Eminent billionaire and philantropist Bernard L. Madoff was arrested two days ago by federal agents for perpetrating the largest fraud scheme in Wall Street history, with losses estimated at $50 billion. Madoff was an extremely influential securities trader.
According to charges against Mr. Madoff, his firm paid off earlier investors with money from new investors, fitting the classic definition of a Ponzi scheme. It unraveled as markets declined and many investors who lost money elsewhere sought to withdraw money from their investments with Mr. Madoff.
The bulk of his clients were members of the mostly Jewish, exclusive Palm Beach Country Club, where Madoff met Carl J. Shapiro and his son-in-law Robert M. Jaffe years ago. For those unaware, the Shapiro family and Mr. Carl J in particular have donated countless millions to Brandeis and have financed what seems like every building on campus – the new Shapiro admissions center, the new science building, the Shapiro student center… the list continues.
But it seems Mr. Shapiro was one of the biggest losers in this developing scandal, entrusting what may have been the bulk of his fortune in the hands of swindler Bernie Madoff. Nor is he the only one – read the New York Time article and you’ll discover that this fraud went undetected for years by an array of respectable people and institutions.
There is no evidence that either Mr. Shapiro, who is 95 and joined the club in 1974, or his son-in-law, Mr. Jaffe, who is 64 and joined in 1992, knew of the fraud. Both men, who give millions every year to countless charities, are also said to have been duped of hundreds of millions of their own money, according to friends of their families.
“All I can say is that this is an awful awful time for us,” Mr. Shapiro’s wife, Ruth, said in a short phone interview.
According to Bloomberg financial news, the Shapiro foundation, the charitable cause set up by Mr. Shapiro for the family’s philantrophic work, has lost at least $145 million. Mr. Shapiro himself is believed to have lost even more.
What does this mean for Brandeis, to which the Shapiros have been generous donors for years? The admissions center is slated to begin construction very soon, but as it was supposed to be financed largely by Shapiro, I wonder if that money even still exists.
On a broader scale, what does this whole scandal say about an advanced capitalist society where this kind of thing can happen and go undetected? According to the NY Times, an operation the size of Madoff’s would generally involve hundreds of employees. Yet Madoff claims he orchestrated the entire multibillion-dollar scheme himself – a dubious possibility at best. It seems to me this is merely the latest brick in a crumbling wall of corrupt, lazy, or simply stupid investors who were allowed to operate with laughable oversight as long as the money kept pouring in.
Unfortunately, this brick hit Carl J. Shapiro square in the face. Our endowment has already lost hundreds of millions, and now our chief donor has as well. What next?