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How to Lose $1 Billion: Yeshiva University Blows Its Future on Loser Hedge Funds

High-risk investments and conflicts of interest abounded at Manhattan's prestigious university, leading to a $1.3 billion reversal of fortune. Students are likely to bear the brunt of the losses.
Jun 17, 2014· 20 MIN READ
Steven I. Weiss is managing editor of The Jewish Channel. He has written for The Wall Street Journal, New York magazine, Harper’s, Slate, and others.

It was a time for emergency prayer. Rabbis at Yeshiva University were horrified at the idea that a non-rabbi was set to take over the presidency of a school that had been led by ordained clergy for more than a century. Joining many students at the college, they gathered on a brisk December day in 2002 to engage in a chant-and-response of Psalms, hoping to stave off disaster for their beloved school’s future.

What they couldn’t have known when that prayer session took place more than a decade ago was that the real danger in Yeshiva’s new leadership was not to the school’s spiritual welfare but to its very existence. Over the years to come, the new leadership at Yeshiva would ramp up risk in the school’s investment portfolio, vastly increase spending, and do little to insure against a rainy day.


When rainy days did arrive, with the global financial meltdown of 2008, Yeshiva was heavily exposed. Today, its finances are overwhelmed by a sea of red ink. According to a recent announcement by credit rating agency Moody’s, the school will run out of cash next year.

While Yeshiva has been making headlines for a sex-abuse scandal that had the school facing a $380 million lawsuit, a dramatic reversal of fortune undermining the organization from within has gone largely unnoticed. And when Yeshiva’s financial state has garnered attention from news outlets, the explanation has often been losses it sustained from its investments with convicted Ponzi scheme operator Bernard Madoff, estimated at $105 million.

But a two-year investigation by TakePart in association with The Jewish Channel reveals that the Madoff losses represent only a small fraction of far greater losses that were due to Yeshiva’s new investment and spending strategies. (Disclosure: The author of this article attended Yeshiva University from 1998 to 2002, earning mediocre grades and a reputation for student activism, and was not invited to return for his senior year.) The school lost more than $500 million on its high-risk investment portfolio—after selling off nearly $500 million of ultrasafe U.S. Treasury bonds when the new regime took over a decade ago, plowing the proceeds mostly into hedge funds and corporate stocks. Assuming the strategy of increasing risk in its investment portfolio would pay off with higher returns, the new president and the board that hired him took on a bevy of new expenses, spending down their cash reserves and resting much of Yeshiva’s fate on their hedge fund gambles. Now that those investments have proved to be losses, Yeshiva faces more than $550 million of debt, and it appears to have been tapping into the principal of its investment portfolio to cover annual deficits. On their own, any one of these changes—the half-billion-dollar hit to its portfolio, the diminution of liquidity, and the mass of debt—would be a significant, though bearable, difficulty for a university; together, their effect has been devastating.

Overall, it’s a swing in the financial fortune of one of the country’s top private universities and one of the world’s most esteemed Jewish institutions of more than $1.3 billion, well more than 10 times the losses from the portion of Yeshiva's portfolio invested with Madoff. Students who applied to and enrolled at a school that had spent aggressively for 10 years now find themselves at one where drastic budget cuts need to be taken, assets need to be sold off, and key operations relevant to the school’s status as a top-tier institution, such as the graduate schools, are being cut. To get back on track, Yeshiva would have to find a way to generate growth in the school’s student and donor base (e.g., tuition hikes, increases in enrollment, and funding solicitations) sufficient to balance its budget and pay down its debt, while slashing its budget and selling off assets in a way that doesn’t hamper that growth. Yeshiva is now selling off at least 10 of its buildings in an effort to generate cash, and it has entered into an agreement with Montefiore Medical Center to operate the university’s medical school in a deal that rids Yeshiva of a major annual expense while risking its status as a leading research university.

The investigation, which involved the review of more than 10,000 pages of legal and financial documents, dozens of interviews, and many New York State Freedom of Information Law requests, shows how the leading lights of Wall Street helped achieve those losses for Yeshiva.

