Will JASA Become More Forthcoming in Disclosing its Substantial Losses and Risks from Investing with Madoff? – Installment 62November 1, 2011 – Articles White Collar Defense & Compliance Blog
Installment 61 of this blog series on Madoff discussed the $5.2 million clawback lawsuit (the “JASA Lawsuit”) recently filed by Trustee Irving Picard against Jewish Association for Services for the Aged (“JASA”), reaffirming the perplexing and inconsistent manner, virtually to the point of arbitrariness and unfairness, with which Picard has handled charities that invested with Madoff.
This posting will focus on and discuss the disappointing lack of transparency evidenced by JASA in its failure to provide meaningful public disclosures of the magnitude of its investments with Madoff and its loss and exposure to risk, either in media releases or in filings of Forms 990 with the Internal Revenue Service (“IRS”). In response to the recent filing of the JASA Lawsuit, David Warren, President of the JASA Board of Trustees did post a statement on the JASA website stating that “JASA will vigorously defend its position.” It would appear that no other prior postings were made on the JASA Web site regarding the impact of the Madoff scandal.
This blog series has previously examined the manner in which other charities, such as Hadassah, Yeshiva University, American Jewish Congress and the Lautenberg Foundation, have handled public disclosure in the aftermath of their investing with Madoff. The purpose of this post is to provide a similar analysis for JASA.
Virtually the only reference to the JASA investment with Madoff prior to the JASA Lawsuit that can be located on the Internet is on page 66 of the original 162-page alphabetical list of the thousands of Madoff customers that was first published in February 2009. Even in that listing the name of JASA was not that obvious, as it was not given in full but was truncated to “JEWISH ASSOCIATION FOR.”
The most perplexing area, however, where JASA has been silent on the effects of the Madoff scandal is with respect to its filings of Forms 990 with the IRS. Since the Madoff scandal came to light in December 2008, JASA has filed Forms 990 for three fiscal years that are available on GuideStar:
- 1.the Form 990 for the fiscal year ended June 30, 2008, dated February 2, 2009 (the “2007 Form 990”);
- 2.the Form 990 for the fiscal year ended June 30, 2009, dated August 25, 2009 (the “2008 Form 990”); and
- 3.the Form 990 for the fiscal year ended June 30, 2010, dated February 15, 2011 (the “2009 Form 990”).
JASA has had three opportunities so far to provide meaningful explanatory disclosures in Forms 990 as to the effects of its investments with Madoff and has chosen not to do so. A review of material differences in the financial statements (the “Differences”) as reported in the 2007 Form 990 and the 2008 Form 990 as to the single fiscal year ended June 30, 2008 (“Fiscal 2008”) emphasizes the need for explanatory notes. Each of the unexplained Differences listed below would be consistent with write-downs by JASA, effective as of June 30, 2008, that related to losses incurred as a result of the Madoff scandal. (There were several reclassifications of items in the financial statements for Fiscal 2008, the interpretation of which would also be aided by explanatory notes.)
The Differences include the following:
1. The 2007 Form 990 reflects a net gain from investment transactions during Fiscal 2008 of $586,579, while the 2008 Form 990 reflects an investment loss for the same Fiscal 2008 of $491,559, for a total reduction of $1,078,138.
2. The 2007 Form 990 reflects “investments – publicly-traded securities” of $7,194,170 as of June 30, 2008, while the 2008 Form 990 reflects “investments – publicly-traded securities” of $3,209,730 as of June 30, 2008, for a total reduction of $3,984,440.
3. The 2007 Form 990 reflects total assets of $34,020,186 as of June 30, 2008, while the 2008 Form 990 reflects total assets of $30,013,294 as of June 30, 2008, for a total reduction of $4,006,892.
4. The 2007 Form 990 reflects net assets after liabilities of $16,564,650 as of June 30, 2008, while the 2008 Form 990 reflects net assets after liabilities of $12,557,758 as of June 30, 2008, for a total reduction of $4,006,892.
Additionally, the absence of any information in the 2008 Form 990 regarding losses by JASA with Madoff is surprising in light of the following question under “Government, Management and Disclosure” on Line 5 for an answer of “Yes” or “No” by the organization:
“Did the organization become aware during the year of a material diversion of the organization’s assets?”
In the 2008 Form 990, covering Fiscal 2008, Line 5 was answered “No” by JASA. A comprehensive discussion of the IRS instructions and related issues regarding the question on Line 5 is contained in Installment 29. In summary it is disappointing that JASA has not been more forthcoming and transparent with its donors in its public statements and IRS filings as to its involvement and losses in the Madoff scandal. As stated in earlier Installments respecting other charities, JASA would be far better served to make prompt, visible, clear and consistent disclosures and explanations to justify the faith of its supporters and regain the confidence of its donors who faithfully fund its historic mission.
[To be continued in Installment 63]