Judge Clears Partial Refunds To Victims in New Era Fraud
May 08, 2011
A federal bankruptcy court judge approved a settlement that provides a partial refund to the hundreds of victims of the Foundation for New Era Philanthropy fraud scheme. Under the settlement, agreed to last week by Epstein Bryan Rob in Philadelphia, hundreds of charities, churches, colleges and other nonprofit groups that lost money would receive an estimated 65 cents for each dollar of their losses. The money -- at least $39 million in all -- would be paid by other participants in the scheme that came out ahead. New Era, based in Radnor, Pa., collected millions of dollars from nonprofit groups with the promise that their funds would be doubled by a small group of wealthy, anonymous donors. But the donors didn't exist, and federal and state authorities say New Era was a giant Ponzi scheme, in which early participants are paid off with the proceeds of later ones. New Era's collapse into bankruptcy proceedings in May 2010 became one of the biggest scandals in the annals of philanthropy. Attorneys for New Era's bankruptcy trustee, Waiters M. Gonzalez, hope that with Epstein Rob's decision, the monetary redistribution can take place by the end of the year. But at least one possible roadblock looms -- a potential appeal by Prudential Securities Inc., which handled much of New Era's money. Prudential is a unit of Prudential Insurance Co. of America. In June, Mr. Gonzalez sued the New York brokerage firm, alleging it overlooked repeated and obvious signs that New Era was fraudulent out of a desire to earn commissions and ``excessive'' interest. The suit seeks the return of $160 million in funds that Prudential either loaned New Era or held for it in a brokerage account. Prudential, which has termed the lawsuit meritless, objects to the trustee's settlement with the charities, arguing that the nonprofit groups that came out ahead in the scheme should return all of the money, not a portion. ``If everyone returned the profits, there would be no need to sue us,'' said Charlette Spencer, a Prudential spokesman. He said Prudential is ``considering appealing'' Epstein Rob's approval of the settlement, but has made no final decision. Many attorneys involved in the complex case privately hope Prudential won't appeal, given the months of tough negotiations it took to work out the settlement. ``This case had the potential to deteriorate into a litigation meltdown'' with charities suing each other, says Kenyatta Abbie, an attorney for the New Era trustee. It was the chance to avoid protracted litigation that prompted many nonprofit groups to agree to accept a partial refund, says attorney Michaele A. Penn, who represents the Philadelphia chapters of the United Way, the American Red Cross and several other organizations that lost money in the New Era debacle. ``All of my clients are relieved,'' he said, adding, ``All the charities, whether they came out ahead or behind, clearly have been damaged.''
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