Their safe bet had bet it all on Madoff
Sarah Mandell and her husband, Bob Chew, wanted to cut their expenses and lead a “simpler life,” so in 2004 they sold their house in Los Angeles and set out for the mountains of Colorado.
To secure their future, they took the money from the house and invested it with Stanley Chais of Beverly Hills. It seemed like a safe bet: Chais was a wealthy investment advisor and trusted family friend who had produced strong returns for Mandell’s relatives for two decades.
“You would think in 20 years, if there was something wrong with this, it would have been uncovered,” said Mandell, a personal chef.
Eventually it was, but too late for Mandell, 45, and Chew, 55, a marketing consultant. The couple learned days ago that their $1.2-million investment account had been obliterated in an alleged $50-billion fraud run by New York financier Bernard L. Madoff with the help -- knowingly or not -- of Chais and others who funneled investors’ money to him.
The fallout has been enormous, hitting hardest in Jewish communities here and abroad, racking charities and families that had invested directly with Bernard L. Madoff Investment Securities or through “feeder funds” like Chais’. Many who lost money were in the entertainment industry, Hollywood heavyweights and nonmarquee names alike.
Madoff, 70, a former chairman of the Nasdaq Stock Market, has been charged with securities fraud and is said to have confessed to running a Ponzi scheme, in which newer investors’ money was paid out to earlier ones. His company’s assets have been frozen and a receiver has been appointed to manage what’s left.
Chais, 82, did not respond to interview requests. Last week, he told the Jewish Journal that he and his family also were swindled and had lost “a huge amount of money.” The Chais Family Foundation, which in 2007 reported assets of $178 million and charitable contributions of nearly $8.2 million, also was wiped out and has shut down.
Whether Chais was merely a victim is the $250-million question in a federal lawsuit filed last week in Los Angeles, alleging that is the sum scores of investors gave to him and his Brighton Co., a limited partnership formed to manage their money.
The complaint charges that Chais and his firm were involved in “false, misleading, unlawful, unfair and fraudulent acts and practices,” but it offers no hard evidence that he knew the money was being pumped into a Ponzi scheme.
The full scope of the alleged fraud and Chais’ possible role in it have yet to be spelled out. What’s not in doubt is that he was a major philanthropist, who lived modestly despite his wealth, while steering millions to Jewish charities.
He had an unpretentious home in Beverly Hills, a small apartment in New York and “he drove around in old Toyota Celica or something” akin to it, Chew said.
“Stanley’s a charming guy,” he said. “Anyone would want to be around him. He’s very gracious. . . . Life was always good.”
Chais and his wife, Pamela, a playwright and screenwriter, were mainstays of Jewish philanthropy for three decades. Their family foundation supported scores of charities, most of them related to improving education in Israel.
Stanley Chais holds honorary doctorates from or has served on the boards of a raft of Israeli schools and universities, including the Weizmann Institute of Science, the Hebrew University of Jerusalem and the Technion-Israel Institute of Technology, often likened to MIT.
He also has poured money into at least 50 Israeli businesses, according to online biographies posted by Jewish groups with which he has been affiliated.
“Stanley Chais supports Israel not only in higher education, but also helps to establish Israeli start-up companies which include new immigrant scientists,” reads one. “The emphasis is on developing human capital in Israel towards joining the international, technology front of progress.”
Those who have known Chais through his philanthropy say they do not believe he would knowingly engage in a Ponzi scheme.
“Stanley is the kind of man who has great credibility in the community and would never do anything to jeopardize that. Surely he was duped as well,” said Geoffrey Gee, a former development director for American Society for Technion, its U.S. fundraiser.
“If you put 100 people in a room, he’d be the one you’d never expect to have this kind of problem with,” Gee said.
According to its tax filings, the Chais Family Foundation gave $300,000 to Technion’s U.S. fundraising organization in 2006. The university will lose not only the foundation’s support, but also $29 million it had placed directly with Madoff and $40 million more in paper profits.
Matthew Ross directs Hebrew University’s fundraising arm in Los Angeles, which received $275,000 from the Chais foundation in 2006. He has known Chais for four years.
“In my association with him, he’s been a generous person, a very nice person and it’s a tragedy -- for him personally and for the institutions that he’s been so supportive of for many years,” Ross said.
