As the New York Times reported last week, many charitable foundations have been seriously affected by the collapse of the massive Ponzi scheme devised by New York investment advisor Bernard L. Madoff.
Madoff was, until his arrest, one of the most respected figures on Wall Street. For more than 30 years, his clients had enjoyed returns that were significantly higher than those of his competitors. Such was his reputation for probity and careful investments that wealthy individuals, hedge funds and even charitable foundations entrusted their assets to Madoff — and asked few questions.
Ponzi schemes are the simplest of investment scams. Their promoters claim to have infallible — but necessarily secret — investment strategies which yield amazingly high returns. As money flows in, the scammers pay off early investors with money that flows in from new pigeons. The schemes depend upon a constant and accelerating flow of new investments, but inevitably founder when too many investors want their money back at the same time.
Reportedly, Madoff had run the scheme up to $50 billion, an amount that almost defies belief. Investors who saw their assets evaporate overnight include not only naïve heirs and elderly, overly trusting folks, but highly sophisticated investors who should have known better.
Regrettably, the assets of a number of charitable foundations were gutted by Madoff’s bold swindle. The New York Times reports that one such foundation, with assets of nearly $200 million, will be forced to close, as will several smaller foundations. Yet another, with assets of $150 million, saw its assets shrink by half.
This sadly cautionary tale reminds us that, in entrusting our assets to a professional adviser, we need to do our own due diligence and not depend upon reputation, recommendation or the lure of unreasonably high returns.
It also reminds us to be thankful that the cautious, practical men and women who invest the money of our city’s leading charitable foundations, notably El Pomar, weren’t drawn into Madoff’s scam.
Like most institutional investors, El Pomar has not been spared by this year’s bear market, and its charitable activities will suffer accordingly. But such transient market losses can be recouped, as El Pomar’s long history proves.
For nearly three quarters of a century, El Pomar has supported nonprofits, charitable ventures and important community projects throughout the Pikes Peak region. Absent El Pomar, there would be no Pikes Peak Center for the Performing Arts, no World Arena, no U.S. Olympic Committee and no Olympic Training Center.
Organizations that include the Boys & Girls Club of the Pikes Peak Region, the Fine Arts Center, and Colorado College would have suffered, and others, such as Cheyenne Mountain Zoo, might never have existed.
El Pomar isn’t just an ATM for worthy recipients. It represents continuity and vision in a transient community that often lacks both. Under Bill Hybl’s sure-footed guidance, El Pomar has made contributions to the civic life and well-being of this community that can scarcely be expressed in dollars and cents.
For this, we’re profoundly grateful — and we’re doubly grateful that Bernard Madoff didn’t establish a branch office in Colorado Springs!