Madoff and Charities: The Lautenberg Foundation 2009 Form 990-PF – Part 2 – Installment 50

March 25, 2011Articles White Collar Defense & Compliance Blog

This is the fiftieth in a series of installments on this blog that are discussing issues arising in the aftermath of the Ponzi scheme perpetrated by Bernard L. Madoff (“Madoff”). Installment 49, Installment 41 and several prior Installments in this series have discussed The Lautenberg Foundation, a private charitable foundation (the “Foundation”) formed by Senator Frank R. Lautenberg, and its investment with Madoff. The 2008 Form 990-PF (the “2008 Form 990-PF”) and the 2009 Form 990-PF (the “2009 Form 990-PF” and, collectively with the 2008 Form 990-PF, the “Foundation Forms 990-PF”) filed by the Foundation with the Internal Revenue Service (the “IRS”) are the vehicles for the analysis on this blog of the financial impact on the Foundation of its relationship with Madoff . The Foundation Forms 990-PF are available to the public on the charity information Web site GuideStar.

Comparing the 2009 Form 990-PF to the 2008 Form 990-PF, which was filed with the IRS 15 days earlier, reveals some interesting new financial information, as follows:

The 2009 Form 990-PF reflects a fair market value of assets for the Foundation as of
December 31, 2009, of $967,302, almost the same amount as the fair market value of assets for the Foundation as of December 31, 2008 of $1,001,517. Yet the Foundation reported an excess of expenses over revenues of ($365,087) (the “Loss”) for 2009. The major source of the Loss was explained in Statement 3 to the 2009 Form 990-PF as a charge for “Madoff Theft Loss Balance Remaining” of ($296,072) to “Revenue per Books” and “Net Investment Income.”

Statement 6 to the 2009 Form 990-PF reflected Corporate Stock holdings of the Foundation in Bernard L. Madoff Investment Securities LLC with zero book and market values as of December 31, 2009. As observed in Installment 41 of this series, Statement 9 to the 2008 Form 990-PF, which was filed with the IRS 15 days earlier than the 2009 Form 990-PF, reflected Corporate Stock holdings of the Foundation in Bernard L. Madoff Investment Securities LLC with a book value of $696,072 and a fair market value of $400,000 as of December 31, 2008. No statement was given in either of the Foundation Forms 990-PF as to the basis for the valuations.

No contributions, gifts, grants, etc. were reported in the 2009 Form 990-PF by the Foundation as having been received during 2009, and the only positive income was interest and dividends aggregating $13,909.

Notwithstanding the foregoing items, the 2009 Form 990-PF discloses a new asset on line 2 of its Balance Sheet of $500,239 in “Savings and temporary cash investments.” Statement 2 to the 2009 Form 990-PF reflects $239 in “Interest on Savings and Temporary Cash Investments” from Bank of America. Nowhere, however, in the 2009 Form 990-PF is there any explanation or statement about the $500,000 cash item on the Balance Sheet.

Installment 41 raised the following question: In light of the filing of the 2008 Form 990-PF in November 2010, almost two years after the Madoff arrest, with a wealth of information available about the Madoff bankruptcy/liquidation proceeding (the “Madoff Proceeding”), was the $400,000 in fair market value reflective of an anticipated amount recoverable or already recovered in the Madoff Proceeding by the Foundation?

One can reasonably speculate that $500,000 of the cash reflected on line 2 of the Balance Sheet in the 2009 Form 990-PF may be a distribution to the Foundation in the Madoff Proceeding of the $500,000 maximum amount payable to a securities customer by the Securities Investor Protection Corporation.

In contrast to a potential payment to the Foundation in the Madoff Proceeding, Installment 41 observed that the 2008 Form 990-PF reflected charitable contributions aggregating $330,445 during 2008. It is unclear whether such contributions were made in whole or in part from cash distributions received by the Foundation from Madoff during 2008 before his arrest in December 2008. Installment 41 asked whether any or all of such amounts could be subject to “clawback” by Irving Picard, the Trustee in the Madoff Proceeding (the “Trustee”). (Similar questions could be raised about the charitable contributions reported in the Foundation’s Forms 990-PF for 2005, 2006 and 2007 in light of the fact that, in each of those years, 70% or more of the investment income and fair market value of assets were reported by the Foundation as attributable to Bernard L. Madoff Investment Securities LLC.)

Finally, a principal theme of this series on Madoff is that Irving Picard has been treating charitable organizations inconsistently in the Madoff Proceeding. Installment 48, for example, highlighted the difference in treatment by the Trustee of Hadassah and the Wilpon/Katz private charitable foundations. It would have been helpful to this analysis if an explanation had been provided by the Foundation for the $500,000 cash item that appeared on its Balance Sheet as of December 31, 2009 without a corresponding item in the Analysis of Revenue and Expenses in Part I of the 2009 Form 990-PF.

[To be continued in Installment 51]