Some of the most prominent names in investing—Berkshire Hathaway’s David S. Gottesman, Redwood’s Jonathan Kolatch, Oppenheimer’s Ludwig Bravmann, and Salomon’s Gedale Horowitz—guided the school’s finances in a way that was quite exceptional among universities. The portion of Yeshiva’s assets allocated to specific risky investments ranked near or at the top of all schools by the time the 2008–2009 crash came, and Yeshiva’s losses rank among the largest in the country.

As hedge fund culture came to dominate the leadership and financial stewardship of Yeshiva, its books looking less and less like those of a typical nonprofit, another aspect of troubling Wall Street behavior that led to the crisis of 2008 created additional problems: At the same time that Yeshiva’s leadership presented great risk to the school and its debtors, one of the world’s leading credit rating agencies seemed to ignore the problems the school faced, even touting aspects of Yeshiva’s investment allocations that would lead to the university’s downfall.

(A university spokesperson wrote by email, “In 2009, Yeshiva University leadership stepped up efforts that had already been underway to enhance conflict of interest policies and governance structures.”)

The Legacy

Yeshiva University is more than just a top-tier American university. Often referred to in the Jewish press as “the flagship institution of modern Orthodoxy,” its rabbis and scholars lead the debate on many issues concerning the Jewish faith. Pronouncements by its leaders and events at the school regularly make the front pages of Jewish newspapers around the globe. The school drives communal policy, politics, and culture.

For many years, no name was more frequently attached to Yeshiva’s reputation than that of Rabbi Dr. Norman Lamm.

The 27-year presidency of Lamm was the second-longest in Yeshiva’s history. Embodying the rabbi-scholar model of Yeshiva’s leadership that had been in place since its founding in 1915 (all previous presidents had also been both rabbis and Ph.D.s), Lamm was also known for his righting of the school’s finances in the 1970s.

Yeshiva was on the brink of bankruptcy when Lamm took over, its financial misfortune owing to a mix of its own failures and the broader economic malaise in New York City and the country in the mid-’70s. Lamm brought in one of the lions of mid-century Wall Street, Gedale Bob Horowitz of Salomon, to serve on the school’s board and create an investment committee.

Lamm and vice president for business affairs Sheldon Socol made Yeshiva into perhaps the most well-endowed Jewish nonprofit in the country, and a leader among universities nationwide. When Yeshiva entered a quarter century of having Lamm at its helm, its investments passed the $1 billion mark—entering the school in an elite club of the top 10 percent of American universities by endowment value. (Most of the reporting and analysis in this article is of the institution’s entire investment portfolio, of which a majority, but not all, is classified as belonging to the school’s endowment, which is a special subset of a school’s assets made up of funds that are restricted for certain kinds of uses by the university. The larger investment portfolio also contains assets belonging to some of the school’s affiliates and related institutions, such as its rabbinical school, but investment allocations within the endowment are largely consistent with those for the investment portfolio as a whole.) Moody’s gave Yeshiva strong reports in 1998 and 2001, and the school was firmly ensconced in the top tier of universities in U.S. News & World Report’s annual academic rankings.

To cap his career, Lamm announced a $400 million capital campaign that would ensure he’d leave Yeshiva a future without the financial worry it had when he’d ascended the presidency. Then, in March 2001, he announced he’d be retiring, giving the board 16 months to find a successor before he would step down, after reaching a quarter century as Yeshiva’s president.

The Change

A battle for the future of Yeshiva was waged following Lamm’s announcement. At least eight board seats changed hands, as did multiple board chairs. The turmoil caused Yeshiva’s presidential search effort to go in circles; instead of installing a new president within 16 months, the process ballooned to two and a half years. What emerged was a team committed to leaving the old ways behind—a commitment that would devastate Lamm and Socol’s legacy. The new president, taking office in September 2003, would be Richard Joel, until then the president of the international Jewish campus group Hillel. Elevated from vice chair of the board of trustees to chairman a year later was Morry Weiss, former CEO of the American Greetings Corporation.

Students who enrolled at a school that had spent aggressively for 10 years find themselves at one where drastic budget cuts need to be taken and assets need to be sold off.

