January 19, 2009

Univ. Claims Zero Impact From Madoff

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Although Bernard L. Madoff’s $50 billion ponzi scheme has burdened many institutions of higher education with unforeseen losses in their endowments, Cornell has yet to report any losses incurred by the scandal.
Federal Bureau of Investigation agents arrested Madoff on Dec. 11 and federal prosecutors charged the 70-year-old man with securities fraud. While Madoff’s investors include wealthy individuals like New York Met’s owner Jeff Wilpon and banks around the world like HSBC and Royal Bank of Scotland, Bloomberg reports that Madoff “had directly affected 400 U.S. nonprofits.”
James Walsh, chief investment officer for Cornell, said in an e-mail, “I am glad to say we had zero exposure to Madoff and strongly believe it would never have found its way into our portfolio.”
While Cornell’s investments were left unaffected by Madoff, other universities were not so fortunate. Yeshiva University, New York University and Tufts University were a few of the institutions of higher education injured by the fraud.
In a letter to the Tufts community, President Lawrence Bacow stated that he was “sorry to report that Tufts is one of a growing number of victims of the crimes allegedly committed by Bernard Madoff.” Bacow went on to say that Tufts has “written off the value of this investment, which totaled $20 million, or slightly less than 2 percent of our endowment.”
In response to the $24 million NYU indirectly lost because of Madoff, the university has decided to sue a fund manager with whom they invested, accusing him of investing with Madoff without conducting proper due diligence.
While lost investments are small relative to the endowments of these institutions, the losses incurred by wealthy philanthropists because of Madoff will add to the negative effects on universities. Prof. David Easley, economics, sees the poor condition of the stock market as a major obstacle to University fundraising.
“Such small amounts will not likely have any significant effects for University operations,” Easley said. “The market crash and subsequent meltdown of investment banking industry — not Madoff specifically — will have a negative effect on fundraising because a lot of these people on Wall Street are big donors. Although it is too soon to know, I expect that it will hurt universities’ endowments.”
While the University did not invest with Madoff, in 2007, Cornell’s Weill Medical Department did receive $660 thousand from the Picower Foundation and $7,000 from the Wilpon Family Foundation, two charitable organizations invested with Madoff. In light of the recent developments, the Picower Foundation, which according to Bloomberg distributed $268 million since 1989, has been forced to close. According to The Harvard Crimson, the Picower Foundation funded a significant amount of research at Harvard Medical School, and the foundation’s closing may force scientists to stop their research of diabetes and metabolism.
Simeon Moss ’73, director of Cornell Press Relations, does not see this as a major concern for Cornell.
“Cornell has no investments with Madoff, and we don’t anticipate any impact from the Madoff situation on the University’s annual fund,” Moss said via e-mail.
Bernard Madoff’s ponzi scheme will hurt many people and institutions directly and indirectly. While the damage that Madoff has caused is a sunk cost, Prof. Easely believes that the U.S. Securities and Exchange Commission (SEC) must make and improve its efforts in order to prevent any similar circumstances unfolding in the future.
“Laws and regulators are out there to prevent and catch Bernard Madoff,” Easley said. “More regulation as well as better regulation is needed. The SEC should have caught him.”