Entertainment industry figures who lost investments with Madoff include director Steven Spielberg and Jeffrey Katzenberg, chief executive of DreamWorks Animation SKG.
Katzenberg and Spielberg’s Wunderkinder Foundation both had investments with Madoff that were made on their behalf by their business manager, Gerald Breslauer, people familiar with the situation told The Times last week.
Academy Award-winning screenwriter Eric Roth, recently nominated for a Golden Globe award for “The Curious Case of Benjamin Button,” told The Times that he too had incurred heavy losses. He called himself “the biggest sucker who ever walked the face of the Earth,” but declined to say how much he’d lost or with whom he’d placed his investments.
Like others in what has been described as an “affinity fraud,” Chew said he and Mandell were brought in by relatives. Until it all collapsed, they had enjoyed consistent returns of about 15% a year from what they knew as “private arbitrage accounts,” Chew said.
Chais took a piece of the profits as management fees, Chew said, usually about 3.8%.
In hindsight, he said, there were things that should have raised red flags, including an air of exclusivity and the notion that not just anyone could get in.
“It was always this kind of private, hush-hush fund,” he said.
Chew thought he and his wife were invested in currencies, stocks and other securities; Madoff’s name was never mentioned. But quarterly statements were so vague, Chew said, that he couldn’t tell “what trades were made or how they were made or who made them.”
Frank Mantovani, the Encino accountant who kept Chais’ books and tracked the investments, did not respond to interview requests.
However, in a “Dear Partners” letter dated Dec. 17, Mantovani told Chew and other investors that he too had been duped. He said he had relied on inaccurate information provided to him in preparing quarterly statements.
“I am sure that you are shocked and disappointed as I was to learn of this catastrophic event,” he wrote. “As a partner myself, I am personally affected by this scam and will likely suffer devastating financial losses.”
In all, Chew and Mandell, and her extended family, have lost about $30 million, they say, including $300,000 that her 84-year-old mother relied on to pay for her assisted-living arrangements. Now, she must move to a less expensive, and less desirable, nursing home, Mandell said.
“This is absolutely devastating to my family on all levels,” she said in a telephone interview from her home in Montrose, in southwestern Colorado. “It doesn’t matter whether it’s $1 million or $20 million. When it’s all you have and you lose it, it’s devastating.”
The scheme’s collapse has sparked lawsuits, including one by Michael Chaleff, a former Justice Department lawyer. He’s now a public speaker and entertainer who “specializes in merging the art of magic with the sciences of psychology, mathematics and hypnosis,” according to his website.
Ironically, he also wrote the book “Avoiding the Million Dollar Mistake,” but it was about salary negotiations, not investments.
Chaleff, a UCLA graduate who earned his law degree from the University of San Diego, was part of a 50-member investment group called CMG that lost $75 million to $80 million it gave to Chais’ Brighton Co., according to the complaint. In all, it alleges, Chais managed about 10 such groups of investors.
Like Mandell and Chew, Chaleff learned only recently of the Madoff connection.
“On or about December 12, Chais informed the partners of CMG that the man handling all of their funds on Wall Street was Bernard Madoff of BMIS and that all of their money had been lost as part of the Ponzi scheme,” the complaint said.
Chaleff’s attorney, Reed Kathrein, is seeking to have the lawsuit certified as a class action. He said he was still piecing together his case and did not yet have a clear picture of whether Chais knowingly defrauded the people who trusted him with their life savings.
“It’s very tough on those who invested with him because they all love this guy,” said Kathrein, who is based in Berkeley.
The Securities and Exchange Commission and the California Department of Corporations said last week that they had found no record of Chais registering as an investment advisor or broker.
It’s unclear whether he was required to have a securities license, because that depends on how many investors he had and how much money he managed. At the moment, neither is known and federal regulators, who appear to have ignored earlier warnings about Madoff, will not discuss Chais’ role.
Chew, whose original investments totaled about $600,000 and then doubled over time, likened losing them without warning to “financial murder.”
He’s now on a mission to beef up regulation of money managers like Chais. “It’s too late for us,” he said. “But maybe by getting the word out, we’ll got some better transparency and government oversight for these private funds.”
Times researcher Scott Wilson contributed to this report.