What happened is that he promised incredible returns to his investors. He used the money “invested” by the second round of investors to pay the first round of investors. Then he used the money “invested” by the third round of investors to pay the second round of investors. After a few rounds, word got around that his “investment fund” was producing a really good return on the investment.
(Around here is where a private investigator working with the Boston branch of the SEC discovered that something was hinky, and word was passed from the Boston branch to the NYC branch, and then dropped on the floor and not investigated any further.)
So, you have an investment fund run by a wealthy Jewish man, and a lot of charities started investing their endowment money with him, because it was getting such a great return. But when the economy started to go south, fewer people were interested in investing.
A pyramid scheme can pay a return of X% to each round of investors as long as there are X% more investors in round N+1 as there were in round N. But when fewer people were investing, the whole thing collapsed, and it was apparent that it was all fraudulent.
As far as the question of where the money went: it went to investors in the earlier rounds, and he skimmed off money from the top for himself and for his family.