It started with a pump-and-dump stock scam and, despite sanctions, grew from there to make haredim Michael and George Karfunkel incredibly rich and, on the books at least, very generous. But a new report by the Southern Investigative Reporting Foundation has found that much of that charity may really have been a ploy to protect family stock shares and, by doing so, falsely elevate their value while maintaining family control. The value of much of the stock the Karfunkels gave to various family charities and trusts seems to have been inflated to benefit the donors, and other irregularities exist. And when the Karfunkel's money does reach charities, where does it go? Overwhelmingly to Belz hasidim.
Roddy Boyd of the Southern Investigative Reporting Foundation reports:
Imagine you and your younger brother are poor Jewish kids in mid-1950s Hungary. Unlike so many, you managed to avoid the Holocaust only to be swept up in a bitter revolt against the cruel Soviet occupation government.
The revolt fails, and like tens of thousands of your countrymen you leave your homeland and its bloodshed, and manage to make your way to New York and a new future.
Your name is Michael Karfunkel, your younger brother is George and, fast-forwarding almost 60 years, your future is something Horatio Alger wouldn’t have thought possible.
Quiet careers in business, at the periphery of Wall Street, New York real estate and the insurance industry, with an aversion to publicity that is rarely seen, have made both men billionaires, according to Forbes magazine.
Like many rich people, the Karfunkels opened non-profit foundations to share their good fortune. Through the donation of large blocks of AmTrust Financial Services shares — an insurance concern they built in the 1990s — their foundations have amassed considerable size as the share price rose: by the end of 2013 Michael Karfunkel’s Hod Foundation had assets of $286 million; his brother George’s Chesed Foundation of America had assets of $293 million.
(Their foundations give almost exclusively to yeshivas and synagogues connected to Haredi Judaism, many of which are affiliated with the Belz Hasidic sect.)
And this is where the story would normally end: a miraculously successful pair of brothers who, in their later years — Michael is now 71 and George is 65 — have the rare privilege of seeing their fortunes put to good use.
Except that taking a hard look at how these foundations operate leaves a lot more questions than answers.
For three months the Southern Investigative Reporting Foundation analyzed the foundations’ publicly available documents and what we found was that good intentions aside (Hod means “prayerful submission” in Hebrew and Chesed translates to “loving kindness,”) regulatory filings indicate that the foundations, while generously supportive of the Belz Hasidic community, have become key instruments in furthering the Karfunkels business interests.
Unfortunately for them, based on SIRFs analysis, it appears that their management of their foundations may expose them to regulatory scrutiny and possibly force them to sell a large amount of their foundation's AmTrust shares, creating a material concern for company shareholders.
What follows below is how lax regulation and imprudent management turned the capstone of the American dream into what may be the first act of an American nightmare.
The Karfunkel brothers non-profit foundations reflect their unusual tolerance for risk.
George and Michael Karfunkel’s first attempt at making their way on Wall Street is illustrative. Employees at a mutual fund boiler room called Economic Planning Corp., their bid to diversify the firm into the capital markets ended with them in the center of a wide-ranging pump and dump scam that collapsed in 1971. Never disclosed in their AmTrust filings, the Securities and Exchange Commission injunction and suspensions they received hardly set them back.…
Read it all, including the Karfunkels' responses, here.