Here’s a tax filing from the now defunct Robert I. Lappin Charitable Foundation, which invested with Madoff.
If you go to pages 23, 24, you’ll see their investment activities with Madoff. The Foundation had about $8 million. They have listed $57.372 million worth of sales and $56.779 million worth of costs for their investments with Madoff last year. They made $593,000.
To have $57 million worth of trades on about $7 million is day trading levels. That kind of turnover indicates that Madoff was churning the account to create commissions. To do this to a charity is highly unusual and possibly illegal (charities have IRS rules that forbid them from making risky investments). Why wasn’t the charity monitoring this?
The Foundation was represented by a major law firm which billed them for $100,000 last year.
Now get the other foundation’s returns and see how they reported Madoff. The Code section that would frown upon day trading is sectoin 4944 which imposes a tax on the foundation and its manager if it makes "jeopardy investments" – trading on margin debt is a big no-no. Daytrading is not specifically mentioned, but the regulations state:
"an investment shall be considered to jeopardize the carrying out of the exempt purposes of a private foundation if it is determined that the foundation managers, in making such investment, have failed to exercise ordinary business care and prudence, under the facts and circumstances prevailing at the time of making the investment, in providing for the long- and short-term financial needs of the foundation to carry out its exempt purposes."
It seems to be not due care to day trade charity money. Find out what the big firm Bingham charged the lappin foundation $100k in legal fees if they did not even pick this up. The whole thing stinks.
Jewish organizations north of Boston are scrambling to save cultural and education programs long funded by the Robert I. Lappin Charitable Foundation, which was forced to close after being swept up in a $50 billion Wall Street scam.
The foundation, one of the largest Jewish philanthropies in the region, was forced to cut grants to preschools, camps, synagogues and community organizations after the arrest of New York securities trader Bernard L. Madoff.
The foundation’s $8 million endowment was frozen by a federal court in one of the largest investment fraud cases in US history.
"We’re a small Jewish community here on the North Shore," said Rabbi David Meyer of Temple Emanu-El in Marblehead, where Lappin’s wife is a member. "We are not the same as Boston, where there is significant philanthropic support for the Jewish community. The Lappin foundation was really the only one doing significant work here."
The foundation was run by Robert I. Lappin, a Swampscott resident who amassed great wealth developing real estate. The charity was based in Salem, where Lappin owns Shetland Park, a 1.5 million-square-foot complex on the historic waterfront. Lappin, who is 86, did not respond to a telephone message left at his home earlier this week.