Local Madoff fallout: Beyond the rich

  • Article by: CHRIS SERRES , Star Tribune
  • Updated: December 17, 2008 - 4:42 PM

Victims include employees of a Maple Grove drug company and a large local foundation.

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Bernard L. Madoff

Photo: Ruby Washington, Associated Press

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The sudden collapse of Bernard Madoff's alleged multibillion-dollar Ponzi scheme has rippled far beyond the world of wealthy private investors and country club members.

The list of victims includes hundreds of past and current employees of a pharmaceutical company in Maple Grove, as well as a large local foundation that gave $2.3 million last year to more than 60 arts institutions, medical research groups and other charitable causes.

Across the Twin Cities area, foundations and nonprofits that rely on wealthy donors are concerned about whether the fallout will affect their causes.

Madoff, a Wall Street money manager and former NASDAQ chairman, was arrested last Thursday and charged with operating a far-flung Ponzi scheme that defrauded investors of an estimated $50 billion. Losses among investors in the Twin Cities likely will exceed $300 million, say local attorneys.

"The list of those affected in this community is very large and very long," said Charles (Bucky) Zimmerman, a Minneapolis plaintiff's attorney who has received more than a half-dozen calls from investors who have lost money through Madoff.

The scandal comes at a time when many foundations and charities are already hurt by the recession. Steven Paprocki, an adjunct professor of philanthropy at Hamline University, said he hasn't seen losses this big in more than 20 years of research on foundations.

Initially, the list of victims appeared to be ultra-wealthy retirees, hedge funds and large institutions. Banks from Spain to Japan have lost millions, as well as a foundation run by film director Steven Spielberg.

Madoff and his agents were known to have targeted Jewish country clubs, including Oak Ridge Country Club in Hopkins. Losses among a few members at Oak Ridge may approach $100 million, according to attorneys and associates.

But private individuals were not the only ones who entrusted their money with Madoff. Late last week, participants in Upsher-Smith Laboratories Inc.'s profit-sharing plan learned that the Maple Grove company had invested all of the plan's funds with Madoff's firm, Bernard L. Madoff Investment Securities LLC. Assets of that firm were frozen last week in a deal with federal regulators, and now employees at Upsher-Smith cannot access the money in their accounts.

Employees affected

Joel Green, general counsel and vice president of legal affairs at Upsher-Smith, which has about 550 employees, declined to estimate how much money might be lost and how many past and current Upsher-Smith employees are affected. However, former employees said most workers at Upsher-Smith qualified for the profit-sharing plan, and some longtime employees had more than $100,000 in their accounts. Employees were told that their assets were frozen and they would get further information.

Members of the Evenstad family, who own a majority of Upsher-Smith's stock, also invested with Madoff, and some employees speculate that their losses could affect the company's drug development plans. The company has said it wants to have four new drugs on the market by 2017, including a drug that helps treat the symptoms of Parkinson's disease, a degenerative illness that impairs speech and movement.

Charities are hurting

The giant Ponzi scheme is also rippling through charities, forcing the closure of at least three prominent foundations.

According to Access Philanthropy, a Minneapolis-based research institute that focuses on foundations, at least 90 private foundations nationally have investments with Madoff. While 46 of them are based in New York, foundations in Florida, New Jersey, Massachusetts and Minnesota have also invested with Madoff.

The Minneapolis-based Phileona Foundation, the 28th largest foundation in the state by assets, is among those affected. The foundation reported that it earned $738,646 in dividends and interest from Madoff Investment Securities in the year ended Sept. 30, 2007. The foundation donated money to a wide variety of local arts groups and organizations, including the Minnesota Orchestra, Children's Theatre Company, Temple Israel in Minneapolis, Sholom Community Alliance in St. Louis Park and the Animal Humane Society of Hennepin County.

Marshall Miller, a trustee for the Phileona Foundation, said the foundation would "continue to operate" and declined to comment further.

Another local foundation possibly affected is the Charles and Candice Nadler Family Foundation in Excelsior. The group reported $17,561 in interest on savings and investments with Madoff Securities in 2007. The foundation is small, with assets of $708,146 as of the end of 2007, but it provided financial support to a number of local groups, including the Minneapolis Jewish Federation and the Walker Art Center.

Charles Nadler did not return calls Tuesday.

Chris Serres • 612-673-4308

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