Hadassah addresses Madoff investments

Hadassah, which lost $90 million in Bernard Madoff’s Ponzi scheme, sent out an e-mail to its board members Monday that offers some details about how the organization became involved with Madoff and how exactly it’s been hurt.

According to the e-mail, which was signed by Hadassah’s president, Nancy Falchuk, the organization first invested with Madoff in 1988, when a French donor gave $7 million with the stipulation that it  be kept with Madoff. The organization subsequently invested another $33 million, but had not added to its Madoff account since 1997.

The investment cost Hadassah about 11 percent of its endowment, which now stands at $412 million.

Here is the letter:

Dear National Board Colleagues,

I am writing to you from Jerusalem.

Rick Annis, Hadassah’s Chief Financial Officer is here with me to work with our projects in planning our response to the unprecedented global fraud that Bernard Madoff is accused of perpetrating.  Since we arrived last night, we have met with many government officials including Nir Barkat, the Mayor of Jerusalem and Prime Minister Ehud Olmert.  Additionally we have had meetings with the Finance Minister and the heads of key departments at HMO. 

In the coming days we will be meeting with the leadership of our other projects and additional officials in an effort to develop a comprehensive plan that supports our projects in light of the current economic realities.  While I am in Israel, Marcie Natan, Morlie Levin, Larry Blum, Sheryl Zeligson and Steve Goldberg are leading the efforts in New York.

I want to personally thank you for the outpouring of support we have received over the past week.  You have raised invaluable questions in your phone calls and emails.  I would like to address some of them in this letter, and will continue to communicate with you as often as necessary.

The following is related to our investments with Bernard Madoff LLC:

•         In 1988 a French donor made an original gift to Hadassah of $7 Million with the stipulation that the donation remain with Bernard Madoff, where it was then invested, until withdrawals were made to finance the project earmarked by the donor.

•         Over the next decade, Hadassah invested approximately an additional $33 million dollars, making our total investment with Madoff approximately $40 million dollars.  Hadassah has not made additional investments in the Madoff account since 1997.

•         The portion of Hadassah’s investment portfolio with Madoff over the past 5 years, ending September 2008, was an average of 11%.

•         Madoff was one of more than 24 money managers used by Hadassah.

•         Hadassah’s current investment portfolio is approximately $412 million dollars.

Over the years, our investment portfolio has performed in line with our benchmarks, and we are now taking proactive steps to reallocate our portfolio to respond to these volatile economic times.

Our attorneys will seek whatever legal redress may be available to us.  Additionally, and importantly, we are in the process of selecting independent professionals to review our invest practices, guidelines, and procedures.

Hundreds of organizations, foundations and thousands of individuals have been dramatically impacted by this alleged Ponzi scheme. Many of our own supporters and friends have been affected by this as well.

While the loss of $90 million dollars is significant, let me reassure you that Hadassah will continue to carry out our mission in a cost effective manner. 

To assist in that process, we engaged McKinsey and Company back in September ’08 to help us think through a strategic restructuring plan.  The preliminary components of that plan were approved by our Executive Committee in the first week of December…one week before the Madoff scandal broke.  We have been presenting an overview of the plan to members of the National Board via video-conference and will be discussing it in more detail at our January Board meeting.

We are committed to protecting and growing our assets, by lowering our spending and increasing our donor support. We need your help. Our life saving healing and educational work must go on. Our patients, our students, our children, and our legacy demand it.

This is a painful moment, when, with the very best of intentions, we find ourselves victims of the actions of one man.  But it is at these challenging junctures in the history of our people that the real story is written.  And Hadassah’s story always has been the power of women who together achieve more than any one of us alone could dream of.

In this season of light we see the hope of the future in the glow of the flame.  We will stay focused on the path ahead.  Together, the future is ours to write.

With respect,
              
Nancy Falchuk

National President

And here’s the attached FAQ:

How did we originally get involved with Bernard Madoff?

In 1988 a French donor made a gift to Hadassah of $7 million with the stipulation that the donation remain with Bernard Madoff (where
it was then invested) until withdrawals were made to finance the project earmarked by the donor.

How much have we invested with him since 1988?

Over the next decade, Hadassah invested an additional $33 million dollars (approximately), making our total investment
approximately $40 million dollars. These funds were invested directly with Bernard Madoff Investment Securities, LLC and not through a third
party.  Hadassah has not made any additional investments of principle since 1997.

Did we earn interest from our investments with Madoff?

Our projects and programs have been the beneficiaries of investment returns over a period of more than 20 years.  We invested
with full faith that these investments were legitimate, only to fall victim to unprecedented fraud.

How much did Hadassah lose in connection with Madoff?

Approximately $90M at the time we were notified of his arrest.

What percentage of Hadassah’s total endowment did this represent?

The portion of Hadassah’s investment portfolio with Madoff over the past 5 years, ending September 2008, was an average of 11%.

What procedures and polices were in place to monitor Hadassah’s investments?

Hadassah has a team of outside advisors who provide investment advice. They are prominent and experienced financial and investment
individuals who serve, on a voluntary basis, along with Hadassah’s National President and National Treasurer.  We also engage the
professional services of a firm registered with the SEC that provides advice on funds and their money managers (new accounts only), monitors
the risk allocation mix, and measures investment performance (specifically reviewing underperforming funds).

What is the amount of Hadassah’s remaining funds in the investment portfolio?

As of December 11th, Hadassah has approximately $412 million dollars remaining in its investment portfolio.

Is my charitable annuity protected?

Yes. Hadassah’s gift annuity reserve funds meet fund requirements and, as required by law, these funds are segregated from Hadassah’s other assets.

Are Hadassah’s Employee Retirement plans protected?

Yes. No investment product managed by the Madoff firm was offered through Diversified Investments, the administrator of Hadasah’s
plan.

What steps are being taken to make sure this won’t happen again?

We are engaging professional experts to independently review our advisory structure, as well as all policies, procedures, internal control systems and oversight regarding investment activity.

Were these lost funds insured?

Securities Investor Protection Corporation (SIPC) insurance generally covers such losses up to $500,000.  Hadassah will make a claim with SIPC when it initiates a claim process.

Are steps being taken to try to recover some, if not all, of the losses? Are we filing any lawsuits or pursuing other legal recourse?

All litigation against the Madoff firm is currently stayed. We are represented by counsel, following this closely, and are considering every possible legal avenue to recover/minimize our loss and to protect our position.