A Postscript – the Latest Charitable Casualty of Madoff: Reviewing the Transparency of American Jewish Congress – Installment 33

August 12, 2010Articles White Collar Defense & Compliance Blog

This is the thirty-third in a series of Installments on this blog that discusses issues that arose in the aftermath of the Bernard L. Madoff (“Madoff”) scandal. Against the backdrop of the Madoff scandal, various Installments of this series have analyzed new disclosure requirements for public charities adopted by the Internal Revenue Service (“IRS”) in 2008 with its new Form 990. In particular, Installment 31 of this series provided analysis of the Form 990 for 2008 (the “2008 Form 990”) of American Jewish Congress, Inc. (“AJCongress”), which, like other Forms 990, is universally available on Guidestar.

Installment 31 stated that, on July 22, 2010, AJCongress President Richard Gordon reported on the AJCongress Website (the “Gordon Statement”) that the organization was suspending operations after, among other things, “Bernie Madoff stole approximately $21 million from our organization. . . .”

Installment 31 reported incorrectly that the only reference to Madoff and the AJCongress losses on the AJCongress website is the Gordon Statement. Another reference to the Madoff losses for AJCongress may be found in the 2009 Annual Report of AJCongress (the “2009 Annual Report”), which may be reached directly from the AJCongress Homepage by clicking on the link “Click here to view Annual Report of Accomplishments- 2009.”

Unfortunately, in stark contradiction to the Gordon Statement, the first two paragraphs of the 2009 Annual Report read as follows:

As a difficult year—our 91st—draws to a close, it is appropriate to bring our friends and supporters up to date on our accomplishments. These are considerable, although the year began so inauspiciously with the looting of AJCongress endowment funds by Bernard Madoff.

We acted promptly to contain the damage, but the price the Madoff fraud exacted was high—we were forced to let go many valued and long-time AJCongress employees; we reduced spending to a minimum; and we relocated to smaller quarters. We have completed these actions, stabilized our finances and have begun to look forward to expanding the agency so that it may continue its historic role as attorney general of the American Jewish community.

The 2009 Annual Report concludes as follows:

The past year [2009] was a time for consolidating and reorganizing. This coming year [2010] must be a time of vigorous growth for AJCongress. But that can happen only if you contribute generously as this year comes to a close. We are counting on you.

The 2009 Annual Report paragraphs are seriously outdated, create a mistaken impression and belie the Gordon Statement. Even more concerning is the fact that the link to the 2009 Annual Report on the Homepage is placed directly below an active “Donation” link. The Gordon Statement is not on the AJCongress Homepage or the pages seeking donations or memberships. Nor is there any cross-reference on those pages to the Gordon Statement, as there is to the 2009 Annual Report and its contradictory information.

As reported in Installment 31, AJCongress appears to be continuing business as usual on its Website in soliciting donations and memberships. As a personal matter, on August 5, 2010, I became an individual member in AJCongress online with a credit card payment. An unknowing visitor to the AJCongress Website could easily do that without seeing any information about the organization’s current distressed status. These disclosure matters should be addressed and rectified by AJCongress promptly.

As a final point, Charity Navigator, a website that rates charities based on their Form 990 filings with the IRS, has made AJCongress number one on its list of “10 Charities Drowning in Administrative Costs.” Charity Navigator states that each of the 10 named charities

directs more than 44% of its budget towards administrative costs. That means most of your money goes toward such expenses as liability insurance, accounting and legal services, administrative salaries, and investment expenses, not the programs you aim to support.

Out of fairness to AJCongress and its venerable charitable history, it should be observed that the 2008 Form 990, upon which the organization’s Charity Navigator rating was based, included the results of the financial devastation that emanated from the Madoff revelations.

Nevertheless, AJCongress should consider correcting the disclosure deficiencies on its Website cited above by appropriately highlighting the curtailment of its charitable activities.

[To be continued in Installment 34]