No one now, of course, would make the mistake of assuming Bernie's foundation was ever legitimate. But even early on there was a tipoff in the foundation's IRS filings that something was amiss.

Reading  Lucinda Franks' new post in the Daily Beast about the Mark & Stephanie Madoff Foundation prompted me to pull up the 990s filed by the Madoff Family Foundation. (990s are informational returns that non-profit organizations are required to file with the IRS.) The Foundation, originally registered in New York in 1997 as the Bernard L. and Ruth Madoff Foundation, changed its name in 2003.

(The Madoff Family Foundation 990s for 2001-2007 are available at the 990 Finder.) 

In 2006, the Foundation transferred corporate stock with a book value of $13.5 million and a fair market value of $16 million from Cohmad Securities to Bernard L. Madoff Investment Securities (BMIS). That year, the Foundation recorded a net gain in book value from the sale of stock of $4.2 million and income from dividends and interest of $500k. The book value and fair market value of the stock both equaled $17.2 million at year end.  

Generating a return on investment of 7% plus was pretty standard for BMIS then but, as we now know, BMIS never actually made any investments. In effect, the Foundation had no assets at the end of 2006 except for a small amount of cash. In 2007, the Foundation's total  contributions were only $95k.  

The next question is did the Foundation ever have $16 million in stocks in a Cohmad account to transfer to BMIS and the answer is not evident in the 990s.  

The Madoffs made no contributions to the foundation between 2001 and 2006 so any contributions would have to have been made between 1997 and 2000. (The 990s for those years are not publicly available online.)

It  appears that there was no trading in the Cohmad account at all in 2001 and 2002. In 2003, the Foundation actually lost $1.3 million on the sale of $6.9 million in stock and it lost another $535k in 2004 on the sale of another $4.2 million in stock sold for a loss. In 2005, again no trading.

Was the Foundation's Cohmad investment a red flag that Paul Konigsberg, the CPA who prepared the 990s, should have picked up on?

Konigsberg, a senior partner at Konigsberg Wolf, was intimately familiar with the steady returns generated by BMIS because he prepared the 990s for several private foundations that  had hundreds of millions of dollars invested in BMIS. Plus he was a business associate and personal friend of Bernie's.

On the face of it, it made no sense to leave the Foundation's assets invested in Cohmad Securities when it could have been earning a better return with BMIS.

Plus there were some odd transactons in the Cohmad account. At the end of 2000, the Foundation only owned $2.4 million in stock but it held $24.7 million in "other assets". The other assets were described simply as "Cohmad cash equivalents". They weren't treasuries nor were they stocks or bonds.

In 2001 and 2002, approximately $20 million and $4 million, respectively, of other assets were converted to stocks.

In 2003, as noted above, the Foundation reported that it sold $6.9 million of stocks for a loss, all of which purportedly were purchased in 1997. In 2004, $1.7 million of the $4.2 million of stocks sold at a loss were also purportedly purchased in 1997.

The problem is that the Foundation reported only owning $2.2 million in stocks in 2000. How could the Foundation sell $8.6 million of stocks purchased in 1997 in 2003 and 2004 if it didn't own the stocks in 2000?

Unlike other private foundations like Mark and Andrew Madoff's, the Madoff Family Foundation never reported what specific stocks it held at year end in the 990s. Paul Konigsberg, of course, was responsible for ensuring that the Foundation complied with IRS reporting requirements for private foundations so he would have made the decision about what to disclose.

In Bernie's case, it hardly matters if he knowingly filed 990s that were in any way false. What the Feds would want to know is whether Ruth Madoff or someone like Paul Konigsberg knew there was a problem with the Foundation's financials.