Madoff Scandal Hits DOE

June 12, 2009 (GBN News): A large number of NY City charter schools have been secretly funded by convicted swindler Bernard Madoff, GBN News has learned. Sources at the NY City Department of Education, speaking on condition of anonymity, said that in a deal made roughly three years ago with the DOE, Mr. Madoff attracted private financing for the schools by persuading his clients to invest in NY City students’ test scores.

Mr. Madoff reportedly managed to convince his clients that there is an inherent financial value in test scores, and that their value appreciates as the scores rise. Citing the significant increases in scores reported by the DOE, he told his investors that they would stand to gain at least ten percent per year on their money. Mr. Madoff then used the financing put up by newer investors to pay off the original ones.

Schools Chancellor Joel Klein and Mayor Michael Bloomberg, according to the DOE sources, were enthralled with Mr. Madoff’s plan and signed on immediately. In fact, the sources said that the main reason the DOE paid $80 million for the ARIS computer system was for Mr. Madoff to track test scores for his investors.

Mr. Madoff’s arrest late last year touched off a major panic at the DOE. While his arrest was for an apparently unrelated matter, there was concern that even if the test score scheme managed to escape scrutiny, the charter schools’ major source of funding was certain to dry up. This may explain in part why charter schools are now being placed almost exclusively within public school buildings, to save money that had been counted on from Mr. Madoff.

J. Fredrick Runson, chairman of the Education Department at Manhattan University and one of the country’s foremost experts on educational Ponzi schemes, was not surprised at this new revelation. “It’s inevitable,” he told GBN News, “that when such an inflated value is put on something the way they did with test scores, people will try to twist it to their advantage. It was the perfect opportunity for Madoff. Klein and Bloomberg are so convinced that test scores are equated with success that they obviously fell for the investing scheme hook, line and sinker. And when Madoff told them it could fund charter schools, he had them eating out of his hand. Actually, the whole thing is kind of reminiscent of Ollie North and Iran/Contra – using one dubious plan to fund another.”