(MONEY Magazine) – On New Year's Day three years ago, Seymour Fenichel, a Manhattan lawyer, called Judy and Michael Vezzuto of Wantagh, N.Y. with fantastic news: the childless couple were about to get a baby. The lawyer, who had set his fee at $2,500, said a young woman was coming to New York to give birth in April or May. All he needed was an extra $2,500 for her move. The Vezzutos mailed the check, thinking their dream had come true. ''We have always wanted children,'' wrote Judy Vezzuto in her adoption application. ''We have a lot of love to offer, and we would welcome the opportunity to raise a child and give him or her a happy home and the best life we could provide.'' But the Vezzutos didn't get a baby that spring or summer or fall, even though they paid thousands more to Fenichel and Child Haven, a Dunmore, Pa. adoption agency run by Harriet and Larry Lauer of Brooklyn, N.Y. A year after the New Year's Day call, still childless and $8,100 poorer, the couple went to the Nassau County district attorney's office. A complaint filed by the New York State attorney general charges Fenichel and the Lauers with, among other things, selling babies and bilking the Vezzutos and others out of as much as $30,000 each. Fenichel declines to comment, but the Lauers' attorney asserts that his clients are innocent of all charges and did not profit from any Child Haven activities. Back in 1986, while the Vezzutos were waiting for the child who never arrived, another human tragedy was unfolding 3,000 miles away in Everett, Wash., outside Seattle. Three-year-old Eli Creekmore was absorbing one beating after another from his father Darren, an ex-convict. There were repeated complaints to authorities by many people who knew -- Eli's grandmother, doctors, child protection workers, even a waitress who saw the boy bleeding from his mouth as he tried to eat ice cream. His day-care teachers said he screamed in fear when his father came to pick him up. Still, authorities placed him in foster care only for brief periods and then returned him time and again to his father and to new beatings. On Sept. 26, 1986, Darren, angry that Eli was crying, kicked him in the stomach, beat him with a belt and left him wedged in a toilet bowl with a ruptured lower intestine. Eli died the next day. Darren was later convicted of second-degree murder and sentenced to 60 years. Eli's mother Mary, who said she was too afraid of Darren to help, got 10 months. These two sad tales are symptomatic of our failed adoption system, which is supposed to place unwanted and ill-treated children with families who will love and protect them. On one side stand thousands of childless couples like the Vezzutos who would do almost anything to get a child like Eli. On the other side are children tied to biological parents who can't or won't care for them even by society's most minimal standards yet don't give them up. The childless couples and the needy children come together all too rarely. In 1982, the last year there was a count, only 40,000 Americans were adopted; another 10,000 adoptions involved children from Korea and other foreign countries. The reason most often given for the scant number of adoptions is a severe shortage of babies. In fact, there is a larger pool of potentially adoptable babies and children than at any time in the nation's history, despite the legalization of abortion. The number of illegitimate births has more than doubled to nearly 880,000 since the Supreme Court upheld women's right to abortion in 1973. Yet news of a shortage is spread to newspapers and magazines by the National Committee for Adoption, a Washington, D.C. federation of 143 agencies. As a consequence, many couples lose hope and plunge into a gray market controlled by lawyers and brokers who feel free to charge high fees for babies under inconsistent state laws that offer little protection to adoptive couples, pregnant women or children (see the state-by-state table on page 172). The problems are compounded by adoption agencies that rarely reach out to counsel unwed pregnant women about all their options, including adoption. Studies indicate that many of those women would decide adoption was best for their babies. Instead the children stay with their unwed mothers -- many of them teenagers whose limited incomes, education and resources often lead to drug addiction, child abuse and other manifestations of family breakdown. Many of their children end up in foster care, where they languish for years between brief trips home marked by new rounds of abuse and neglect. By the time courts and social workers agree that adoption is right for a child, he or she has become an ''unmarketable'' seven- or eight-year-old -- too old or too troubled for many families to accept. Nearly every one of the social workers, lawyers, adoptive parents, judges, government administrators and children's advocates interviewed for this article agree that this nation's adoption system wastes both lives and money -- and needs reform. Logically, the task should begin with a fresh look at its basic assumption, the baby shortage.