Without Lamm and Socol in charge, the school embarked on a very different direction. Where Lamm and Socol had left the school in a firmly conservative financial state, the new team, led by Joel and Weiss, would move into a higher-risk, higher-reward way of doing business.

For a few years it paid off, with tuition revenues and the endowment growing alongside spending. But increasing one’s risk exposure means that all those gains and the spending based on them can go away quickly—and it’s just that kind of event that began to wreak havoc on the school’s finances.

Between 2007 and 2009, the school’s investments lost approximately $525 million in value. Operating surpluses turned into annual deficits regularly exceeding $100 million.

While Yeshiva put out a message emphasizing its losses on investments with Bernard Madoff, the losses owing to its other behavior were several times as large. In failing to cut spending back to where it had been, or recoup its losses in the bull market that began in March 2009, the board allowed the institution’s finances to continue to diminish at a rapid pace.

Yeshiva ran its sixth consecutive multimillion-dollar deficit, $64 million, in 2013. Since 2008, the school’s deficits have totaled $470 million. Yeshiva’s investment portfolio stands lower today than it did in 2003, before Lamm and Socol left; after adjusting for inflation, the school’s investment portfolio has lost 23.5 percent of its value, or $324 million, under the new administration. The school is now $567 million in debt, according to Moody’s January 2014 report, with its bonds recently downgraded by the agency to junk status.

Ramping Up Risk

By far the most glaring change in Yeshiva’s financial approach was the decision to increase the risk-reward potential of its investment pool.

When Lamm announced his impending retirement in 2001, the school had an aggressive allocation to risky assets, with 46 percent of its endowment in a category labeled “alternative investments,” primarily hedge funds, private equity, and similar risky investment vehicles—a risk that was partially balanced by keeping fully 42 percent of the portfolio in U.S. Treasuries. Financial analysts refer to this as a “barbell” approach in which extremely low-risk assets hopefully counterbalance riskier ones. That alternative investments number crept up as the Lamm-Socol years ended and the new regime slowly took shape, hitting 50 percent in 2002.

But once the old leadership was fully locked out of the room, the younger generation playing with Yeshiva’s money started really gambling big. In the 2005 fiscal year, Joel’s first full year of control, the school sold off more than half of its Treasuries, commonly considered the safest investment around, plowing a portion of the proceeds into stocks and most of it into hedge funds. The school was now 65 percent in hedge funds, the third-highest allocation of any university endowment in the country. The only schools with higher allocations were Marine Biological Laboratory and The College of Wooster, which were small players in the world of endowment management (neither school’s endowment was even one-fifth the size of Yeshiva’s). Yeshiva had a greater concentration in hedge funds than 743 other schools. Suggesting just how far off Yeshiva’s approach was from the average university, only 11 other schools even had as much as 40 percent of their endowment in hedge funds; the average billion-dollar-endowment school chose to allocate 21.7 percent of its endowment to hedge funds that year, meaning that Yeshiva was more than three times as exposed to the risk of that asset class as its peers.

“The actions of the investment committee as you describe them sound highly irresponsible,” wrote financial adviser Simon Lack in an email. Lack is the author of a book on hedge funds and one on fixed income investments, and he ran a hedge fund operation for seven years at JP Morgan amid a near-30-year investment career. He continued that Yeshiva’s shift in strategy “sounds very poorly conceived” because increasing allocations to hedge funds in this way “completely fails to consider” the relative performance of hedge funds over time.

Alongside this increasing allocation to risky investments came an increasing reliance on debt to finance new projects—leveraging Yeshiva’s future on the hope that investment growth could outrun its debts. Yeshiva issued $100 million in new bonds in 2004 to build a biomedical research facility and other projects, without first securing a donor to sponsor the building. In a letter Weiss wrote in 2006 to a fellow board member about another construction project, he cited a meeting with Horowitz in which the latter argued for financing more construction with debt, because “it is more efficient to use debt than to spend down” cash available for construction projects. The 2004 debt issuance led to a drop in a key metric for Yeshiva’s ability to eventually pay off its debtors: Its ratio of “expendable resources” to debt had dropped from 5.4 in 2001 to 3.8.

