OKLAHOMA CITY (ABP) — At least one Baptist group lost money as part of Bernard Madoff's alleged $50 billion Ponzi scheme. The Baptist Foundation of Oklahoma said it lost $1.4 million, less than 1 percent of its assets, when third-party money managers invested in two of Madoff's allegedly fraudulent hedge funds.
Madoff, former NASDAQ chairman and founder of Bernard L. Madoff Investment Securities LLC, was arrested in December for allegedly swindling a number of high-profile Jewish charities and celebrities including Kevin Bacon, Larry King and Zsa Zsa Gabor.
Robert Kellogg, president and CEF of the Baptist Foundation of Oklahoma, said his organization, which manages investment funds for Southern Baptist ministries, did not make any direct investments with Madoff, but learned in mid-December from its investment consultant that one of its managers gave the foundation "nominal exposure" to allegedly fraudulent management by Madoff.
Kellogg said total losses amounted to about $1.4 million out of a total of $234 million in assents managed by the foundation.
"To become a victim of fraud, despite our best efforts, is frustrating and disappointing,” Kellogg said. "While we are thankful the loss represents less than 1 percent of our assets under management, it's still a letdown whether it's $1 or $1 million."
Kellogg said the Foundation remains fiscally strong and at the end of this month will distribute for the second consecutive year $10 million to more than 300 charitable organizations.
Oklahoma Baptist University, the foundation's largest client, lost about $600,000 of its endowment holdings. University officials said the loss would not have a significant impact on the school's operating budget.
"While we certainly were saddened by the scam, it is a very small part of the overall investments of the University," said Randy Smith, OBU senior vice president for business affairs. "The loss does not weaken our overall financial stability."
Madoff is accused of defrauding investors by selling them investments not paid back by legitimate stock gains but with money from new investors. The alleged crime is named after Charles Ponzi, who invented the pyramid scheme in 1920.
Like many Ponzi schemes, Madoff is accused of an affinity fraud, which preys on victims of identifiable groups such as ethnic or religious communities. The Madoff scandal targeted high-profile Jewish charities, including the American Jewish Congress, Elie Weisel's Foundation for Humanity and a charity started by filmmaker Steven Spielberg.
A smaller-but-similar scandal hit Baptists in the 1990s, when 11,000 investors in the Baptist Foundation of Arizona fell victim to a $550 million Ponzi scheme.
The BFA began marketing individual funds, often in churches, telling prospective investors their funds would be safe, yield high returns and help strengthen Southern Baptists in the state. Foundation officials invested aggressively in Arizona's hot real-estate market, which eventually cooled.
Whistle-blowers went to the media, prompting investigation by state officials, who forced the foundation to stop selling securities in 1999. The foundation filed for bankruptcy, listing assets of $220 million and liabilities of $640 million.
Investors eventually recovered a portion of their money through sale of assets and legal settlements, including $217 million from Arthur Andersen, the now-defunct accounting firm later involved in the Enron scandal. Several BFA officials went to prison.
Kellogg said the Oklahoma Baptist foundation would take the occasion to review "due diligence efforts" for investing but lamented that it is difficult and sometimes impossible to "detect and prevent fraud committed by a deliberate and determined mind."
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Bob Allen is senior writer for Associated Baptist Press.