Hollywood players don’t make money in conventional ways. Neither do they invest it by the book, often relying instead on a network of personal relationships.
The $50 billion loss of scam artist Bernard Madoff, which has now ensnared Jeffrey Katzenberg along with a range of other funds and individuals with ties to showbiz, points up a timeless occupational hazard. In a relationship-driven business, sometimes friends can turn out to be anything but.
Gerald Breslauer, a financial adviser whose clients have included Barbra Streisand and Michael Jackson, reportedly steered Katzenberg and a charity tied to Steven Spielberg toward Madoff. Breslauer himself is said to have lost a significant amount of money.
Madoff joins Reed Slatkin, David Begelman and Dana Giacchetto in the annals of Hollywood fraud. Giacchetto, whose ill-gotten memorabilia collection was just auctioned off by a Gotham bankruptcy court last week, fleeced a roster of A-listers including Leonardo DiCaprio and Tobey Maguire.
Begelman, onetime Columbia chief, admitted to forging checks. Slatkin, a co-founder of Web company Earthlink, pleaded guilty to fraud and money laundering.
The Madoff affair has added an unsavory twist, which is the fact that the perpetrator is alleged to have targeted a disproportionately Jewish client base that was his principal social milieu. In addition to Spielberg and Katzenberg, victims include publishing magnate Mort Zuckerman, Yeshiva U. and Elie Wiesel.
“Karmically, I can’t imagine anything worse than stealing money from Elie Wiesel’s foundation,” said Marg Tabankin, a philanthropic adviser to high net-worth individuals and foundations in Hollywood. “It’s just so horrible.”
Madoff, like many in the loosely regulated realms of hedge funds and individual money management, hid the fraud in plain sight for years. It was a family business, allegedly involving Madoff’s wife. Sons Mark and Andrew have been exempted from prosecution because they turned their father in.
The charity circuit, already squeezed by the economy, has felt an additional ripple effect because Madoff was a fixture in that world. Charities such as the Jewish Federation of Los Angeles and the Chais Family Foundation have lost millions.
“How could he be so smart to do it alone?” asked Barbara Davis, whose childhood diabetes charity did not invest with Madoff. “Or did he do it alone? How could a man be up 24 hours a day moving money alone?”
One person with knowledge of the alleged scheme said Madoff, a former Nasdaq chairman and legendary trader, had an excellent track record until the 1987 crash. After that point, he began the Ponzi structure of using investments to pay for other investors’ returns, claiming double digit gains compared with rivals’ 5%. In a bull market, many friends jumped at the chance to make more money, especially from someone regarded as a friend.
“This is like a bad Catholic priest stealing from the pope,” the insider said. “How low can you go?”
(Bill Higgins and Anne Thompson contributed to this report.)