Over this period, the allocation away from the safe investment in Treasuries continued to dwindle from its onetime peak of $505 million to $41 million, and the allocation to alternative investments continued to grow, surpassing 80 percent of the school’s portfolio during the first half of 2008. By this point, Yeshiva’s endowment was essentially one large hedge fund.

Weiss expressed satisfaction with the high level of risk in a March 2007 email he wrote to the school’s vice president of development, on which he copied Joel and Ezra Merkin, chair of the investment committee: “I believe that Ezra is of the view (and I agree) that for a whole host of reasons we ought not, at the present time, consider changes to our investment philosophy.”

Spending What Wasn’t There

Spending grew alongside risk, 68 percent between 2001 and 2008, with greater than an 88 percent increase in six of the school’s eight major categories of expenses.

This was out of line with its revenues, which only grew 25 percent over the same period. One portion of spending that increased more than three times was the president’s compensation: According to documents the school filed with the IRS, where Lamm had earned just under $344,000 in his final full year as president (2002), in recent years Joel’s total compensation has reached $1.2 million. Nonetheless, the school was still producing small surpluses.

But it was how this leadership expanded revenues and spending that exposed it to a great amount of downside risk.

Every nonprofit institution must adhere to federal regulations around what’s called a “spending rate.” A typical nonprofit must spend at least 5 percent of its endowment’s value every year, reflecting the overall mission of an organization that gives more than it takes. Yeshiva had a spending rate, 5.5 percent, just a bit higher. That could be justified in the old days because of its lower-risk investments and its great buildup of cash and cash-like holdings.

Yeshiva University President Richard Joel, center, with Nobel Peace Prize winner
Elie Wiesel, left, and former White House Chief of Staff Jack Lew in 2012.
(Photo: Tim Boxer/Getty Images)

Under Lamm and Socol, that 5.5 percent spending rate came mostly out of the cash returns of conservative investments. Interest and dividends comprised 98 percent of the spending rate in 2000, 94 percent in 2001, and 79 percent in 2002, the last full year of Lamm’s tenure.

But riskier investments don’t produce dividends and interest; that’s part of what makes them riskier. Moving to a riskier asset class like hedge funds means relying more on the investment to grow in value—seeking so-called paper gains that are meaningless unless one can cash out at the right time.

Instead of using cash that would come in every year from conservative investments to fund Yeshiva’s spending rate, the school’s new leadership increasingly relied on these paper gains to fund its operations.

Paper gains were less than 2 percent of Yeshiva’s spending rate in 2000 and less than 6 percent in 2001. As with the switch from Treasuries to hedge funds, the increase in spending paper gains started gradually, first to 20 percent in 2002 and 29 percent in 2003. But in 2004, spending on paper gains spiked to 72 percent, and it hit 84 percent in 2007. By 2009, virtually all of Yeshiva’s spending rate, 96 percent, came from paper gains.

Between 2004 and 2009, Yeshiva spent $314 million it didn’t really have, paper gains on its extremely risky investment portfolio. Owing to a quirk in nonprofit accounting, the spending rate is recognized as operating revenue. So while Yeshiva looked like it was bringing in enough money to cover expenses, the great fall of Yeshiva’s investments during the financial crisis demonstrated that Yeshiva had in reality been spending more cash than it would ever bring in, and actually running deficits, going all the way back to 2004.

According to Lack, “The high concentration of hedge funds also seems at odds with their need for a certain amount of liquidity.” Yeshiva could have addressed this liquidity problem by decreasing its spending rate when it came to invest more heavily in alternative investments, or by drastically cutting spending when its investments dropped precipitously in value between 2007 and 2009. Yeshiva chose to do neither.

“When you manage an endowment, you have to worry about being able to make payments the university’s expecting, and they didn’t do that,” said Jonathan Berk, professor of finance at Stanford University’s Graduate School of Business, in a phone interview.

This financial house built on sand was reflected in the school’s balance sheet. When Moody’s in 2008 said the school had “healthy balance sheet growth” despite the drop in its ratio of expendable financial resources to debt, what’s really reflected is that Yeshiva was increasingly cash-poor.

