The Kabbalah Centre in Los Angeles is the focus of an IRS investigation into tax evasion

Two charities linked to Madonna are also being scrutinized. The center has attracted A-list celebrities such as Ashton Kutcher and Gwyneth Paltrow.

The Los Angeles Times/May 6, 2011

The Kabbalah Centre, the Los Angeles-based spiritual organization that mingles ancient Jewish mysticism with the glamour of its celebrity devotees, is the focus of a federal tax evasion investigation probing, among other things, the finances of two charities connected to Madonna, the center's most famous adherent.

Sources familiar with the investigation said the criminal division of the IRS is looking into whether nonprofit funds were used for the personal enrichment of the Berg family, which has controlled the Kabbalah Centre for more than four decades, a period in which it expanded from one school of a little-known strain of Judaism to a global brand with A-list followers like Ashton Kutcher and Gwyneth Paltrow and assets that may top $260 million.

Those cooperating with the IRS include representatives of one of Madonna's charities, Raising Malawi. The nonprofit is named in subpoenas as a subject of the grand jury probe alongside the Bergs and Kabbalah Centre organizations despite having cut its ties with the center this spring.

"We have tried to provide as much information as we can as quickly as possible to the people who are investigating and are very actively cooperating in every way we can," said Trevor Neilson of Global Philanthropy Group, a consulting firm now managing Raising Malawi.

In a statement in response to questions about the probe, the Kabbalah Centre acknowledged that it and one of its charities, Spirituality for Kids, "have received subpoenas from the government concerning tax-related issues."

"The Centre and SFK intend to work closely with the IRS and the government, and are in the process of providing responsive information to the subpoenas," according to the statement.

The IRS and the U.S. Attorney's office in New York declined to comment. People with knowledge of the investigation said it began last year and is playing out on two coasts. A federal grand jury in Manhattan, where the Kabbalah Centre has a large branch and real estate holdings, is gathering evidence there, according to the subpoenas. Meanwhile, in Los Angeles, where the center is headquartered on Robertson Boulevard, a team of IRS agents dispatched from the agency's New York criminal division is interviewing people connected to the organization, said individuals familiar with the agents' activities.

Among the items that investigators have reviewed, according to one source, is an August 2010 email in which a former chief financial officer of the center complained that he had been fired for pointing out financial improprieties and warned that the center was in danger of "committing suicide."

"I recently uncovered instances of income tax fraud at the Kabbalah Centre - instances which could bankrupt several of the directors involved … this is very serious business," the former CFO, Nicholas Vakkur, wrote in an email that circulated among high-level officials at the center. "I have little choice but to cooperate with the IRS and bring down the entire Kabbalah Centre," Vakkur wrote, adding a plea that "someone in authority" try to "reason" with center Chief Executive Karen Berg.

Berg's husband, Philip, 81, was appointed the head rabbi or rav in 1969, but since he suffered a debilitating stroke in 2004, his wife, 68, has run the Kabbalah Centre with the help of the couple's two sons, Michael, 37, and Yehuda, 38. The family has close ties with Madonna, whose decision to study at the center in 1996 put kabbalah and its distinctive red-string bracelets on the pop culture map and led to a period of enormous growth. In addition to individual members of the Berg family, subpoenas reviewed by The Times list various charities and for-profit businesses overseen by them as subjects of the investigation. The subpoenas do not indicate that Madonna personally is being investigated but do name two nonprofits she has championed: Spirituality for Kids and Raising Malawi.

The singer served as chairwoman of the board for Spirituality for Kids, an educational program founded by Karen Berg, and donated more than $600,000 to the cause, according to tax filings. Raising Malawi was an outgrowth of Spirituality for Kids that the singer cofounded with Michael Berg. The charity announced this spring that it was scrapping its plan to build a girls' school in Malawi, a venture in which it had already invested $3.8 million, according to Neilson. The decision received wide media coverage and criticism in Malawi. Madonna, who Global Philanthropy Group said put about $11 million of her own money into the charity, replaced Michael Berg as CEO and moved Raising Malawi's offices out of the Kabbalah Centre in March.

Madonna's publicist did not return messages seeking comment. Neilson said Raising Malawi had retained legal counsel separate from the Kabbalah Centre to represent the organization in the IRS investigation.

The Kabbalah Centre is far and away the most well-known proponent of kabbalah, an esoteric Jewish movement that traces its roots to the Zohar, a holy book followers believe was written by a rabbi 2,000 years ago to explain the mysteries of the universe. The center, according to its literature, began in Jerusalem in 1922 and now has outlets in 31 countries and claims 4,000 regular participants in its services and programs globally. Mainstream Jewish leaders have criticized the center on a number of fronts, including its de-emphasis of the religion in courting new members, an approach the center touts in its literature: "One of the nice things about studying Kabbalah is that it doesn't require you to leave your current faith or religious path."

Investigators looking into the center's finances face a complex organizational structure involving more than a dozen separate nonprofits and business entities with connections to the Bergs, according to public business records and sources familiar with the workings of Kabbalah. The total assets of the center are unclear because the parent organization, Kabbalah Centre International, has tax-exempt status as a church and is not required to make public its tax filings. A former CFO, Nicholas Boord Jr., who left the center in 2009, wrote in a resume posted online that the center had annual revenue of $60 million and assets that included a $200-million real estate portfolio and a $60-million investment fund.

According to a 1993 filing seeking tax-exempt status for the center, neither Karen nor Philip Berg receive salaries for their leadership roles. In those documents, signed by Karen Berg, the center said that she and her husband as well as other clerical staff "derive their subsistence from the meals and lodging and care provided to them by the organization's facilities." The Bergs live in Beverly Hills, in homes a few blocks from the headquarters that were purchased for them and owned by the Kabbalah Centre, according to property records and court documents.

The investigation comes as a handful of lawsuits are raising other questions about the Kabbalah Centre's financial dealings. In a New York bankruptcy court, a trustee sorting out a $68-million Ponzi scheme has alleged that the center, an investor, was paid $2.9 million in "fictitious profits" and demanded the money be returned. Settlement talks in that case are ongoing, according to court filings.

In two other suits filed earlier this year, an heiress accused the Bergs and others connected to the Kabbalah Centre of defrauding her of about $1.3 million. Courtenay Geddes, a former member of the center, alleged that staff members pushed her to invest with an official at the Orange County branch who absconded with more than $800,000 and was later revealed to be a convicted felon. In a second suit, she claimed that a homeschooling program she funded with a half-million-dollar donation never came to fruition despite assurances from Yehuda Berg and others that it was under development.

In a stinging February filing that referred to the Bergs as "charlatans," her attorney, Alain Bonavida, wrote that the center and its related organizations "exist primarily to enrich" the Bergs and their associates and predicted that any IRS review "will result in a revocation of said nonprofit status as well as various penalties, fines and likely criminal prosecution" of the family.

In a statement, the Kabbalah Centre called the allegations in the suit "meritless" and said it "intends to defend the case vigorously."

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