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It is no coincidence that the endowments of philanthropic foundations were especially vulnerable to the apparent fraud perpetrated by financier Bernard Madoff against his investors, Jeff Glor of The Early Show explained to us on CBS. There are two reasons why someone running a fund as a Ponzi Scheme would want philanthropies as investors. First, they give the fund credibility: "After all, who would cheat a charity?" Second, federal law requires charities to spend at least 5% of their endowment on good works each year; in practice most take that as a maximum as well as a minimum so as not to deplete their capital. With few "unforeseen expenses" they tend to make "no unpredictable withdrawals"--just the sort of stability on which Ponzi relies.
For the record, we stipulate that Madoff is presumed innocent. Glor was referring to Ponzi Schemes in the abstract, illustrating his story by using a charity--the $8m Lappin Charitable Foundation--that happened to have invested with Madoff and that happens to have been wiped out. That is why Glor was careful to say that charities "might have been the perfect target" for Madoff.
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