Moody’s coverage of Yeshiva’s debt is a revealing manifestation of Wall Street’s myopia in the boom years of the last decade. In 2004, despite the 30 percent decline in the school’s ratio of expendable resources to debt, Moody’s report on the new bonds upgraded Yeshiva’s debt. That was the last adjustment Moody’s would make regarding the bonds until the school’s finances were already in deep trouble, fully five years later. Even as the storm clouds of the global financial crisis were gathering, Moody’s reaffirmed Yeshiva’s high credit rating in May 2008. Yet the school’s expendable financial resources to debt ratio had dropped even further by then, to 3.1 from 2004’s 3.8.

Between 2004 and 2009, Yeshiva spent $314 million it didn’t really have. Yet credit rating agency Moody's continued to reaffirm its high credit rating.

In the May 2008 report reaffirming its rating, Moody’s listed the school’s investment approach as a “challenge” and cited its “increasing dependence on investment income...combined with high allocation to alternative investments and heavy reliance on board members for investment management and oversight.” That wasn’t enough for the credit rating agency, a for-profit company that receives a large share of its income as fees from the institutions whose bonds it evaluates, to downgrade Yeshiva’s bonds, though. Instead, it touted the school’s additional investments in real estate just as that market was peaking and many were calling it a bubble: “Although the capital spending ratio has been high in recent years...much of the spending has been on strategic acquisition of properties and a significant amount of construction and expansion,” the agency wrote.

Moody’s didn’t do anything about Yeshiva’s credit rating until after Bernard Madoff turned himself in to federal authorities in December 2008. A few days later, Moody’s announced it had placed Yeshiva on a “watchlist for possible downgrade.” Moody’s finally downgraded Yeshiva’s debt four months later—but only to the very high level of Aa3 it had held under Lamm and Socol. Following years of maintaining the school’s high rating without issuing any new reports—while Yeshiva ramped up risk in its investments and spent hundreds of millions of dollars based on paper gains—in 2009 Moody’s expressed “concerns about the University’s investment management and oversight.”

Suddenly, what had been cause for little concern when the global economy was rolling along became—in the world after Lehman Brothers went bust, the financial industry collapsed, and Madoff revealed himself as a fraud—reasons for a downgrade. In the financial world, the analogy given for stimulating increased risk and spending is a punch bowl; extending that analogy, Moody’s was ladling out tall glasses to investors and others who rely on Yeshiva’s financial integrity well after the party should have been ended. By the time Moody’s pulled back the punch bowl, the hangover had already set in. As if to make up for its years of continuing to issue high ratings for the school’s bonds as its financial position was by some important measures becoming weaker and weaker, Moody’s has issued nine reports on the school in the five years since the beginning of the financial crisis and downgraded Yeshiva’s debt six times, downgrading it to junk in January.

Yeshiva’s leadership did plenty to earn those additional downgrades. Instead of responding to the crash by cutting expenses, the school increased spending even more. Between 2007 and 2013, annual spending grew by $176 million, or 33 percent; revenues grew only 18.7 percent. Instead of benefiting from a stock market boom that’s seen the S&P 500, a broad index, rise by more than 128 percent over the past five years, Yeshiva’s investments have seen anemic growth.

Ezra Merkin, fund manager of Ascot Partners, which acted
as a feeder fund for Bernard Madoff's Ponzi scheme.

(Photo: Wikipedia)

Conflicts of Interest Abound

Yeshiva’s change in investment and spending policy was of a piece with the philosophy of its new board, one that particularly elevated hedge fund executives within its ranks. Those executives came to treat Yeshiva itself more and more like a hedge fund. When the hedge fund that was Yeshiva University met with a conflict of interest policy drafted for a different kind of time and a different kind of people, the consequences were many.

