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By Jason Szep
BOSTON Dec 15 (Reuters) - Outraged philanthropists worldwide nursed wounds on Monday from the alleged $50 billion fraud by former Nasdaq chairman Bernard Madoff, forcing some charities to shutter and hitting others with massive losses.
The scandal rippled far beyond the multimillion-dollar private foundation run by Madoff that channeled money into hospitals and theaters, and swept up charities large and small, directly and indirectly, along with wealthy Jewish investors Madoff personally advised.
The allegations of massive fraud by one of Wall Street's best-known brokers and money managers came at a difficult time with many charities already struggling from losses in financial markets and facing growing demand for their services in the year-long U.S. recession.
"Sometimes we have seen this wrongdoing happen, and it cuts into endowment funds. But I have been working here for 10 years and I haven't seen a situation where organizations simply disappeared," said Michael Nilsen, a senior director at the Association of Fundraising Professionals.
U.S. prosecutors and regulators have accused Madoff, 70, a former chairman of the Nasdaq Stock Market, of running the fraud through his investment advisory business. Banks and investment funds around the world lined up on Monday to disclose they had invested billions of dollars with him.
As of Monday, at least three foundations had shut or planned to shut, and another may be forced to close.
The JEHT Foundation, which supports reform of the criminal and juvenile justice systems, said it will close next month because its donors, Jeanne Levy-Church and Kenneth Levy-Church, were investors in the Madoff business.
In New York, the nonprofit Philoctetes Center for the Multidisciplinary Study of the Imagination lost all of its funding, its co-director Francis Levy told Reuters. The group, which focuses on fostering innovation, may shut.
The Chais Family Foundation, which gives about $12.5 million annually to Jewish causes mostly in Israel and the former Soviet Union, shuttered and let go its five staff.
"The entire fund was invested through Mr Madoff, and as a result the fund has been completely obliterated," Chais Family Foundation president Avraham Infeld told Reuters by cell phone from Jerusalem, where the foundation is headquartered.
"I find this man's immorality almost as great as the Chais's generosity," he said.
Workers at the Salem, Massachusetts, offices of the Robert I. Lappin Charitable Foundation, which financed trips for Jewish youth to Israel, said they were stunned after the Madoff scandal ended its 12 years of work.
"It was business as usual and then it was suddenly closed. It's horrifying," said Amy Powell, the foundation's former public relations director. "We served some 2,000 people in our community. That made a difference in their lives."
Some charities such as the Gift of Life Bone Marrow Foundation suffered indirectly because donors who invested money with Madoff scaled back contributions.
"We've seen financial supporters who were personally invested in him no longer having the capacity to give charitable donations because of what happened," said the foundation's founder and executive director, Jay Feinberg.
He has launched a fund-raising drive to make up for $1.8 million in lost contributions.
Others who lost money include philanthropists Carl and Ruth Shapiro, major donors to the Museum of Fine Arts in Boston, Brandeis University and the Beth Israel Deaconess Medical Center. About 40 percent of their assets, which stood at $345 million last year, were invested with Madoff and disappeared.
Carl Shapiro, a friend of Madoff's for more than 50 years, said he was "stunned and saddened". In a statement, his foundation added: "We are currently reviewing the situation and assessing all options available to recover those funds."
Madoff was a well-known figure in philanthropic circles, establishing a charity in 1998 and making multimillion dollar donations in high-profile areas such as research into cancer after his son Andrew was diagnosed with lymphoma.
The founder of Bernard L. Madoff Investment Securities LLC carved a niche with many Jewish nonprofit organizations, such as the Jewish Federation of Greater Los Angeles, which lost 11 percent of its endowment funds, or about $6.4 million, from investments with Madoff.
"We are both shocked and saddened to learn of this alleged fraud," said the federation's chairman, Stanley Gold.
Among the highest-profile charities hit was a trust owned by billionaire real-estate investor Mortimer Zuckerman, who lost $30 million after a manager at the trust invested about 10 percent of a fund with Madoff, Zuckerman told CNBC television.
(Additional reporting by Frederick Katayama: Editing by Bernard Orr)