The Joint had limited exposure to non-Madoff fraud

Corrected: The American Jewish Joint Distribution Committee had limited exposure to a fraud separate from that of Bernard Madoff, the organization found while investigating whether it had been exposed to the Madoff scandal, according to a letter the organization sent to its board members.

After poring over its $280 million in holdings, the organization’s investment committee found that it had put $14 million in the hands of Elliott Associates, L.P. and Elliott International Limited.

Elliott Associates had recently invested less than 1 percent of its assets in a fraudulent activity, which meant that the Joint could potentially lose up to $140,000, the letter said.

A JDC spokeswomen now insist that the fraudulent activity had nothing to do with Madoff.

Here is the letter:

To: JDC Board of Directors
From: Irving A. Smokler
Steve Schwager
Eugene Philips
Re: Investment News – Marc Dreier
Date: December 16, 2008

The JDC Investment Committee is responsible for overseeing our investment pool of $280 million. After an exhaustive review and on the recommendation of our investment advisor CSG of Tennessee (Consulting Services Group, LLC of Memphis, TN), JDC invested with a hedge fund called Elliot International Limited some years ago. That investment is currently worth approximately $14 million.

The information below was sent to JDC today from Elliot Associates to the effect that Elliot International Limited has a potential investment loss as a result of a fraudulent transaction. Given that our total investment with Elliot International is approximately $14 million, a 1% loss represents approximately $140,000.

We will keep you updated if any further information is received. The Investment Committee will discuss this matter at its next meeting

Litigation Involving Marc Dreier
Elliott Associates, L.P. and Elliott International Limited recently made an investment of less than 1% of their capital in a loan which we subsequently discovered was a fraudulent transaction, and which has since been revealed as one of a series of fraudulent transactions sold to a number of hedge funds over a period of years. Immediately upon our discovery of the fraud, we alerted the authorities. We will pursue all appropriate legal remedies to recover the money invested.

Marc Dreier offered us this loan, purportedly to a substantial real estate firm which his firm represented. Dreier, who had previously represented Elliott on unrelated matters, is the managing partner of a large New York City law firm. Dreier told us that other reputable investment firms purchased similar debt and we verified that fact with one of those firms. Most of the other information and documentation we received from Dreier in the process of closing the loan was subsequently discovered to have been fabricated. Dreier is now in custody. Notwithstanding the sophistication of the fraud, we will be conducting a review of our internal procedures with a view to making adjustments necessary to ensure this situation does not recur. Because of the ongoing criminal investigation of Dreier, we have been advised for the present not to provide information about this transaction which is not already publicly available in the press and elsewhere.