Several Installments in this blog series about the long-running, global Ponzi scheme of Bernard L. Madoff (“Madoff”), the most recent of which was Installment 46, have discussed the proposed settlement with Hadassah (the “Hadassah Settlement”) by Irving Picard, the Bankruptcy Trustee for the Madoff Estate (“Picard”) in contrast to his vigorous pursuit of the Wilpon/Katz Family private charitable foundations.
As set forth in the Motion filed by Picard respecting the Hadassah Settlement (the “Motion”), Picard is seeking approval by the bankruptcy court of the Hadassah Settlement. The terms of the Hadassah Settlement would allow Hadassah to pay $45,000,000 of its alleged $77,000,000 clawback exposure for the final six years that Hadassah invested with Madoff. This would allow Hadassah to keep at least $32,000,000 of the Fictitious Profits that it withdrew from the Madoff scheme. The hearing on the Hadassah Settlement is scheduled before the bankruptcy court on Thursday, March 10, 2011.
Paragraph 16 of the Motion states the following:
A review of the Financial Statements and other information provided by Hadassah supports Hadassah’s contention that it does not have sufficient assets and free cash to both satisfy the potential judgment the Trustee could obtain in a lawsuit . . . and continue to meet its charitable mission domestically and abroad, including completing construction and continued support of the Hospital Project [a new hospital to be built in Jerusalem, Israel with a cost to Hadassah of $318 million plus $45 million for equipment and furnishings over the next three years].
Paragraph 26 of the Motion adds:
While the Trustee believes that he would have prevailed in recovering all transfers to Hadassah [$77 million in the last six years before the arrest of Madoff on December 11, 2008], in the instant case the litigation risk and potential dissolution of an historic charitable organization, nominated in 2005 for a Nobel Peace Prize, outweighs any potential additional recovery from Hadassah.
Finally, Paragraph 29 of the Motion concludes by stating the following:
In sum, the Trustee submits that the [Hadassah Settlement] Agreement should be approved for two reasons (a) because it represents a reasonable compromise . . . that benefits the [Madoff] estate . . . and (b) to avoid burdensome and time consuming litigation with a historic charitable organization, litigation which would result in the demise of the organization and its worthy causes. Accordingly, since the Agreement is well within the “range of reasonableness” and confers a substantial benefit on the estate, the Trustee respectfully requests that the Court enter an Order approving the Agreement.
Paragraph 14 of the Motion mentions in passing that there was “a Bankruptcy Rule 2004 examination of Sheryl Weinstein, former chief financial director of Hadassah; . . . .” Among other Installments of this series, Installment 23 and Installment 14 of this series reported on the alleged close personal relationship of Ms. Weinstein with Madoff while she was the chief financial officer of Hadassah and Hadassah was investing heavily with Madoff.
The Hadassah Settlement appears to be based largely on the subjective conclusions of Picard that Hadassah, as a former nominee for a Nobel Peace Prize with substantial charitable commitments in future years, is a venerable charity that should be preserved but would be destroyed if it were subjected to the full measure of clawback that Picard is aggressively seeking from many other investors with Madoff.
I agree that Hadassah is a very worthy charity and deserves to survive and thrive. Nevertheless, I find it to be perplexing that Picard has apparently concluded that Hadassah should be allowed to keep $32,000,000 of fictitious profits at the expense of other Madoff victims who may be already impoverished and deserving of recovery.
Additionally, in my view, it is an overstatement for Picard to conclude that the payment by Hadassah of the full $77,000,000 “would result in the demise of the organization and its worthy causes.” As of December 31, 2009, the audited Consolidated Balance Sheet of Hadassah showed total unrestricted net assets of almost $653,000,000 and more than $1,000,000,000 in total net assets. With that level of equity, it would appear that Hadassah could finance relatively easily over a period of years the additional $32,000,000 (approximately 8.8% of the total Hospital Project) in fictitious profits that Picard is willing to provide them.
Moreover, Picard’s willingness to let Hadassah keep $32,000,000 in potential clawback amount highlights the inconsistency of his personal approach to charitable victims. As stated in Installment 46, Picard is seeking a total of $7,000,000 or more (which is actually more than the amount of fictitious profits subject to clawback) from the Wilpon/Katz Foundations, which have given away millions of dollars each year to worthy charities according to their Forms 990-PF filed with the Internal Revenue Service. This developing scenario warrants continued monitoring.