This has been a year full of collapse and scandal in the world of finance. But the revelation that Wall Street legend Bernie Madoff ran a $50 billion Ponzi scheme tops the lot. The losses – which may be most or all of that $50 billion – are likely to hit philanthropy particularly hard, especially Jewish philanthropy.

Madoff was a prominent New York philanthropist. This may have helped him become close to other wealthy folk, especially in the Jewish community, where philanthropy is a high-profile activity. Much of his new business came via personal recommendation to friends by existing clients, which may explain why people asked so few of the basic common sense prudential questions that everyone should consider when appointing a manager for their money. Madoff seems to have been particularly popular at country clubs, such as the Palm Beach Country Club in Florida, where a commitment to give was a condition of membership.

More names of those who have lost money in the Madoff Ponzi scheme are certain to become public as this week goes on. Some of them will be well known philanthropists, who will be unable to continue their giving, which will have a big impact on many non-profits and the needy people they help. Hopefully, other philanthropists will step up to fill the most obvious need gaps.

Already, it has been reported that the Foundation for Humanity, established by Elie Wiesel, the holocaust survivor and Nobel laureate, and Steven Spielberg’s Wunderkinder Foundation, invested with Madoff.

The painful lesson in all this is that philanthropists, like everyone else, should do proper due diligence when investing their money. The fact that they are giving money away does not reduce the need for due diligence; rather, the fact that needy people will come to depend on it increases the responsibility of the philanthropist to properly check out whoever is trusted with looking after the money. Indeed, sad to say, if the money manager is a reassuringly high profile philanthropist, the due diligence should probably be even more thorough than usual.

Tags: Elie Wiesel, Jewish philanthropy, Madoff, Steven Spielberg

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