discussed Hadassah, its unfortunate decades-long involvement with Madoff and the aftermath. The matters covered include Hadassah’s original potential “clawback” exposure of up to $77,000,000 or more; the payment in early 2011 by Hadassah of $45,000,000 (the “Payment”) in a final settlement (the “Settlement”) with Irving H. Picard, the Trustee in the Madoff bankruptcy, who thereby permitted Hadassah to keep $32,000,000 in “fictitious profits” from the Ponzi scheme; the limited public transparency by Hadassah of developments in the Madoff scandal, especially in its filings of Forms 990 with the Internal Revenue Service (“IRS”) and other matters.
With the recent passage of the third anniversary of the arrest of Bernard Madoff, it appears appropriate to review where Hadassah currently stands in light of the Settlement and the Payment, as reflected in publicly available documents. Last week we obtained from Hadassah copies of its Forms 990 for the fiscal year ended December 31, 2010 (the “2010 Forms 990”) that were recently filed with the IRS, as they are not yet available on GuideStar. Along with the 2010 Forms 990, we obtained from Hadassah its consolidated financial statements for 2010 as audited by KPMG (the “2010 Financial Statements”). Hadassah should be commended for its commitment to make available its annual audited consolidated financial statements upon request, as there is no legal obligation for it to do so.
The Settlement and Payment by Hadassah to Trustee Picard is reflected in the financial statements for 2010 in both the 2010 Forms 990 and the 2010 Financial Statements. The actual disbursement of the Payment was made by Hadassah Medical Relief Association, Inc., one of the affiliated Hadassah entities (“HMRA”) included in the 2010 Financial Statements, and did not occur until the first quarter of 2011. Nevertheless, in line with Hadassah’s history of minimal public reporting on the Madoff matter, which, to say the least, constituted a major watershed event in recent Hadassah history, Hadassah’s discussion of the Settlement and the Payment in the 2010 Financial Statements is terse and is even less descriptive in the 2010 Forms 990 filed with the IRS.
The following is “Footnote (14) - Subsequent Event” to the 2010 Financial Statements that describes the Settlement and the Payment:
In December 2008, Hadassah learned that it had been a victim of the fraudulent scheme perpetrated by Bernard L. Madoff Securities LLC (Madoff). Madoff has been placed in bankruptcy. The bankruptcy trustee (the Trustee) has informed creditors that substantially all amounts recorded in accounts with Madoff, like those of Hadassah’s, were worthless. The Trustee’s responsibilities include the recovery of Madoff’s assets from any available sources. Under certain circumstances, the Trustee may be able to recover amounts from account holders who, like Hadassah, received direct or indirect distributions from Madoff within the six-year period prior to the date of the commencement of the bankruptcy case. Hadassah has communicated with representatives of the Trustee concerning its accounts with Madoff. On February 16, 2011, Hadassah and the Trustee reached a final nonappealable settlement in the amount of $45,000,000, which is included in accounts payable and accrued expenses in the accompanying consolidated balance sheet as of December 31, 2010. The settlement payment was made to the Trustee in March 2011.
In contrast, the following is the disclosure of the Settlement and Payment in the 2010 Form 990 of HMRA (“Form 990 Disclosure”):
FORM 990, PART IX, LINE 24A
PART IX, LINE 24 A "SETTLEMENT PAYMENT" IN THE AMOUNT OF $45,000,000 WAS A PAYMENT MADE TO TRUSTEE OF THE MADOFF BANKRUPTCY ESTATE TO SETTLE ALLEGED CLAIMS OF THE ESTATE AGAINST HADASSAH PURSUANT TO A SETTLEMENT AGREEMENT.
The Form 990 Disclosure does not give context or background to the $45,000,000 Payment as did Footnote (14) to the 2010 Financial Statements. The abbreviated Form 990 Disclosure does not seem to do justice to a sum which dwarfs the figures in the 2010 Financial Statements reflected for total 2010 Hadassah consolidated (i) program services expenses of $29,051,633 and (ii) fund-raising and management and general expenses of $25,956,921. The total shown in the 2010 Financial Statements for all Hadassah consolidated expenses for 2010, which excludes the Payment, was $55,008,554, only 22% higher than the Payment.
As discussed in Installment 42 of this series, the December 2008 Forms 990 of Hadassah (the “2008 Forms 990”), which reported a short-year seven-month period ended December 31, 2008 because of a fiscal year change to the calendar year, contained a detailed statement of the Madoff matter. The statement was similar to that contained in the 2008 audited consolidated financial statements. Ironically, however, the 2008 Forms 990 have never been posted on GuideStar to this point, although I have brought the fact to GuideStar’s attention in the past. While Hadassah is not responsible for the omission by GuideStar, the result is that none of the Forms 990 of Hadassah posted to date on GuideStar has any reference to the Madoff matter.
(Installment 66 will provide Part 2 of this Hadassah pulse report.)