Foundations that lost billions ofdollars investing with Bernard L. Madoff could face sizable finesfor failing to exercise sound judgment, according to the New YorkTimes.

Under an obscure tax rule, private foundations can be penalizedfor failing to vet their investments properly, heed red flags ordiversify prudently.
The penalty can equal 10 percent of the amount invested during thetax year in question. If the foundation fails to try to recover thefunds, there is an additional 25 percent penalty.
A foundation's officers, directors and trustees also face a 10percent penalty, plus a 5 percent additional penalty if theyignored red flags or did not thoroughly vet investments andproposals. While fines for individual managers are capped at$10,000 and $20,000, respectively, they are levied perinvestment.
At least 147 private foundations invested with Madoff, according toan analysis by Daniel E. Smith, president of Benefit TechnologyInc., a software company in Miami. These include:
oPicower Foundation, Palm Beach, Fla., $958 million invested
oCarl and Ruth Shapiro Family Foundation, Palm Beach, Fla., $199million invested
oBetty and Norman F. Levy Foundation, New York, $244 millioninvested
oChais Family Foundation, Encino, Calif., $178 million invested