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Feeling the Loss

Grant recipients are still reeling from the closure of two big foundations entangled in the Madoff scam

By Ben Gose

Amid the difficult environment for charities, groups that focus on causes like human rights, criminal justice, and reproductive health are enduring an especially grim period, as two of the biggest grant makers to such causes were forced out of business by the Bernard L. Madoff fraud.

The JEHT and Picower Foundations — the two largest foundations to succumb to the giant Ponzi scheme — made grants that combined were worth more than $50-million per year. Much of the money went to progressive causes that only a handful of other major foundations generously support.

Picower also poured millions of dollars into what scientists call "adventurous" research on the brain, Parkinson's disease, and diabetes — the kind of long-shot research that rarely wins generous support from the National Institutes for Health.

While some other foundations are stepping in with emergency grants to keep such charities afloat this year, many of the organizations say they are preparing to operate on smaller budgets over the long term.
Robert Crane, president of the JEHT Foundation, says it is "heartwarming" to see other funds bolster JEHT's grantees as it winds down, but he adds that it's hard to be optimistic about the long-term revenue picture for many of the groups.

"It's a hole that's going to be hard to fill, frankly, especially in the criminal-justice and voting-rights areas," he says. "There just aren't a lot of funders in those areas."

Multiple Hits
For charities like Human Rights First, which was already reeling from the same recession-related woes affecting nearly all charities, the Madoff-related losses hit like a sucker punch after the bell.

Human Rights First, based in New York, had already cut $800,000 from its budget the week before the Madoff scandal broke. When JEHT and Picower announced in quick succession that they would both be closing, Human Rights First suddenly had an additional hole of more than $1-million per year.

JEHT had just finished awarding one of its largest grants to Human Rights First: $800,000 per year for three years. Picower gave the charity $250,000 per year.

Two foundations that were philosophically aligned with JEHT — Atlantic Philanthropies and the Open Society Institute — have vowed to help many JEHT grantees this year, and Human Rights First seems likely to be among them. Still, neither foundation has committed to making up the JEHT losses over the long term.
Human Rights First has laid off 11 of its 68 staff members, and will cut its budget for the fiscal year starting in June by more than 20 percent, to $8.5-million. The drop comes at a time when Elisa Massimino, the charity's chief executive, says it has a "great opportunity" to work with the Obama administration on a plan for revamping U.S. policies on torture.

Ms. Massimino says her real concern is what happens to the organization in 2010 and beyond — and whether other foundations will move into the human-rights realm to fill the huge gap the Madoff fraud created.

"For philanthropists, it's important to understand that the scramble to help groups survive the short-term shock waves of the Madoff debacle is nearing an end," Ms. Massimino says. "It's time to start turning to the implications for organizations beyond this immediate crisis."

Deep Cuts
For many, the outlook is bleak. The American Civil Liberties Union will lose $1.5-million that JEHT and Piocower had pledged to give over the next four years. It recently cut 36 positions, 10 percent of its staff, in its national office.

Human Rights Watch, which lost a $550,000 grant from JEHT for its international-justice program, laid off 12 of its 270 staff members. The Center for Reproductive Rights, which received about $600,000 per year from Picower, cut by 5 percent its $10-million budget.

Some of the affected charities received emergency aid just weeks after the two foundations closed. Four charities, including Human Rights Watch, received a total of $1.2-million from a year-end fund-raising drive led by MoveOn.org, the liberal activist group, and matched by Atlantic Philanthropies and the Open Society Institute.

The latter two foundations are faring better than average: Open Society is not endowed, but its founder, the billionaire investor George Soros, actually earned a $1.1-billion profit in his hedge fund last year.
Atlantic's endowment dropped about 15 percent last year — a smaller loss than most other foundations — and the foundation, which plans to spend all of its assets by 2020, is cutting this year's spending by only 5 percent, to $355-million.

Those two foundations, as well as the Ford Foundation, have jointly hired a consultant to evaluate the current needs of JEHT grantees, and officials at Open Society and Atlantic say they plan to spend millions of dollars to help those groups in the coming months. However, they would not be specific about how much they would provide.

"Nobody wants to fund emergencies," says Gara LaMarche, Atlantic's president. "But sometimes you have to."
The Public Welfare Foundation, in Washington, awarded $200,000 to the Vera Institute of Justice in February for a program that works to reduce racial disparities in prosecution decisions. The gift will make up only part of Vera's loss. The charity was likely to receive nearly $2-million from JEHT for multiple projects in 2009, according to Vera's director, Michael P. Jacobson.

In the charity's winter newsletter, Mr. Jacobson said Vera was taking steps to reduce costs and was pursuing additional money from private and government sources.

"The criminal-justice field is enormously impacted by the loss of the JEHT Foundation," says Seema Gajwani, a program officer at the Public Welfare Foundation. "They were funding in an incredibly thoughtful and innovative way."

