an editorial from Boston.com (Boston Globe):
Charities: Give up Madoff-tainted donations
With a court ruling that makes it unlikely that investors in the $65 billion scheme can keep more than what they handed over to Madoff in the first place, Boston charities stand to lose substantial support from philanthropies including Carl Shapiro’s family foundation. Although devastating, the ruling is necessary to bring restitution to Madoff’s other victims.
… Shapiro made $1 billion from Madoff over four decades.. Like a few other investors, Shapiro withdrew more money from his Madoff account than he deposited over the years. Last week, a federal judge ruled that investors could only claim what they put in, meaning that Shapiro and his foundation may have to pay back their profits, jeopardizing their charitable pledges. But the ruling also means that people who lost their entire nest eggs to Madoff will get something back. Although Shapiro’s money will be missed by charities, it would be unfair for him or his foundation to keep profits obtained via another person’s fraudulent actions – even to benefit worthy causes.
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This logic is not convincing. Many charities, in turn, used the money for their causes, in some cases in the form of services to others in need. These non-profits or charities had no way of knowing the gifts they received were tainted in any way. Now to have to refund money they have already spent may well put them in financial distress, even to the point of failure. It is entirely different from, for example, a museum receiving a stolen painting and having to return it when its provenance is discovered.
Separately, it should be considered that the investors had responsibility to vet their investment vehicle and and took a risk in expectation of profit, but the charity had no reasonable way to vet the source of the gift and did not accept the gift in expectation of personal gain. The “fairness” is asymetrical.