Page last updated at 10:33 GMT, Saturday, 23 May 2009 11:33 UK

Bernard Madoff's hidden victims

By James Coomarasamy
BBC Washington correspondent

The collapse of disgraced financier Bernard Madoff's multi-billion dollar pyramid scheme has had wide-ranging consequences - not least on American charities.

Bernard Madoff
Bernard Madoff's pyramid scheme wrecked many investors' lives

Bernard Madoff is responsible for many things: from the biggest pyramid scheme in US history, to a series of ruined lives, shattered friendships and battered bank accounts.

He is also responsible, in part, for Steven Barnes walking free from jail, after serving 20 years for a crime he did not commit.

Steven is the embodiment of a little-mentioned aspect of the Madoff affair, the dozens of charitable foundations, being financed by his mythical money, that now find themselves as out of pocket, and pursued by the authorities.

In Steven's case, the money went to the Innocence Project, a New York-based criminal justice organisation, which uses the latest DNA techniques to prove the innocence of the wrongfully imprisoned.

Innocence Project

It was partly funded by the JEHT Foundation, a private charity backed by a wealthy couple, Ken and Jeanne Levy-Church.

Steven Barnes
Steven Barnes was freed by a charity funded by Madoff's 'mythical money'

Like many of the Madoff victims, they were wealthy Jews who had placed their money with their old friend. When he went down so too did their foundation. Within days all of JEHT's employees had been fired, its offices closed. Steven had been freed just in time.

I met Steven at the Innocence Project's Manhattan office.

He is a well-built man, in his early forties, with spiky fair hair and the distant gaze of someone still adjusting his focus, as he contemplates the freedom he was denied for so long.

As he sat and told me his story, his right knee jerked up and down in a staccato rhythm, like a needle in a sewing machine.

A mixture of nerves and anger. He had been arrested in 1985, after a local girl was raped and murdered. Three years later he was convicted and sentenced to 25 years in prison.

DNA tests

Steven always protested his innocence and so did his family.

When he told them about a TV item he had seen about the Innocence Project they were quick to act.

The results took somewhat longer though. An initial DNA test proved inconclusive, but a second, several years later using improved technology, finally cleared Steven.

"I called my mother one Friday," he told me, the shadow of a half-remembered smile flitting across his face.

"She said the tests had come back and they'd cleared me. I yelled down the gallery: 'I'm going home. I'm going home'."

The following Tuesday, 25 November 2008, he was home.

Sixteen days later Bernie Madoff was arrested. As Steven regained his freedom the man whose funds had helped to liberate him was losing his.

These days, Steven talks on behalf of the Innocence Project. He is angry that Madoff's corruption has deprived it of necessary funds to secure the release of others.

"I hope he gets his day with the guy upstairs... or in prison," he says.

Missing cure

Across town, in a laboratory at the University of Columbia's medical school, neurologist Dr David Sulzer, leads a group of eager young researchers, peering at slides.

They are looking for connections between neurons, but have been hampered by their connection to Bernie Madoff.

This research into the causes of Parkinson's disease was being partly funded by another wealthy couple, Jeffrey and Barbara Picower, their Picower Foundation was the hardest hit by the Madoff scandal losing nearly $1bn.

Palm Beach Country Club, where Bernard Maloff recruited a number of clients
Mr Madoff recruited several clients at the Palm Beach Country Club

Through it the Picowers's had poured vast sums into the kind of cutting edge research for which it is hard to get federal funding.

In the lab, the centrifuges are still whirring but the dots that were being connected, in the form of a Picower-financed, seven lab consortium, are no longer joined.

A potential cure for Parkinson's may have evaporated.

Not everyone is sympathetic to the foundation's plight in Palm Beach, Florida, where Madoff befriended, and then defrauded, people like the Picowers.

'Irresponsible' greed

I met Jose Lambiet, society columnist with the Palm Beach Post.

He says there is an element of one-upmanship to the charitable work of the rich and famous, whose endeavours were being bankrolled by Madoff.

Their huge returns may have gone towards positive ends he says but they were still the product of greed.

The Palm Beach investors, victims, call them what you will, are a private bunch.

In the words of one of the lawyers involved, Bernie Madoff has wiped out a whole generation of Jewish philanthropy

They shun the media and make every effort to shield their exclusive homes from prying eyes.

As you drive along the the lanes surrounding the Palm Beach Country Club, the place where Madoff persuaded members of this tight-knit Jewish community to invest their millions with him, you pass a succession of what appear to be green, leafy battlements, 30 feet high in places, the flat top foliage offers towering, natural protection to the people in the barely-glimpsed houses behind.

They once spent their days counting their Madoff-made money. Now they are licking their Madoff-inflicted wounds.

Claw back time

And, in the latest legal twist, the foundations are being targeted by the authorities, trying to recover tens of billions of fraudulent dollars.

That stolen money, which the foundations have dispersed, is the subject of a process known as "claw back".

As victims sue victims, the foundations hope that tracking down money that has already gone into medical research, criminal justice programmes or school systems will seem absurd but the process will be charitable to the charities.

Enough damage has been done already. In the words of one of the lawyers involved, Bernie Madoff has wiped out a whole generation of Jewish philanthropy.

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