Legal News

Illegal Affair? Madoff Victim Reveals Secret, and Possible Conflict

By Amir Efrati

If you read the news, or have a hair of interest in Bernard Madoff, you’ve probably stumbled upon the story of Sheryl Weinstein.

The Law Blog first caught a glimpse of the 60-year-old at Madoff’s sentencing hearing, where she was one of several victims of the fraud who was allowed to speak in court before the sentence was handed down. She said the day she met Madoff was “the unluckiest day of my life.” Since then she’s been heavily interviewed, including on Fox Business, about her personal losses from the fraud.

But until now Weinstein, a former CFO of Hadassah, a large Jewish women’s organization that was also invested with Madoff, didn’t mention a slightly more interesting item about herself: an alleged affair she carried on with Bernie for 20 years.

Weinstein’s account of that alleged relationship, “Madoff’s Other Secret: Love, Money, Bernie, and Me,” will be published Aug. 25 by St. Martin’s Press. The publisher declined to make her available for an interview or say what kinds of details the books offers.

The news of the alleged affair has backfired for Weinstein. Turns out she was on Hadassah’s investment committee along with other board members and volunteers from the financial world, and a NYT story today helpfully notes that the alleged relationship posed a potential conflict.

"In her position, she had a fiduciary duty to her employer that would require her to either disclose the relationship or recuse herself from making any decision related to investment with his firm," William Josephson, a former chief charity regulator for the New York attorney general's office, told NYT.

Hadassah, which said last year it sustained $90 million in losses from the Madoff affair, later said it had a net gain of $90 million during the life of the fraud. That’s because it in essence put in $40 million between 1988 and 1997, the year Weinstein left the charity. But it collectively withdrew more than $130 million in fictitious profits from the Madoff firm before it collapsed.

We crunched some numbers, and given those facts it doesn’t appear as if Hadassah received any special treatment from Madoff in its returns. Hadassah has said its returns were comparable to most other investors, about 10% a year.

The good news for Hadassah, which has 300,000 members, is it still has about $400 million to $450 million left on its balance sheet, said a person familiar with its finances.

The bad news is that because it’s been outed as a “net winner” from the fraud, it could be subject to a lawsuit from Madoff trustee Irving Picard, though a person familiar with the matter says he hasn’t begun looking closely at charities such as Hadassah.

Full post as published by Law Blog - WSJ.com on August 14, 2009 (boomark / email).