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The Nonprofit Ripple Effect of the Madoff Scam

December 20, 2008

20madoff1190A journalist friend of mine contacted me last week to see if I had any contacts in the nonprofit world who had been affected by Bernard Madoff’s giant “Ponzi scheme.” The Elie Weisel Foundation lost $15.2 million but promises to continue. The JEHT Foundation has already announced that they are shutting down immediately.

When I saw this list of JEHT grantees on MyDD I started realizing just how many friends and colleagues could feel the impact of this scandal. Like many observers, we’re shocked that this could happen. So much valuable and important work could be affected or even halted altogether.

When I read this article in the New York Times, it struck me that Madoff relied on social networks of friends and colleagues to construct his unprecedented scam.

“In a social setting — that’s where it always happened,” said Jerry Reisman, a lawyer from Garden City, N.Y., who knew Mr. Madoff socially. “Country clubs, golf courses, locker rooms. Recommendations, word of mouth. That’s how it was done.”

Madoff and his associates made the financial scheme into a club that only the best could join:

… The aura of exclusivity was the constant, [a Swiss banker] said. “This was the usual spiel: ‘It’s impossible to get in, but we can get you some if you’re nice.’ He made it look difficult to get into.”

As one of the proponents of the concept of “social capital” (the “WD-40 of social relationships”),  Robert Putnam points out that it can also have a dark side. Madoff seems to provide another case study in the bad uses of social capital. Unfortunately we’re just beginning to figure out the extent of his victims.

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