June 29, 2009
Should Nonprofit Groups Return Money Tainted By Madoff?
Do charities that benefited from Bernard Madoff’s massive Ponzi scheme have a legal or moral responsibility to give back the money?
Steven M. Davidoff, a law professor at the University of Connecticut, asks that question on The New York Times DealBook blog. To illustrate the conundrum, he describes a lawsuit filed by the trustee of Mr. Madoff’s estate, Irving H. Picard, against Jeffry M. Picower and other affiliated entities, including the Picower Foundation.
The complaint alleges that the Picower Foundation received roughly $5-billion in profits from investing with Mr. Madoff over two decades. It also says the foundation’s representatives knew, or should have known, that Mr. Madoff was engaged in a fraud, given the incredibly high rate of returns. (See The Chronicle article on the lawsuit).
The foundation gave away more than $20-million a year — money that never really existed — to charities that included the Boys and Girls Club of America and the Children’s Aid Society, Mr. Davidoff writes.
He also cites the Carl and Ruth Shapiro Family Foundation and the Chais Family Foundation as examples of grant makers that may have benefited financially from Mr. Madoff’s scheme, and then donated much of their ill-gotten gains to nonprofit groups.
Could those charities be required by law to give back the money?
“Under the law of fraudulent conveyance,” writes Mr. Davidoff, “there is a six-year lookback, and they could conceivably be sued to return the money. However, traceability of the money here will be a problem, and in many cases protect the charities.”
But if charities are not legally liable to return the money, he asks, do they have a moral obligation to do so?
Mr. Davidoff doesn’t think so. “These charities simply do not have the money to return and, in any event, it would affect the worthy causes to which they contribute,” he says.
“It is for this reason alone that I believe that this is more a rhetorical — but still necessary — exercise, and that the majority of charities as a practical matter will not be asked to return the money.”
What do you think?
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