The Latest Charitable Casualty of Madoff: Reviewing the Transparency of American Jewish Congress – Installment 31

July 26, 2010Articles White Collar Defense & Compliance Blog

This is the thirty-first in a series of Installments on this blog that discusses issues that arose in the aftermath of the Bernard L. Madoff (“Madoff”) scandal. Various Installments of this series have analyzed new disclosure requirements for public charities adopted by the Internal Revenue Service (“IRS”) in 2008 for its new Form 990 against the backdrop of the Madoff scandal. The Forms 990, including the Form 990 (the “2008 Form 990”) of American Jewish Congress, Inc. (“AJCongress”) for the calendar year 2008 discussed below are universally available on the Internet on Guidestar and other sites.

AJCongress was founded 91 years ago to fight anti-Semitism and protect civil rights. The organization was one of the charities that was identified early as a major victim of Madoff when the scandal became public in December 2008, at which time AJCongress said it would not close.

On July 22, 2010, AJCongress President Richard Gordon reported on the AJCongress Website that the organization was suspending operations after, among other things, “Bernie Madoff stole approximately $21 million from our organization. . . .”

A review of the current AJCongress Website reveals that the statement of Mr. Gordon is the only reference to Madoff and the AJCongress losses. Further, in spite of the suspension of activities by AJCongress and some reports that it is seeking to merge with at least one other charity, AJCongress appears to be continuing business on its Website as usual in soliciting donations and memberships, including life memberships that cost $1,000. The statement by Mr. Gordon is only contained under the AJCongress tab for “Press Statements,” not on its Homepage or the pages seeking AJCongress donations or memberships. A visitor to the Website would have to visit that tab specifically in order to learn about the dire financial straits of AJCongress.

Clearly “best practices” in transparency would mandate that the statement by Mr. Gordon as to suspension of AJCongress activities be placed on the AJCongress Homepage and/or the fund solicitation pages, or at least prominently cross-referenced on those pages.

Probing deeper into the AJCongress disclosure process, a review of the 2008 Form 990 filed with the IRS on November 23, 2009 reveals that AJCongress properly answered “Yes” to the following question on Line 5 under the heading “Government, Management, and Disclosure”: “Did the organization become aware during the year of a material diversion of the organization’s assets?”

On Schedule O to the 2008 Form 990, AJCongress gave the following explanation for the foregoing “Yes” answer:

Approximately $2.2 million of investitures with Bernard Madoff Securities were stolen by Mr. Madoff. Additionally, some $16 million in trust funds were administered by AJCongress officers and employees (in one case, the Trusts’ [sic] were for the benefit of AJCongress) were also taken by Mr. Madoff.

The 2008 Form 990 shows that the net assets of AJCongress declined from $16,925,097 to December 31, 2007 to $3,764,412 as of December 31, 2008.

Therefore, while, the 2008 Form 990 appropriately called attention to the financial debacle that the organization had suffered during 2008, as discussed earlier, no attention was called to this fact on the AJCongress Website until the statement of suspension of activities by Mr. Gordon was posted.

Further, the 2008 Form 990 is unusually incomplete, with omissions in several areas. For example, there were two pages attached at the end of the Form 990 of AJCongress for 2007 that named almost 100 volunteers who were on its Executive Committee and Governing Committee. However, no volunteers were named in the 2008 Form 990 in response to Part VII, Section A, which called for a list of all current officers, directors, trustees (whether individuals or organizations), regardless of compensation. The response in the table in Part A was cut off after the word “See -” in the 2008 Form 990 but appears that it would have directed the reader to other pages for a list of the volunteers, which have not been included.

Even more significantly, AJCongress answered “Yes” to the following question on Line 4 under the heading “Government, Management, and Disclosure” in the 2008 Form 990: “Did the organization make any significant changes to its organizational documents since the prior Form 990 was filed?”

On Schedule O to the 2008 Form 990, AJCongress gave the following explanation for the foregoing “Yes” answer: “See attached amendment to the Constitution of the American Jewish Congress.”

Again, as in the case of the members of the Executive Committee and the Governing Committee, no amendment to the Constitution was attached to the 2008 Form 990.

The omission of the amendment to the AJCongress Constitution is perplexing, as it has been reported by JTA that “the group [AJCongress] has money in the bank but cannot access it now due to the constraints of its constitution.” Had the constitutional amendments been included with the 2008 Form 990, it would have been possible for readers to analyze more meaningfully the status of AJCongress.

One final observation regarding the preparation of the 2008 Form 990 relates to the following question on Line 10 under the heading “Government, Management, and Disclosure”: “Was a copy of the Form 990 provided to the organization’s governing body before it was filed? All organizations must describe in Schedule O the process, if any, the organization uses to review the Form 990.”

Not only did AJCongress answer the question on Line 10 “No,” there was no description in Schedule O of the process that the organization used to review the 2008 Form 990. Perhaps if the AJCongress Executive Committee and Governing Committee had had the opportunity to see the 2008 Form 990 prior to its filing with the IRS, the omissions of the list of governing board members and the amendment to the AJCongress Constitution discussed above could have been discovered.

Although AJCongress has made disclosures of its financial status and direction since the Madoff scandal surfaced, the organization could have improved their timeliness, quality, consistency and completeness. It is not too late to improve the transparency, however, perhaps by placing a complete 2008 Form 990 on the AJCongress Website Homepage.

[This Installment has been amended from its original posting to reflect a change to "AJCongress" in the defined term for American Jewish Congress, Inc., in order to avoid potential confusion with any other organization. We apologize for any misunderstanding that may have taken place.]

[To be continued in Installment 32]