Foundation's Bankruptcy Could Cost Charities Millions
May. 16, 1995
PHILADELPHIA (AP) _ A charitable foundation that solicited funds from nonprofit groups with the promise of doubling their money within months has filed for bankruptcy protection.
The Chapter 11 filing Monday in federal bankruptcy court in Philadelphia could affect hundreds of charities, including museums and universities, who had placed money with the Foundation for New Era Philanthropy.
Four days before the filing, Prudential Securities named the charity and its chief executive officer, John G. Bennett Jr., in a federal lawsuit that demands repayment of a $44 million loan.
The foundation, based in Radnor, a Philadelphia suburb, lists more than $551 million in liabilities and $80 million in assets. The Pennsylvania Attorney General's Office planned to file a motion this morning in Commonwealth Court asking that the group's assets be frozen, Janice L. Anderson, chief deputy attorney general, told The Philadelphia Inquirer.
Anderson said the state was investigating the possibility that New Era operated as a ``Ponzi scheme.'' Such a scheme creates an illusion of financial success by paying off early investors with funds provided by later investors. The scheme eventually collapses when no more investors are found.
Among groups with money that may in jeopardy are the University of Pennsylvania, the Pennsylvania Academy of the Fine Arts, the Academy of Natural Sciences and the Franklin Institute.
``Wow. Oh, my God. The quote is, `Oh, my God,''' Margo Bloom, director of the National Museum of American Jewish History in Philadelphia, told the Inquirer.
The museum has $100,000 invested with New Era. That money, plus another $100,000 that New Era had promised to raise within six months, was due to the museum at the end of this month.
``I think it's going to be a dreadful debacle, there's no question,'' said Alexandra Wolf Fogel, executive director of Delaware Valley Grantmakers, in the Philadelphia area. ``There are a lot of nonprofits out there with money invested with the foundation, and I've talked to a lot of people today who are terrified, whose boards are terrified.''
Groups were told that their money could be doubled quickly because anonymous donors were giving matching funds to the foundation, relying on it to find worthy causes, The Wall Street Journal reported Monday.
Bankruptcy papers said many charities had gotten their money back under the arrangements.
New Era's bankruptcy also follows an investigation by the U.S. Securities and Exchange Commission, the Journal said.
The foundation owes at least $300 million to large individual charities and $165 million to major donors, the bankruptcy papers estimate. The creditors' identities were not listed in the filing.
Neal D. Colton, the lawyer who filed the bankruptcy, said there may be more than 300 creditors.
Bennett's wife said he would have no comment, the Inquirer said.