May 6, 2009
Stanley Chais Targeted in Madoff Suit
Stanley Chais, the longtime Beverly Hills money manager who only five months ago was a major donor to Jewish causes, has seen his life turned upside down by the Bernard Madoff investment scandal and is now accused of knowingly participating in the fraud.
In a lawsuit filed May 1, the court-appointed trustee overseeing the liquidation of Bernard L. Madoff Investment Securities (BLMIS) accused Chais and his co-defendants — including his children, grandchildren and the investment companies through which he channeled millions of dollars from Los Angeles-area investors to Madoff — of collectively profiting more than $1 billion from the massive Ponzi scheme since 1995, as well as an unknown sum for the two decades prior. The suit claims the defendants “knew or should have known that they were reaping the benefits of manipulated purported returns, false documents and fictitious profits.”
“Chais’ telephone number appears as the first speed dial entry on a telephone list at BLMIS,” according to the filing from the court-appointed trustee, Irving Picard. “He therefore enjoyed unusually intimate access to Madoff, allowing him to gain special access to extensive information about the operations of BLMIS.”
The lawsuit came as the latest bad news for Chais, who not only lost his own fortune when Madoff admitted in December to running a $50 billion Ponzi scheme, but also had to watch his children, relatives and many close friends and associates lose their life savings. Within days, the Chais Family Foundation, which had donated about $12.5 million annually to Jewish causes in the United States, Israel and the former Soviet Union, was forced to shut its doors.
“Like everybody else who trusted and invested with Bernie Madoff, he betrayed my trust,” Chais, 82, told The Journal in mid-December, the only time he’s spoken publicly about the Madoff affair. He added that he and his family lost “a huge amount of money.”
But even as Chais’ bank accounts dried up, he immediately emerged as a primary player in Madoff’s illicit business, though it is not known whether he was aware of the nature of the New York financier’s doings. (Madoff, the former chair of Nasdaq and a board member of Yeshiva University, pleaded guilty in March to 11 counts of fraud; he is currently awaiting sentencing.) Chais and a few others were identified as the heads of so-called “feeder funds” that funneled millions to Madoff, often without informing their clients. Before Chanukah was over, Chais had become the target of a $250 million class-action lawsuit for breach of fiduciary responsibility; that action has now been trumped by Picard’s.
“That means we are trying to get money for the investors in this pyramid, and he is trying to pull more money out of this pyramid and give it to other investors,” said Reed Kathrein, a San Francisco-based attorney handling the $250 million class-action lawsuit against Chais. “We are both focused on Chais, and we are competing against each other. Irving Picard is not our friend.”
Picard’s attorneys said last week that the trustee’s lawsuit against Chais would be the first of several actions against Madoff “insiders” or beneficiaries “to the severe detriment of other customers.”
As of Monday, May 4, Chais’ attorney had not been served with the complaint.
“To the extent that the trustee has alleged that Mr. Chais and his family received any kind of preferential or beneficial treatment from Madoff, it is important to understand that Mr. Chais and his family have suffered astounding and ruinous losses from the Madoff scheme,” Eugene Licker, co-chair of Loeb & Loeb’s white-collar criminal defense practice, said in a prepared statement.
“Mr. Chais is rightfully proud of his longstanding history of charitable giving and is saddened by the trustee’s suit and outraged by the very public way in which the trustee has proceeded, including suing Mr. Chais’ children and their spouses and referring to Mr. Chais’ grandchildren, none of whom had any decision-making involvement in the investments.”
Indeed, giving money to Jews everywhere was one of the most identifiable aspects of Chais’ life. He was a modest macher, who, despite living in Beverly Hills, drove an inexpensive sedan and avoided the appearance of great wealth. He was also a major supporter of Jewish life.
