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Major foundation falls to Madoff fraud

Prominent MIT, Harvard benefactor to close; May be largest charity claimed by scandal

By Jeffrey Krasner and Tracy Jan
Globe Staff / December 20, 2008
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The unfolding scandal surrounding the alleged Ponzi scheme run by Bernard L. Madoff yesterday claimed as a victim one of the largest foundations in the country, which has funded groundbreaking brain research at the Massachusetts Institute of Technology and diabetes research at Harvard Medical School.

The Picower Foundation of Palm Beach sent an e-mail to "colleagues and friends" late yesterday saying that it was a victim of Madoff's alleged scheme and that it would soon shut down. With assets of more than a half-billion dollars, it is believed to be the largest charity to have been forced to close by the unfolding scandal.

"It is with great sadness that I write to inform you that the Picower Foundation has ceased all grant-making, effective immediately, and will close its doors in the coming months," wrote Barbara Picower, the foundation's president, who added that its money was managed by Madoff.

Neither Barbara Picower or her husband, Jeffry, could not be reached for comment last night at their Palm Beach home.

Madoff was arrested by federal authorities on Dec. 11 and charged with securities fraud for allegedly running a Ponzi scheme - paying one set of investors with money from another. He was put under house arrest in New York yesterday and will be required to hire a security firm to provide video monitoring of his apartment door.

One of his lawyers, Daniel Horwitz, said yesterday, "We are cooperating with government investigations."

In addition to hedge funds and banks, numerous other charities have lost millions to Madoff, including the Robert I. Lappin Charitable Foundation in Salem, which abruptly closed last week. In Boston, the family foundation of philanthropists Carl and Ruth Shapiro lost $145 million, and the couple lost millions more in personal funds. And the foundation of Holocaust survivor and Nobel laureate Elie Wiesel of Boston University reported it lost $15.2 million, nearly all of its assets, with Madoff.

None, though, were near the size of the Picower Foundation. In its 2007 tax return, it said the market value of its investment portfolio was $955 million. The Foundation Center, a nonprofit that tracks philanthropy, ranks the Picower philanthropy as the 71st largest in the United States by assets. It finances medical research at many leading institutions, human rights and child advocacy programs, and arts and cultural operations.

Madoff served on the board of a separate medical research institute Picower funded in New York, which is now defunct.

Jeffry Picower is a former lawyer, accountant, and dealmaker who invested in drug discovery and medical device firms and also attracted attention for alleged self-dealing between his foundations and his companies. The couple live in an oceanfront home in Palm Beach appraised at $28 million.

A portrait of the Picowers hangs in the Picower Institute for Learning and Memory at MIT. They gave the center $50 million in 2002, which was, at the time, the largest grant from a single foundation the university had ever received. The foundation gave MIT another $4 million in May to launch a fund for faculty to conduct high-risk neuroscience research activities.

"I am deeply saddened by the terrible news," Susumu Tonegawa, the Nobel laureate for medicine who founded the center in 1994, said in an e-mail.

It is unclear from the foundation's statement whether it lost all its money or just enough to force it to cease operations.

The Picower Foundation also gives MIT $200,000 a year to fund scholarships for graduate students, in the name of Norman Leventhal, the famed Boston developer and philanthropist. Leventhal was a director of Picower Foundation until this year.

The Picower Foundation also awarded $1.5 million for diabetes and metabolism research to Dr. Jeffrey Flier, dean of Harvard Medical School. Flier said he had a premonition Monday that the foundation was in trouble. He and other scientists associated with the research were due to go to New York to present their results to one another and Barbara Picower. But on the way to New York, they received an mail from Barbara Picower saying she couldn't attend the meeting.

"This was surprising because the date of the meeting was organized around her schedule," Flier said. "The first immediate thought I had was: 'Oh, God. This is going to relate to the Madoff story.' "

His research funded by the foundation "is over," he said, unless he finds another funder.

Added his colleague, Dr. Barbara B. Kahn, chief of the division of endocrinology, diabetes, and metabolism at Beth Israel Deaconess Medical Center, "I think it's tragic for the Picower Foundation and for the public that a single individual could undermine these wonderful philanthropic organizations that support excellent causes such as biomedical research."

Just how so many nonprofit organizations wound up with Madoff handling such a share of their money is a topic of growing concern among investment advisers to foundations and similar tax-exempt groups.

"Under most circumstances you don't put your eggs in one basket," Marion Fremont-Smith, a retired partner of the law firm of Choate Hall & Stewart who teaches nonprofit management at Harvard's Kennedy School, said earlier this week.

Milton Valencia and Ross Kerber of the Globe staff contributed to this report. Jan can be reached at tjan@globe.com; Krasner at krasner@globe.com.

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