Charity Governance

RESPONDING TO A FAITHFUL READER: FAMILY FOUNDATIONS AND MADOFF

DATELINE: January 5, 2009, Chicago

One of our faithful readers asked us to expand on our recent discussion of family foundations that have lost money in the Madoff scandal.  In our earlier post, we suggested that state charity regulators needed to take some action in response to what appears to us to be poor investment management practices on the part of some of those running these foundations.  The specific question was whether...

THE CURIOUS CASE OF IRA MILLSTEIN AND RUMPELSTILTSKIN

Of all the gin joints in all the towns in all the world, she walks into mine. 
    Humphrey Bogart (Rick) from CASABLANCA (1943)

DATELINE:  January 2, 2009, Chicago

Bloomberg reported yesterday that noted corporate-governance lawyer, Ira M. Millstein, of the Weil, Gotshal & Manages law firm issued an opinion stating that J. Ezra Merkin could continue accepting funds from Yeshiva University as long as Merkin disclosed his role.  Janet Frankston Lorin, Millstein Letter Helped Keep Yeshiva Money on Path to Madoff.  The article suggests that the opinion was issued to Yeshiva.  The article doesn't indicate whether Millstein was aware of an intention to invest all the funds with Madoff, who was another trustee.  As we have pointed out before, that results in what looks to us like redundant fees, which we believe is hard to justfiy. 

We have several reactions to the revelations about Millstein and the board's reliance on his opinion.  Our basic one is the simplest and most...

IT’S NOW OR NEVER: STATE CHARITY REGULATORS MUST BRING ABOUT A NEW ERA FOLLOWING MADOFF

DATELINE: December 30, 2008, Chicago

We now have a spreadsheet listing charities that have lost money in Bernie Madoff’s Ponzi scheme.  We anticpate that the reported losses by charities will eventually exceed $2 billion--we have identified $1.7 billion of losses to date.  The word “reported” needs to be emphasized.  Take Hadassah, for example.  It has been widely reported that it lost...

THE PRESSURE MOUNTS ON YESHIVA AND ITS TRUSTEES: NYU SUES MERKIN

DATELINE: December 24, 2008, Chicago

On the third day of Hanukkah, New York University gave J. Ezra Merkin a little present: A lawsuit demanding that Merkin and his Gabriel Capital LP and Ariel Fund Ltd. return the $24 million that NYU lost in due to Bernie Madoff’s Ponzi scheme.  Yup, we had heard about Yeshiva, Tufts, and New York Law School.  Now NYU has acknowledged that its endowment suffered losses.  Lindsay Fortado, NYU Lost $24 Million with Madoff; Sues Merkin, Funds, Bloomberg.com (Dec. 24, 2008).

In its complaint, NYU alleged that:

Without making disclosures in the quarterly reports to investors, and in the face of an extraordinary number of ‘red flags,’ Merkin, for years, simply turned over a substantial portion of Ariel’s funds to Madoff.

In a limited review of NYU’s Form 990 filings, we see no evidence that Merkin is associated with NYU as a trustee.  It is becoming even harder for us to see how Yeshiva University cannot sue Merkin for breach of fiduciary duties.  As a member of Yeshiva’s board of trustees and the head of its investment committee, it would seem that Merkin owed at least the equivalent duties to Yeshiva as he owed to NYU.  We would argue that given Merkin's conflicts of interest as a member of Yeshiva's board, Merkin owed a higher duty to Yeshiva.  With this and what are likely to be other lawsuits against Merkin, it is going to become more difficult for Yeshiva to ignore such an obvious source for recovering some of its lost endowment dollars.

HO, HO, HO: ANNOTATED FORM 990 PACKAGE NOW AVAILABLE

DATELINE: December 23, 2008, Chicago

Updated December 25, 2008

We have completed assembling a Form 990 package with all the Core Form, the Schedules, and related instructions.  It is bookmarked for ready access to schedules and related instructions.  

Those downloading the schedule should not use it to file returns because the process by which it was completed resulted in alterations to the internal field names (or so the PDF software indicated).  Those downloading it take it as is and agree to hold us harmless.  We assume no responsibility for errors in assembling this package.  If errors are detected, we would appreciate being notified and we will correct them is we feel like it. 

To download the package...

SANTA ARRIVES EARLY: IRS RELEASES THE FINAL FORM 990 AND INSTRUCTIONS

DATELINE: December 23, 2008, Chicago

Yesterday, the IRS posted the final Form 990 and the related instructions on its Web site.  These materials are located on the General Forms and Instructions page.  As of this time, there is no reference to them on the Charities and Non-profits page, accessible through the subject tabs at the top of the IRS's home page.  Several of the schedules or related instructions are missing at this time.

We have assembled a bookmarked pdf of the all the forms and instructions which we will post once the remaining schedules and instructions are posted by the IRS.

IRS REVOKES GRANTMAKER’S 501(c)(3) STATUS BECAUSE ITS OVERHEAD WAS TOO HIGH: WHERE IS THE LINE BETWEEN EXEMPT AND TAXABLE FOUNDATIONS?

DATELINE:   December 23, 2008, Chicago

On September 16, 2008, the IRS threw down the gauntlet when it released Determination Letter 200851031, which was made available to the public last Friday.  The revocation of exempt status contains two helpful lessons for exempt organizations.  But of far greater importance, the ruling looks...

POOR GOVERNANCE MAY AFFECT YESHIVA UNIVERSITY'S BOND RATING

DATELINE: December 18, 2008, Chicago

An article in today’s Chronicle of Higher Education reports that Moody’s Investor Services has placed Yeshiva University on credit watch as a consequence of the fallout from the Madoff scandal.  Scott Carlson, What College Trustees Could Learn From the Madoff Scandal.  Moody’s issued...

POOR GOVERNANCE PRACTICES AT YESHIVA UNIVERSITY WILL LIKELY WREAK HAVOC FOR THE UNIVERSITY’S DEVELOPMENT OFFICE

DATELINE: December 17, 2008 , Chicago

One thing is for sure, Yeshiva University needs a new public relations department.  It now has been reported by multiple media outlets that the university lost somewhere between $100 million and $110 million in the Madoff debacle, but the press office has been largely silent  The Yeshiva Commentator, which bills itself as the official newspaper of Yeshiva College and the Sy Syms School of Business, is reporting that President Richard M. Joel acknowledged in a mass e-mail to students that the university suffered a $110 million loss from a Madoff-related investment. Noach Lerman and Rafi Blumenthal, YU Endowment Shaken By Madoff Storm, Losing $110 Million.

According to the Commentator, the Yeshiva investment was through Ascot Partners rather than directly with Madoff.  Ascot Partners is described as a hedge fund run by J. Ezra Merkin, who until his resignation last week, was...

DID THE YESHIVA UNIVERSITY BOARD OF TRUSTEES MAKE INVESTMENT DECISIONS IN A CLUB ROOM OR A BOARD ROOM?

DATELINE: December 16, 2008, Chicago

The Yeshiva University board of trustees and its investment committee have some explaining to do in light of the reports last night in the New York Times and other media outlets that the university apparently has lost somewhere around...