“Mr. Chais is a champion of Israel’s high-tech industry and has invested in about 50 start-up companies, enabling many immigrants from the former Soviet Union to find both employment and rewarding avenues for their skills and talents,” the newsletter of American Committee for the Weizmann Institute of Science reported when Chais received an honorary doctorate in 2005. “He was recognized for ‘his exemplary leadership and support of communal and cultural initiatives that have enriched Jewish life and learning in the United States, Eastern Europe, and throughout the Jewish world ... and his devotion to the cause of scientific scholarship.’”
Chais is a life member of the board for the Weizmann Institute, where the laboratory building and the School of Contemporary Science bear the family name; he donated $840,000 to Weizmann in 2007 alone.
Chais also sits on the international board for Hillel, the board of trustees for UCLA Hillel, the boards of Hebrew University, the Technion University, Ben-Gurion University, the National Foundation for Jewish Culture and the American Jewish Joint Distribution Committee.
The Chais Family Foundation had assets of $178 million when it was forced to shut its doors in mid-December. Organizations could no longer count on receiving hundreds of thousands, and, in some cases, millions of dollars each year from Chais. But many of them still gathered in Jerusalem in February to honor the longtime philanthropist.
“Far from abandoning him, some 50 of the beneficiaries of his charitable endeavors took up the mantra that has guided his giving. Chais firmly believes that all Jews are responsible for each other. So the leaders of the organizations and institutions in which Chais vested some of that responsibility decided it was payback time; although they couldn’t give him back his money, they could certainly restore his dignity and pride,” the Jerusalem Post reported after the tribute was held on Hebrew University’s Givat Ram campus.
Chais was unable to attend that event for health reasons. Since Madoff’s arrest, Chais has spent most of his time at his apartment in New York, where he is being treated for a rare blood disorder. But he has not been forgotten locally.
“Many, many, many people give money for a lot of reasons, but Stanley gave it with real passion and involvement; if it wasn’t half of his life, it sure was close,” said Jay Sanderson, CEO of JTN Productions, a Jewish television production company that has received hundreds of thousands of dollars from Chais over the years.
“When you take a big chunk of someone’s life away, it really is devastating,” said Sanderson, who spoke with Chais last week. “He was really, really a proactive philanthropist, and so I think it’s probably ripping his heart out.”
As far as Chais’ role in the Madoff scandal — from innocent victim to informed accomplice, and everything in between — Sanderson offered no judgment.
“I have not gone to that place because I want to look at Stanley the way he has been for me,” Sanderson said. “He was a friend and is a friend. I’m sad this is happening to him but I don’t want to put myself in a position of judging.”
In January, Bob Braslau, Chais’ 75-year-old nephew by marriage who lost his retirement savings, told The Journal that “if Stanley had any inkling that there was something wrong going on, he certainly would not have put his money in it, or his children’s money in it, or his family’s money in it.”
Robert Chew, 55, said on Monday that he hadn’t known his money was invested with Madoff until Chais called to say it was all gone, but said he didn’t suspect his money manager was complicit in the fraud. Still, Chew was angry with Chais for having, Chew believes, misled his clients.
“We never knew exactly what he was doing, but he had been doing it for 40 years and very successfully,” said Chew, who moved with his wife Sarah Mandell from Los Angeles to Colorado and entered retirement two years ago. “We thought he was the guy making the trades, and he led us to believe that. At parties we would ask ‘How’s the market?’ ‘Oh, it’s good, it’s bad, it’s getting tougher to make trades.’ He led us to believe he was the genius and his people were the geniuses behind all this. When really all he did was collect the money and move it on to someone else. And he was getting a 25 percent cut for this.”
“I’ve talked to a lot of victims over the months,” Chew added. “It appears the direct Madoff customers would get about an 11 percent return annually. But Chais was giving his investors, including my wife and I, 15 percent or more, and in good years, like back in the ‘90s, it was over 20 percent. How is that possible? How could one group of investors get more than others? The answer is, perhaps Chais and Madoff had some other kind of deal going. Madoff would put money into the Chais pot, and Chais would divvy it up however he felt. I don’t know.”
“It’s all just an interesting mystery,” he continued, “and I hope that Picard gets to the bottom of it.”