Madoff, Picard and Charities: A Comparison of Treatment of the Lautenberg Foundation and the Wilpon/Katz Foundations – Part 2 – Installment 52

June 14, 2011Articles White Collar Defense & Compliance Blog

This is the fifty-second in a series of installments on this blog that are discussing issues arising in the aftermath of the global Ponzi scheme perpetrated by Bernard L. Madoff (“Madoff”). Installment 51 of this series presented a tabular comparison of financial information derived from the 2007, 2008 and 2009 Forms 990-PF filed with the Internal Revenue Service by (i) The Lautenberg Foundation, a Section 501(c)(3) private foundation (“Lautenberg”) formed by Senator Frank R. Lautenberg, and (ii) the Section 501(c)(3) private foundations formed by the owners of the New York Mets: the Judy & Fred Wilpon Family Foundation, Inc., and the Iris & Saul Katz Family Foundation, Inc. (collectively, the “Wilpon/Katz Foundations”). (The Lautenberg Foundation and the Wilpon/Katz Foundations are sometimes collectively referred to herein as the “Foundations.”)

The table in Installment 51 shows that the Lautenberg Foundation and the Wilpon/Katz Foundations suffered crushing losses in fair market value of assets from the end of 2007 to the end of 2009. During that two year period each of the Foundations lost at least 80% of its fair market value of assets as a result of write-offs attributable to the revelations regarding Madoff. In addition, each of the Foundations saw disastrous losses or declines in investment income during 2008 and 2009 from the level achieved in 2007 as a result of the losses recognized from investments with Madoff.

The Form 990-PF filed by each of the Foundations for 2007 (the last full fiscal year for the Foundations before the Madoff scandal erupted in December 2008) indicated that an appreciable portion of income and contributions reflected for that year were attributable to the fictitious profits from investments with Madoff and distributions from such “profits” to the Foundation. The largest amount of Madoff "profits" so reflected for 2007 was $947,565 that was reported by the Lautenberg Foundation.

While Picard continues his relentless pursuit of the Wilpon/Katz families, including the Wilpon/Katz Foundations for not only “clawback” of $300 million of fictitious profits but also return of principal of $700 million, there is no such pursuit of the Lautenberg Foundation, even for clawback. Moreover, there is even evidence (while not conclusive because of a lack of an explanatory note) in the 2009 Form 990-PF filed by the Lautenberg Foundation that it received a cash recovery of $500,000 in the Madoff proceeding. See Installment 50 of this series for further discussion.

Thus it would appear that Picard has made peremptory and perplexing decisions not only as to the Madoff investors that he has chosen to pursue but also the extent of recoveries that he is seeking. While the Wilpon/Katz families, including the Wilpon/Katz Foundations, will spend millions of dollars in legal fees and most likely hundreds of millions in settlement or satisfaction of judgments, other Madoff investors like Hadassah and the Lautenberg Foundation will keep millions in fictitious profits or even recover payments in the Madoff bankruptcy proceeding.

[To be continued in Installment 53]