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Nancy Falchuk can still remember the exact day (December 11, 2008) and the exact time (4:35 P.M.) when she got the phone call. It was from the chief financial officer of Hadassah, the Women's Zionist Organization of America, the largest Jewish organization in the world and the largest women's organization in the United States. The news was devastating: Bernard Madoff, one of Hadassah's numerous investment managers, had perpetrated a massive fraud involving billions of dollars. Overnight the organization became one of Madoff's biggest victims, losing $90 million. Just for comparison, during that same year, Hadassah's total investment in Israel was $106 million.
At the time, Falchuk, who has been president of Hadassah since 2007, was already confronting the implications of the world financial crisis. When the Madoff scandal broke, she had to explain to Hadassah's hundreds of thousands of contributors how tens of millions of dollars had fallen into the hands of one of the greatest crooks in history.
She did so immediately, videotaping a message that was posted on the organization's Web site. Hadassah was also forced then to expedite the economic streamlining plan Falchuk had initiated - a plan that was supposed to be spread out over two years. Hadassah significantly reduced the scope of its activities, fired employees, cut back on donations to Israel and is at present considering selling off some of its real-estate assets in the country.
Today, six months later, Falchuk, 63, claims that Hadassah is "long over" what Madoff did, but prefers not to mention his name and refers to him as "that man." However, the global financial crisis did more damage to the organization, she claims, than the Madoff scam.
Falchuk: "The crisis hit us much harder than the other one [caused by Madoff]. He was just the icing on the cake. He was only one of 24 investment managers we worked with. When the market collapsed, it hurt us much more. The 'bad guy' in this story is the U.S. Securities and Exchange Commission. That is the body that should have been watching over our money, and that should be the target of all the frustration."
On March 11 Madoff pleaded guilty to 11 counts of fraud, including securities fraud, money laundering and fraud by electronic means. He is due to be sentenced next week and faces up to 150 years in prison. Aside from Hadassah, his thousands of victims include millionaires Arnon Milchan and J. Ezra Merkin; the charitable foundations of Steven Spielberg, Elie Wiesel and Columbia University; and banking institutions such as Bank Jacob Safra, the Spanish Banco Santander, Banque BNP Paribas in France, Bank of America and the Swiss UBS.
Israeli victims include the Technion - Israel Institute of Technology in Haifa and its friends' association in the U.S., and the Yad Sarah organization. Other victims include the Chais family, which partly lives in Israel and lost both its foundation's and personal assets, and the Horowitz Foundation. Although Hadassah survived the scam, the fallout has been exacerbated by ongoing media coverage of it. "We began to realize that the damage the press does to Jewish organizations is severe," Falchuk explains. "We gave billions of dollars to this country, and when 'it' raises its head and is linked to us - it takes us a step back."
When running for the Hadassah presidency, she promised to give the organization an economic makeover. Ultimately, the agenda she was pushing helped Hadassah cope with the economic crisis and the Madoff debacle.
"I ran for president at a time when we had huge amounts of money in the bank, and I said that we needed to have better practices and that this was the right time to make changes in the organization," she notes. "My mantra was that we were doing too many things and should save our resources for a rainy day. When I was elected, we hired a consulting firm and made a plan for cutting costs, which was supposed to be spread over two years.
"Everyone knew there would be changes, and we worked to implement them, but we had the luxury of time. And then this guy hurt us, and what was supposed to take two years became a 30-day plan. The good news is that at least we were already on this road. If we had been caught without it, the story might have been different."
Falchuk concluded her recent visit to Israel by receiving an award on behalf of the Hadassah women from the U.S.-Israel Chamber of Commerce, which seeks to develop economic ties between the two countries. The award was also given to prominent members of the business community, including Ofra Strauss, and Yehuda and Yehudit Bronicki of Ormat.
"From day one of the organization, we've worked to build the foundations of the country, especially in the field of health care," says Falchuk, explaining why the award was given to Hadassah.
Hadassah was established in the United States in 1912 by Henrietta Szold, an educator and a Zionist, who visited Palestine and discovered a dismal state of medicine there. She recruited friends to raise funds to promote better health care. To that end, Hadassah founded the first medical school in Israel, the country's Tipat Halav (mother and child) clinics, the first hospital in Tel Aviv, and the two famous Hadassah hospitals in Jerusalem.
Today the organization boasts five medical schools, Hadassah College in Jerusalem, the Young Judaea youth movement, the Hadassah Neurim youth village, clinics, centers for immigrants, educational facilities for children at risk and the WUJS program, which brings foreign students to Israel. Recently the organization announced a plan to establish Israel's first military medical school, due to open in October 2009 as part of the School of Medicine at the Hebrew University of Jerusalem.
All these enterprises have made Hadassah Jerusalem's second-biggest employer after the government. "It's a big responsibility, which affects the future of the city," says Falchuk. "Hadassah plays an active role in the future of Jerusalem, not only as a large employer but in creating jobs that attract industry and business."
How did such a large organization fall for the Madoff scheme? It all began 21 years ago with a donation of $7 million that Hadassah received from a French philanthropist. The donor had only one condition: that Bernard Madoff manage the money. For a decade, until 1997, Hadassah added $33 million in matching funds to that investment. According to Madoff's reports, which promised handsome and reliable annual returns, the money in the fund grew to $90 million - all was lost when the fraud was exposed.
