World According to ... Curtis Welling

As the chief executive of AmeriCares, one of the planet's premiere philanthropies, Curtis Welling oversees the distribution every year of hundreds of millions of dollars worth of medical supplies and services to the poverty-stricken and war-torn pockets of the Third World, but also to poor Americans at clinics in the Unites States.

The 59-year-old Welling, who has been running the private nonprofit since 2002, is doing good after doing well, having spent a quarter century accumulating a fortune on Wall Street (and getting to know Bernie Madoff in the bargain).

"He was just a very hard-driving, successful, creative equity business guy," Welling told Portfolio.com about his former colleague in an exclusive interview from AmeriCares' Connecticut headquarters. "I never had any reason to question any of his business principles.... I suspect what happened here was he had a trading strategy that went bad fairly early on in the game, and he just kept trying to trade his way out of it and it got worse and worse and worse."

Lloyd Grove: Let me begin by wishing you a Merry Christmas and a happy holiday.

Curt Welling: Thank you very much and the same to you. It's obviously an interesting holiday season.

L.G.: It is. I'm looking at your annual report and year over year, 2007 to 2008, you had a pretty significant uptick in donations, mainly in-kind but also cash and securities. What's going to happen next year, given the financial meltdown?

C.W.: I guess I would say a couple of things. 2008 was a high-water mark year in many ways for us as you suggested, and the image of 2008 gets smaller and smaller in the rearview mirror with each passing day. I'm sort of looking at it fondly the way one looks at a quaint little town one's driven through as one heads down the road to some unknown but perhaps less hospitable destination.

L.G.: Watch out for that 18-wheeler overturned on the highway, Curt!

C.W.: Exactly. We don't know what the road's going to be like, don't know what the traffic's going to be like, and don't know what the weather's going to be like. The period we're in right now is obviously the period of maximum uncertainty. It's uncertain because we're in the transition to the new administration, because we're uncertain with respect to who the leadership is going to be in the new administration, we're uncertain what their policy priorities are going to be-we're uncertain about what the economic environment is going to be. And so we're reflecting that uncertainty in everything we're doing here to think about how we're going to deal with 2008. It seems to be a virtual certainty that charitable contributions and philanthropy will be down this year as they only have been a few times since the Depression, and everybody's wrestling with the question of how much. The problem that creates for us is that we're in the season when typically philanthropy would be at its peak for individuals. And, as you know, AmeriCares is entirely supported by private entities-individuals, foundations, and corporations. We don't take any money from the government, so our uncertainty is a little more complicated than some other people in our space.

L.G.: Do you think you'll be affected at all by the Bernie Madoff debacle?

C.W.: I think it's part of the frame, isn't it. I don't know of any particular donors to AmeriCares who have had their wealth managed by Bernie Madoff.

L.G.: "Managed." That's a very charitable term.

C.W.: Yeah. I know Bernie. In my previous incarnation, a long time ago, I had the opportunity to spend some time with him.

L.G.: Is that when you were working for that quaint little town called Bear Stearns?

C.W.: It was actually before that-that quaint little town called First Boston. And this is just incredibly sad on a whole bunch of levels. This is going to sound like a funny thing to say, he doesn't need any defense from me, but I don't think he started out to create a criminal enterprise. I think he's like a lot of people that find themselves doing something they shouldn't do, and rather than deal with the consequences at the beginning when they might be trivial, he tries to figure out a way to bury them, and make things right and it just gets out of hand. And obviously this got out of hand in a spectacular way, but I don't think there's anything that's going to affect AmeriCares particularly as a result of that. We didn't have any money with them. I'm sure there may be some of our donors that had money with them, but I doubt very many. So this is just another odd picture in what is becoming sort of an odd montage this year. And I don't think anybody has a lot of conviction of exactly where it's going to come out.

L.G.: You got to know him when you were at First Boston. Give me your sense of the guy, and in what capacity was First Boston doing business with him?

C.W.: I was running the equity business and he was running a very significant over-the-counter brokerage business. We worked in the same industry together, and his firm was well known to be one of the most aggressive and successful over-the-counter trading firms. He was very creative. He was actively involved in creating the Cincinnati Stock Exchange as an alternative execution venue to the New York Stock Exchange. There's a lot of inside baseball here, but there was a time when you could only trade New York Stock Exchange stocks on the New York Stock Exchange, so when people were looking for ways to make money, create different execution forums, Bernie was very creative in developing the Cincinnati Stock Exchange as an alternative, and he was just a very hard-driving, successful, creative equity business guy. I never had any reason to question any of his business principles. His
firm was very a reputable, stand-up firm to deal with and they were a very big player in the over-the-counter securities market.

L.G.: I'm not a sophisticated investor. I have a 401(k) that, I have to admit, when the envelopes come with the statements in them, I can't even bear to open the envelopes anymore.

C.W.: That shows good judgment actually. My advice to you would be you take the envelopes and don't open them for about a year to 18 months. Everything will be fine then.

L.G.: So explain to me how ostensibly smart, knowledgeable, sophisticated people, including people who put their money with Madoff, thought it reasonable that in all kinds of market conditions, they should be getting 8 to 9 to 15 percent returns on their money year after year without deviation.

C.W.: Of course, it's why people like fairy tales, because they make you feel good even though you know they're not true. There's a quality in the investment community which is sort of like the willing suspension of disbelief-that everybody wants to believe that someone's found the ability to repeal the laws of gravity. And so, when people
are ratified by the stature of other investors who preceded them, they suspend their disbelief and their critical faculties because they want to believe and because they're a little greedy, and they go along. This is a spectacular example of a story that's older than the hills. The same phenomenon, you may recall, happened maybe 10 to 12 years ago with an amazing fundraising Ponzi scheme that had swept up, among other people, several senior partners at Goldman Sachs. I think John Whitehead might've been on the board of this organization where some fellow whose name I've forgotten, went around to a bunch of very high-profile charities and said, "I've got a great, committed group of investors who are social philanthropists who want to be anonymous, so if you give me $100,000, I'll give you back you $100,000 and 25 percent interest on it in six months."