Fully Invested
Both JEHT and Picower had virtually all their funds invested with Mr. Madoff. JEHT, which gave out $20-million to $30-million per year, was not endowed — it received a yearly gift from its founder, the real-estate heiress Jeanne Levy-Church, and her husband, Kenneth Levy-Church — and so the foundation has no chance of recovering any funds from the investigation into the fraud.

Picower, founded by the investor Jeffry M. Picower and his wife, Barbara, was endowed — the foundation listed assets of $950-million on its 2007 informational tax form — but most experts believe Madoff victims like the foundation are likely to receive pennies for every dollar they lost, if they get anything at all.

Although the two foundations haven't formally closed yet, "they have essentially wound down," says William D. Zabel, a lawyer for both.

To be sure, many other foundations lost money in the Madoff fraud, including foundations started by Steven Spielberg, Elie Wiesel, and New Jersey Sen. Frank R. Lautenberg. But the closures at JEHT and Picower are noteworthy for the size of the loss.

Picower had a diverse portfolio — among other causes, it supported Jewish organizations, scientific research, groups that advocate for women's reproductive rights, and charities and schools in Palm Beach, Fla., where the foundation is based.

The Jewish Outreach Institute, which helps Jewish organizations better welcome interfaith families, lost $200,000 — 15 percent of its budget — when Picower announced it was closing. The New York charity has laid off one of its 12 staff members, and has frozen salaries.

"This will be the first year we don't grow," says Paul Golin, the institutue's associate executive director. "It's frustrating — but on the other hand, we're still working."

'Riskier Projects'
Picower pledged $50-million in 2002 to build and staff the Picower Institute for Learning and Memory at the Massachusetts Institute of Technology, a gift it has fully paid. But the institute will lose the $2-million per year it had been receiving for neurobiological studies by 10 MIT researchers.

Picower spent more than $4-million per year supporting a consortium of seven scientists who were exploring novel treatments for Parkinson's disease. Virginia M.-Y. Lee, director of the Center for Neurodegenerative Disease Research at the University of Pennsylvania, had received a total $3-million over the past five years.

In February, the Parkinson's Disease Foundation awarded Ms. Lee and three other Picower-supported scientists emergency grants worth $75,000 apiece. James Beck, the foundation's director of research programs, says the scientists are pursuing "cutting-edge, riskier projects" that rarely receive money from the National Institutes of Health. "These are not the low-hanging fruit of controlling movements," he says.

Ms. Lee also hopes to band together with the other Picower-financed scientists to pursue a piece of the $10-billion in stimulus funds that will be distributed by NIH. "If we have everyone participate in this quest, we'll have a louder voice than just me," Ms. Lee says.

Two years ago, Picower asked Jeffrey S. Flier, dean of Harvard Medical School and a nationally known diabetes expert, to create a similar consortium for diabetes research. That group of four institutions received $2.5-million in its first year, which wrapped up just before the Madoff fraud was revealed. "The loss of funding will cause all involved to search for new ways to fund the work, and/or cut back on the work," says David Cameron, a spokesman for Harvard Medical School.

85% of Budget
For most charities supported by JEHT and Picower, cutting back is the unfortunate reality. The Equal Justice Initiative, in Montgomery, Ala., had been expecting its first payment on a three-year, $1.5-million grant from JEHT in December, but the Madoff scandal torpedoed the foundation before the payment was made. The grant — the charity's largest — would have provided 85 percent of the budget for a program that challenges life sentences without parole for felons who were sentenced at age 13 or 14.

The charity has active litigation in 20 cases around the country, but can't afford to pursue the remaining 53 cases it has identified.

"We've been trying to find support to hold onto cases that are already active," says Bryan Stevenson, the charity's founder and executive director. He says he has talked to representatives of foundations like Open Society and Atlantic Philanthropies, "but we haven't received any support yet."

A year ago, the charity helped win the release of Phillip Shaw, a St. Louis resident sentenced to life in prison for a drug-related shooting when he was 14. Mr. Shaw, who maintains his innocence, says he was near the end of the appeals process when the charity took on his case and argued he should be freed because of discriminatory jury selection at his trial.

He says he has many friends who entered the prison system as young teenagers and are still there — and that it would be a disaster if the Equal Justice Initiative were forced to close.

"Even if they did do it, they were too young to get the kind of sentences they got," Mr. Shaw says.
Ann Beeson, director of the Open Society Institute's U.S. programs, says the loss of JEHT is a big blow, but that her foundation will work to find new donors and foundations interested in supporting causes like reforming the criminal-justice system.

She argues, for example, that many foundations that make grants to revitalize inner-city neighborhoods should also put money into criminal-justice reform. Harsh penalties for drug-related convictions shuffle people in and out of prison, and use up public funds that could be spent rebuilding devastated neighborhoods, she says.

"We're committed to building a broader donor base," Ms. Beeson says.

 

Source Date: Apr 07 2009
Source Publication: Chronicle of Philanthropy
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