In an email she sent to her board after the scandal broke, Falchuk said that in the last five years, Madoff had been entrusted with managing 5 percent of Hadassah's funds, and that when the scam was revealed, the portfolio amounted to $412 million. A source close to the organization claimed that a year before that, it was $750 million.
"It was fictive money," says Falchuk. "We based our budget on it, but it existed only in bank statements, not as actual funds. Yes, it hurts. I don't mean to downplay what happened, but it has to be confronted. We hired an external consultant and appointed a committee to examine our regulations and investment policy. We are continuing to build one of the largest projects in Israel: a 14-floor hospitalization tower at Hadassah Ein Karem, with 500 beds and sophisticated operating rooms - at a cost of $318 million. The project was not affected by the economic crisis or the scam, and it is scheduled to open in 2012.
"I'll tell you where Madoff really hurt us. We began to get phone calls from donors. People realized they'd lost all their money, and that was very painful. Some had to sell their homes. They had no money for contributions, just as they had no money for their housing expenses. He hurt not only the charitable organizations. People aged 70 or 90 lost their money because of him and had to move in with their children."
Asked if her organization could have done anything to minimize the damages, Falchuk says: "Over the years we kept our money with 24 investment managers, so we didn't have all our eggs in one basket. We made a lot of money and invested it well. The entire philanthropic sector is currently rethinking its investment policy. Our biggest investment is in Israel, and when you look at our assets here, we're in good shape."
Philanthropic bodies all over the world are currently suffering a drop in contributions, mostly due to the financial crisis. "In the U.S. contributions are said to have decreased by 40-50 percent. It's felt especially by organizations that invest in culture and the arts," says Falchuk, who adds that Hadassah has a very good chance of bouncing back, because of its donors. "We don't have nameless contributors. The money comes from women who are Hadassah members, some of them lifelong members."
The crisis and the scam forced Hadassah to reduce its support of Israeli hospitals from $40 million in 2008 to $19 million in 2009. As a result, the hospitals adopted a belt-tightening plan: administrative salaries were cut, future projects were postponed, and employees were required to "loan" 4 percent of their salaries to their employers for seven years. "Of course," says Falchuk, "no one wants to make dramatic cuts, but sometimes you have to." The cutbacks were also caused by the organization's commitment to the tower project and other activities totaling NIS 40 million, as well as by Hadassah's decision to focus more on research and development, and less on operating medical centers.
Nevertheless, Falchuk finds cause for optimism in the organization's handling of crises past and present: "Hadassah Mt. Scopus was build in the 1930s, during the Great Depression. In those days we did not look at bank accounts, and we built the hospital without a business plan. When it was captured by the Jordanians during the War of Independence, David Ben-Gurion asked us to build another hospital: Hadassah Ein Karem. Then, too, we did not have enough money in the bank, but we decided to do it."
Falchuk herself has been a Hadassah member for years, just like her mother and grandmother. "I grew up in a Hadassah women's house, like many of our members," she says.
She worked as an ICU nurse at Harvard Hospital in Boston, and advised hospitals worldwide. At the hospital she met her husband, a doctor; they live in Boston. "I spent 40 years traveling with him, and now he travels with me," she adds.
Falchuk is now particularly involved in efforts to raise the status of nursing in Israel and abroad, spurred by fear of a shortage in nurses.
"We are concerned about the possibility that we will not be able to open the new hospital tower, because we won't have a staff. It's already happened at other advanced medical centers in the States," she notes. Her plan: to launch a publicity campaign that will promote nursing as a high-quality profession. "The quality of nurses is reflected in society, and trained, educated nurses need to be considered a vital asset. It will influence young men and women who choose to enter this profession."
Her impression of Israel's health-care system is generally positive, especially when compared to the situation in the U.S. "When it comes to health care, you get world-class service here," she says. "All citizens have access to it, which is something we don't have in the United States. You have a very sophisticated health-care system that many would like to emulate. If your neighbors allowed you to live in peace, you could be a center of medical tourism from Europe and other places."
Since its establishment, Hadassah has retained its predominantly female makeup, and it now numbers some 270,000 members around the world. "All through history, men have always been in the news, because they made the most noise. Meanwhile, these nice women built the infrastructure of health care and education in what eventually became Israel. There's power in the fact that women made decisions and were proud of their sisterhood, and that power has not disappeared.
"No one in the U.S. Congress would refuse to meet [today] with a Hadassah representative. We're activists and we look out not only for Israel, but for the U.S.," she says, adding that among other things, the organization is involved in fighting anti-Semitism, promoting Israel's security, encouraging stem-cell research and opposing the evolving link between Iran and Venezuela.
In summary, Falchuk expresses a "cautious optimism" about a recovery from the financial crisis. "We're not naive about the present situation, but we try to look at the past," she says. "Over the years Hadassah has weathered wars, epidemics, recession. I have to believe that it's just another obstacle, and that when we look back at it in the future, it will be just another part of our history."
Date: 6/29/2009 12:00:00 AM