Conflicts of interest were frequent for Yeshiva’s board. Operating on a policy first drafted in 1993 and then re-approved in subsequent years without any significant changes until 2008, the school freely allowed members of the board and its committees—including the investment committee—to conduct business with the school. As Socol put it in a deposition given to the New York state attorney general’s office as part of its investigation into Merkin and Madoff, transcripts of which were obtained by TakePart in association with The Jewish Channel, there was no prohibition on conflicts for board members doing business with Yeshiva because “that would rule out the best people in New York City.”

That 1993 policy ran two and a half pages and simply required that those doing business with the school “at the first knowledge of the transaction, shall disclose fully the precise nature of the interest or involvement.”

While the policy also declared that board and committee members “should not participate in the discussion nor vote on any matters if they themselves are in any way involved,” this rule often found exceptions—especially for the investment committee—as part of Yeshiva’s standard practice.

Going back to the very time period in which the original conflict of interest policy was drafted, the investment committee routinely discussed and voted on its investments in Ezra Merkin’s Ascot Partners—a “feeder fund” to Bernard Madoff’s Ponzi scheme—despite that Merkin was chairman of the investment committee and led meetings and votes without recusing himself. Merkin earned typical hedge fund fees while his firm managed a portion of Yeshiva’s investments at the same time that he was investment committee chair, between 1993 and 2008; Yeshiva’s investments with Merkin were consistently well more than $100 million after 2000. In total, according to Yeshiva records that have survived from this period, Merkin’s firm appears to have earned more than $20 million from Yeshiva over the course of his 15 years chairing the investment committee.

Merkin’s fees are an example of how little concern there was when the investment commitee chairman’s earnings were the topic of conversation. In 2002, he announced to all investors that he would be increasing his fee for Ascot by 50 percent, justifying the claim by saying that he was contemplating a new trading operation that would require investments in computer hardware and software. For an old warhorse of Yeshiva’s investment committee such as Gottesman, this kind of move required justification, and, according to minutes of that investment committee meeting, “Mr. Gottesman asked Mr. Merkin to elaborate on the reason for the fee increase.” But Merkin was able to duck the question, according to the minutes: “Due to additional scheduled presentations, Mr. Merkin asked Dr. Socol to add Ascot Partners as an agenda item for the next meeting.” But as Horowitz and others recalled in later testimony, the issue never was revisited; the school simply started paying Merkin those higher fees.

Indeed, it appears that the trustees could view conflicts of interest as a reason to bring someone on the board or its investment committee. Redwood Capital’s Jonathan Kolatch joined the investment committee in 2003, after his fund proved a good investment for $20 million of Yeshiva’s money for the prior three years. Millennium Partners’ Israel Englander joined the board after years of managing at least $50 million of Yeshiva’s money going back to at least 2002. By January 2008, the investment committee had at least two more members who were hedge fund managers and had Yeshiva money invested in their funds: Daniel Schwartz of York Capital Management and Lonnie Steffans of Spring Mountain Capital.

Conflicts of interest generating significant personal returns for board and committee members abounded during the Lamm-Socol era, amounting to more than 5 percent of the school’s operating budget in 2000.

For the first several years of the new administration, conflicts continued without interruption. There was a shift of the balance of conflicts somewhat away from the real estate deals of Lamm and Socol's era and toward more hedge fund investments that required disclosure—primarily with Kolatch and Merkin.

In a letter to Joel from July 2005, Weiss wrote that he’d done a limited investigation into the conflicts policy. “As best as I can determine,” Weiss wrote, “YU is currently operating with an opinion given by [board member and lawyer] Ira Millstein” that essentially rubber-stamped the approach Yeshiva had been taking to that point: engaging in many conflicts but disclosing them. In that letter, Weiss recommended that Yeshiva continue the approach, writing, “I am comfortable being guided by [Millstein’s firm’s] legal position.” That firm, Weil, Gotshal & Manges, annually billed Yeshiva for $200,000 to $500,000 of work for many years, according to conflict of interest reports.

Weiss’ tune began to change in 2007, but not because he was concerned about the nature of the school’s governance or the increasing concentration of its investments in hedge funds—including ones run by investment committee members. Rather, Weiss fretted about being in compliance with potential federal regulations regarding conflict of interest that could result from the Wall Street reform law known as Sarbanes-Oxley. “We were convinced that Sarbanes-Oxley would eventually apply to the not-for-profit world,” Weiss testified in a lawsuit he filed against Merkin, adding that a committee was formed “to take a look at how do we deal with conflicts going forward.” Sarbanes-Oxley never came to include those regulations, but Weiss proceeded as if they would.

