February 21, 2020; Forward
When a nonprofit’s financial status turns a glowing red, its board is faced with an existential moment. Should the nonprofit cut its losses, wind down operations, and go out of business as gracefully as possible? Or should it continue to search for sources of funding large enough to wipe out the debts and find a way to sustainability? Turns out that even if supporters do step forward, the worries may not be over. That’s the story of the Lubavitch Educational Center (LEC) in Florida.
Forward’s Molly Boigon writes that in 2013 the LEC was seriously past due on an $8 million loan and facing multiple foreclosures. The organization’s leadership, not ready to give up on its commitment to its students and close its schools, successfully found new philanthropic support to cover its operating losses. A generous group of benefactors banded together and purchased the LEC’s property at a foreclosure sale. They then provided the organization with an affordable long-term lease and sufficient funds to satisfy other debts so the LEC could continue serving its students.
Seven years later, that generosity seems ready to bite them. The Center is facing a problem that plagues nonprofit organizations of all sizes: what to do when a source of critical funding turns out to be tainted.
Two of the donors who saved the LEC, Mordechai Korf and Uriel Tzvi Laber, have been implicated as participants in a major international money-laundering scandal. The current owners of the Ukraine-based PrivatBank are suing the bank’s former owners, alleging they absconded with $470 billion—yes, with a “b”—through a complex set of fraudulent transactions. Korf and Laber, who were part of that ownership group, have been accused of illegally profiting from those financial manipulations. According to Forward:
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The 2019 lawsuit by PrivatBank’s new owners accuses Korf and Laber of racketeering, conspiracy, and fraud in what it and the National Bank of Ukraine report the year before described as a scheme involving hundreds of fraudulent loans, a complicated network of dozens of shell companies in Delaware and elsewhere, metallurgical assets and commercial real-estate transactions in Cleveland. Weeks of investigation into Korf and Laber turned up new questions with each answer. It is unclear how they made their money; their businesses are nearly all implicated in the bank scheme.
The lawsuit says “Korf and Laber owned and managed shell entities in the United States and bought other businesses using laundered money,” netting many millions in the process.
The Forward notes that tax filings show Korf and Laber each serve as president and CEO of their own family foundations which, between them, “gave more than 160 Jewish nonprofits about $25 million” between 2006 and 2018. Neither foundation has met the legal requirement of registering in Florida.
Through their attorney, Korf and Laber deny everything. They took part in no illegal transactions, their wealth was honestly acquired, and the allegations “will be shown to be complete fabrications when the evidence in this case comes out.” Still, the lawsuit moves forward. If the courts find them liable, LEC and other charities may be required to return funds donated by Korf and Laber.
While there may have been no way for the LEC to know how problematic their benefactors were when the gifts were made, the organization must confront its future choices: Should it await the end of the lawsuit before taking any action? Can it make sure it has sufficient reserves to meet any potential court-ordered repayment? How will it handle the public relations issues they now face? These problems are not of the organization’s own making, but they are on its agenda nonetheless. How the group chooses to respond will be as critical to its future as the plight it faced seven years ago.—Martin Levine