By Andy Metzger

STATE HOUSE NEWS SERVICE

STATE HOUSE -- Treasurer candidate Deborah Goldberg, who would oversee state borrowing and pension fund investments if elected, sits on the board of family-run charitable foundations that lost millions to Bernard Madoff's infamous Ponzi scheme.

The philanthropic organizations that were scammed by Madoff while Goldberg was on the board are the Goldberg Family Foundation and the Sidney & Esther Rabb Charitable Foundation.

Goldberg said the investment activities of the boards, which lost an estimated $14 million, were not her purview when the funds were invested in Madoff, and her campaign said the Madoff investments were made before Goldberg joined the boards, but continued while she served.

Many investors were duped by Madoff and in the wake of the scandal there were calls for broad reforms to encourage better checks and balances in corporate governance and stronger regulatory oversight.

"Responsibility lies with Bernie Madoff. He is a fraudster. He ripped people off," said Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy, who said foundations that lost money had "certain weaknesses," including a lack of due diligence on the investments and homogenous boards, that exposed them to the risk.

Overseers of the state's roughly $50 billion pension fund fired Austin Capital in 2009 because the firm lost $12 million through Madoff, out of $170 million it managed for the Pension Reserves Investment Trust.


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Goldberg, who is facing fellow Democrats Tom Conroy and Barry Finegold in the Sept. 9 primary, led a Suffolk University poll released Monday with 20 percent of likely primary voters, more than twice as much as either of her competitors garnered. The winner will face Republican Mike Heffernan.

Information about Goldberg's family investments was provided to the News Service by a rival campaign, and Goldberg lashed out at the anonymous tipster, though her campaign did not dispute the fact that the boards lost substantial money to Madoff.

"These accusations and innuendos are false and malicious. Bringing up these issues now is the desperate act of a failing political campaign and is not the kind of issue-based dialogue Massachusetts voters deserve," Goldberg said in a statement. "For the record, I did not make any investment decisions for the family charitable foundation at the time it invested with Madoff. My role with the foundation was in grant allocations."

Goldberg's campaign did not make her available for an interview and replied to a series of emailed questions with a five-paragraph statement. While Goldberg says she did not make investment decisions, experts say board members have a fiduciary responsibility even after an investment has been made.

"I'm a voter. So as a voter, I'd certainly be interested in hearing an explanation," said a former top state Treasury official, who requested anonymity, is a Democrat and does not have a favored candidate in the race. Noting that family trusts are different than public pension funds, the former official said board members are fiduciaries.

"Like many organizations, from private investment firms to major universities, we were impacted by Madoff's schemes. When we learned of the Madoff problem, we took immediate action. We hired new investment advisors and stabilized the foundation. Furthermore, we managed to fulfill every commitment that our foundation and our family ever made," Goldberg said. "The Madoff scandal was one of historic proportions, the most egregious scam in Wall Street history. The fact that our foundation was able to deal with it, make changes, honor all of our charitable commitments and emerge with a strong family foundation, has strengthened my capacity and confidence to deal with the challenges of the Treasurer's office."

The funds in question were hard hit in 2008 when the recession laid bare Madoff's Ponzi scheme and lack of actual investments. The Family Foundation invested an estimated 42 percent of its assets in Madoff and lost an estimated $7.9 million, and the Rabb Foundation invested an estimated 65 percent of its assets in Madoff and lost an estimated $6.1 million, according to an NCRP report. 

The former Treasury official said investment funds should be diversified, and said Madoff wasn't successful in fooling everyone. He said the questions raised about the investments are "relevant" considering the foray of Goldberg, a 2006 candidate for lieutenant governor, back into electoral politics.

"You open the door to a line of inquiry like this," said the former official. Though pension fund staff and other Treasury officials perform due diligence and other analysis, he said as treasurer, "You set the agenda and the standard for the office."

In 2013, Goldberg was listed on tax disclosures available through the attorney general's website as devoting a half-hour per week to the Rabb board and 15 minutes per week to the Family Foundation.

"You don't just make an investment once and never check it again," said Dorfman. He said, "It's part of their fiduciary duty."

With scant areas of open disagreement among the Democrats seeking the office, candidates' backgrounds and the bread and butter duties of the office - chairing the pension board, issuing bonds and managing cash - could become campaign issues.

Finegold is a state senator and lawyer, who has previously run for Congress, and Conroy is a state representative and former finance manager, who has previously run for U.S. Senate, though he dropped out before the primary.

Goldberg's great great grandmother opened a grocery store in Boston's North End, which grew over the years into the Stop & Shop chain, which was the subject of a corporate takeover. She chairs the board of Adoptions With Love and sits on the Board of Advisors of the Greater Boston Food Bank. Goldberg's deep pockets have also allowed her to go on the air with television ads.

In 2008, even though the Family Fund had lost roughly 46 percent of its value, dropping to $10.5 million, it gave out about $711,000, including $301,000 to Combined Jewish Philanthropies, which was hard hit by the Madoff scandal, tens of thousands of dollars to several schools and cultural institutions and $75,000 to the United Way of Massachusetts, according to tax filings available on the attorney general's website. The Rabb Foundation lost about 67 percent of its value, but giving actually increased from 2007 to 2008.

"We are proud of the contributions our charitable foundation has made to the community, including the Greater Boston Food Bank, United Way, Boston Medical Center, and many others," Goldberg said. "Our investment record overall has been exemplary."

The NCRP recommended the small homogenous foundation boards victimized by Madoff should expand and diversify board membership to better protect themselves against bad investments. Both the Goldberg Family Foundation and the Rabb Foundation had the same four family members listed as trustees in 2013 as it had when the Madoff scam was exposed.

"I haven't seen very many foundations that have adopted our recommendation, unfortunately," said Dorfman. Tax-exempt boards have a responsibility to protect themselves from bad investments, he said. "These are really partially public dollars meant to serve the public good," he said.