Several colleges and universities are sustaining large financial losses in the aftermath of Bernard Madoff's $50 billion hedge fund scam.
Madoff defrauded investors by using money collected from new investors to pay off existing ones - an illegal strategy known as a Ponzi scheme after the man who developed it. The entire scheme collapsed when Madoff was unable to find new investors to continue paying his clients, the New York Times reported Dec. 12.
Yeshiva, Tufts and New York Universities and Bard College had all invested with Madoff before his scheme was revealed late last year. NYU was hit hardest, losing $24 million dollars. Tufts lost $20 million, Yeshiva $14.5 million and Bard $3 million, according to the schools' respective media relations offices.
At the center of the colleges' involvement with the scheme is hedge fund manager Ezra Merkin, who invested with Madoff through his funds Ariel Ltd. and Ascot Parnerships. All four schools invested with Madoff through Merkin, according to press releases issued by each school.
NYU has sued Merkin and is the only school thus far to officially press charges. In a written statement, spokesman John Beckman said, "NYU is suing Mr. Merkin because he did not meet his obligation to the university to exercise reasonable judgment in investing NYU's money."
Though Yeshiva has not taken legal action, the school has severed ties with both men. According to a December 16 letter from President Richard Joel to the Yeshiva community, both Madoff and Merkin resigned from their volunteer positions at the university.
Madoff and Merkin had both served on the Board of Trustees at Yeshiva, according to Joel. Before the incident, Merkin was the chairman of the investment committee on the board and Madoff was the treasurer.
With such close ties to Madoff and Merkin, Yeshiva is taking steps to safeguard its finances and prevent future conflicts of interest.
"We have decided to examine our existing conflicts policies and procedures, and governance structures," Joel wrote in the letter. He also said the school has hired two consulting firms, Sullivan & Cromwell and Cambridge Associates, who specialize in corporate and institutional governance.
The firms were brought in "to ensure that our policies, procedures and structure reflect not only best practices, but the gold standard," Joel wrote. A spokesperson from Yeshiva said the school had no further comment on the incident.
Ultimately, however, these losses are unlikely to have a devastating effect on any of the schools. In his letter, Joel underscored Yeshiva's continued financial strength. "Although this decreased endowment must factor into our long term fiscal plans, it will have minimal impact on day-to-day operations," he wrote. He also noted that in today's depressed economic climate, most colleges and universities are doing worse as it is.
Tufts, the school that lost the greatest portion of its endowment in the scandal, lost only 2 percent. "This particular write-off will not by itself have a significant impact on our operations," Tufts spokesperson Kim Thurler told The Herald.
Like Yeshiva, Tufts is using this opportunity to re-evaluate who handles their money and how it is invested.
"We're looking to see whether there's anything we need to do to modify our current processes," Thurler said. "We followed our usual practices but we're always looking to see whether there's a lesson to be learned or an improvement to be made."