Rather than design a uniform conflict of interest policy from on high, Weiss sought Merkin’s input to try to create a policy that would behoove the investment committee chairman and the members he governed. In a May 2007 email to Merkin, Weiss explained the process he was using to create the overall conflicts policy within the university’s governance committee while at the same time beseeching Merkin to help him create a policy that would find agreement with the investment committee. “I still believe the wisest course of action dealing with the Investment Committee is for you and I to work out a process along the lines we have been discussing and gain support for that going forward,” Weiss wrote.

The new policy would leave investment committee members free to invest in their own funds—they simply wouldn’t be allowed to keep their personal shares from the fees of those investments.

It appears that this policy had a loophole that allowed board members to advance their interests: Their firms and partners could benefit directly, even if they could not. As Weiss explained in a January 2008 memo, he was seeking agreement on the policy of having investment committee members donate the fees they’d earned, and he’d succeeded in finalizing a deal with Daniel Schwartz of York Capital Management in which, “To avoid appearances of conflict, he agreed to contribute at least his income derived but can’t do that for his partners, who have no involvement with Yeshiva.”

Indicating further how little concerned Yeshiva’s board was with conflicts of interest at the same time that it pursued a new policy under Weiss and others, Yeshiva didn’t get around to issuing a conflict of interest report for 2005 until 2007. According to records Yeshiva and others have disclosed in recent lawsuits relating to board members’ personal investments, Yeshiva went from delaying the preparation of conflict of interest reports to perhaps failing to prepare the reports at all: It appears that Yeshiva didn’t even bother producing conflict of interest reports for 2006, 2007, or 2008.

A Close and Complicated Relationship

While Weiss was crafting a conflict of interest policy that would avoid potential government scrutiny, he had a significant conflict of his own: He was simultaneously communicating with Merkin as chairman of Yeshiva—and thus Merkin’s superior on Yeshiva’s board—while having “a third of my net worth” invested with Merkin, according to court testimony—and most of his communication with Merkin was about those investments. There was a mix of cajoling and starry-eyed admiration from Weiss in their communications, as he would express wonder and awe at Merkin’s investment returns (which were a chimera concocted by Madoff), oversee him as chairman of Yeshiva, speak of their friendship, and look to him for personal investment advice.

Weiss and Merkin would meet individually more than 50 times between 2000 and 2008 to discuss Weiss’ investments—both those in Merkin’s own funds and other investments Merkin would recommend. He expressed glee at Merkin’s investment returns for his family and for Yeshiva, emails show. As a bar mitzvah present for Merkin’s son, Weiss flew most of the Merkin family in to Cleveland to enjoy a series of Major League Baseball games with Weiss and his family. Weiss took the opportunity to throw a party to introduce the cream of Cleveland’s Jewish society to the man he considered an investment guru.

Moving Forward

Despite the existential threat from the financial losses that occurred during his tenure as president of Yeshiva, Joel seemed a happy man on Sept. 12, 2012. In a glamorous display of the school’s approach under his leadership, Joel delivered a State of the University Address to a standing-room-only crowd of students that was broadcast live over the Web to accompanying graphics.

Joel announced record-setting enrollment figures for incoming classes and boasted of his performance: “Over the past nine years we have labored to build a first-rate educational product here at Yeshiva, and the public perception has finally caught up with that product.”

As he spoke, Yeshiva was preparing the financial filings that would announce the fourth of five consecutive years averaging a deficit of nearly $100 million.

Yet Joel declared, “The state of Yeshiva University is sound, it is strong, and it is poised for tomorrow.”

In the speech, Joel announced that the board had rewarded him with a six-year contract extension.

This content was produced in association with The Jewish Channel and TakePart’s parent company, Participant Media, which is collaborating with Samuel Goldwyn Films on the distribution of the documentary Ivory Tower.