The collapse of what was perhaps the largest Ponzi scheme in history, devised and coordinated by New York money manager Bernard Madoff, caught the Securities and Exchange Commission with its pants down and swindled some of the world's most knowledgeable investors. Tufts was among the victims, having lost $20 million on a 2005 investment with Ascot Partners, a hedge-fund firm that subsequently invested virtually the entire sum with Madoff's security firm.
In a Dec. 19 e-mail to the student body, President Lawrence Bacow tried to assure those with ties to the university that the investment only represented two percent of the school's $1.5 billion endowment and has been written off — a fact that will "not significantly affect [Tufts'] operations," according to Bacow.
For a university that has certainly felt the ill effects of the recent economic downturn — the administration expects a 25 percent decrease in the value of the school's endowment this year and is planning on budget cuts adding up to $36 million in the coming year — this financial blow has received due scrutiny.
While the investment was a ruinous mistake that should have raised many red flags over the last three-plus years, the Tufts community should shy away from the knee-jerk tendency to hastily point fingers at individuals involved in the investment.
When The New York Times published a Dec. 19 article linking James Stern, a member of Tufts' Investment Committee, to Jacob Ezra Merkin, general partner of Ascot Partners, via a shared financial interest, he became the easy scapegoat. The article reported that Stern sat on the board of a company — that turned out to be the Noel Group — in which Merkin was a major investor.
The administration, along with Stern himself, has since called the article misleading, assuring the Tufts community that not only had Stern been uninvolved in bringing the Ascot deal to the attention of the Investment Committee, but he had also severed his ties with the Noel Group several years before Tufts made the 2005 investment.
The university made a mistake. A $20-million mistake. But beginning an ill-informed witch hunt to root out and punish those responsible is counterproductive.
Tufts' Investment Office recommended the investment in 2005, and the Board of Trustees' Investment Committee approved it by consensus. A lot of people were involved in the decision-making process, and it will take considerable time before all of the details come to the surface.
While pinning the investment on one individual might quell some short-term frustration, that kind of action is shortsighted and only serves to further complicate an already convoluted situation.
Madoff's Ponzi scheme created a vast network of investors — first pulling from local money and then, extending across the Atlantic to Europe and the Persian Gulf — and it will take some time before investigators untangle all of the webs he created. Likewise, the Tufts community must be patient as the university moves forward in its investigation and seeks to reconcile the situation.