THE 40-TO-1 MISUNDERSTANDING William Pierce, the president of the National Committee for Adoption since 1980, is the source of the discouraging statistic that supports the shortage: ''There are 40 infertile couples for every adoptable child,'' explains Pierce. ''There are 2 million infertile couples, and there were 50,000 adoptions in 1982. That makes the ratio 40 to 1.'' When questioned, however, Pierce and his assistant Jeffrey Rosenberg concede that some of their statistics are squishy. ''We try to tell people that these are soft numbers,'' says Rosenberg, ''but they are reported as hard facts.'' How soft? Take the 2 million couples who want to adopt. That figure came from a National Center for Health Statistics survey that claimed couples made about 2.5 million visits to fertility specialists each year. ''That sounded too high,'' says Pierce. ''So we rounded it off to 2 million.'' A better measure of the number of infertile couples might be found in the 1982 National Survey of Family Growth, a government-sponsored sampling of women of reproductive age. According to that study, about 1 million couples were childless -- and presumably most likely to consider adoption. But even that figure may overstate matters. According to a seven-month-old infertility report by the U.S. Congress' Office of Technology Assessment, appropriate therapy might help nearly half the infertile couples conceive. Thus one could argue that about 500,000 couples are truly adoption prospects, since nobody knows what portion of couples who learn they are untreatable get serious about adoption. Further, the fact that there were only 50,000 adoptions, including foreign youngsters, in 1982 hardly means that there were only 50,000 children who might have been adopted had their unwed mothers been encouraged to consider adoption. Critics say that if agencies had done a better job, far more than ( the 2.5% -- or 18,000 of the 715,000 babies born that year to unwed mothers -- would have found their way to adoptive homes.

LAZY AGENCIES Many of the nation's 2,500 public and private adoption agencies share a common mission: to pass the babies of young mothers in crisis to families who can better care for them. That task was relatively easy 25 years ago, according to Rosenberg, when about 50% of unwed white mothers under 25 routinely surrendered their babies for adoption. Now, however, an out-of- wedlock pregnancy no longer automatically stigmatizes a young woman. Also, social workers have come to assume that unwed mothers want to keep their babies; after all, if they didn't, they would have had abortions. That assumption may be misguided, however. A 1984 survey of 10 Catholic Charities agencies found that 50% of both white and black unwed pregnant women wanted counseling about adoption. Another prevailing assumption is that children are better off with their biological families. Many social workers consider adoption only as a last resort even for the most helpless mothers. Critics counter by pointing to ample evidence that too often children pay, sometimes with their lives, at the hands of their parents. The children of teenage single mothers are at great risk. Cheryl Hayes, an executive director at the Committee on Child Development Research and Public Policy of the National Academy of Sciences, observes: ''One of the saddest things about teen pregnancy is the consequences for the children -- a higher risk of morbidity and accidents, school misbehavior and a whole raft of problems.'' In one case, cited in a 1983 issue of Permanency Report, a newsletter for social workers, Angie, a mildly retarded, emotionally disturbed 13-year-old from New York City, gave birth to a boy, Kevin. The pregnancy was a result of incest. With Kevin in foster care, social workers hunted in vain for a relative to take in both children. Rather than turn to adoption, the agency decided to keep Kevin in limbo because Angie occasionally visited him. In the meantime, she became pregnant again between stays at a mental hospital. Ultimately, the court transferred the case to a more aggressive adoption agency. By then, Kevin was nearly two. As that case suggests, few agencies offer counseling that really helps women consider their options and assess their abilities to be parents. ''Agencies don't think they need to sell their services to unwed mothers,'' says Elizabeth Cole, a former project director of the Child Welfare League of America. ''I don't think that adoption agencies should twist girls' arms to make them relinquish their babies. But they could at least run a classified ad every day saying something like, 'Pregnant? Talk to us about your options.' '' According to the 1982 National Survey of Family Growth, 14% of unwed pregnant women aged 15 to 24 who received counseling -- from teachers, doctors, adoption agencies, social workers or parents -- decided against raising their babies themselves. In contrast, only 1.5% who went without counseling made that decision. By extension, if 14% of all unwed pregnant women decided to give up their babies this year, the number of infants available for adoption would soar from around 22,000 to 120,000. Furthermore, agencies that reach out to unwed mothers rarely lack for babies. Consider Easter House, a controversial Chicago agency that Illinois welfare officials are trying to shut down. While the typical adoption agency performs no more than 12 infant adoptions a year, Easter House completes 300 -- despite charging $20,000 each. While critical of its emphasis on finding healthy white infants for wealthy white parents, Richard Pearlman, head of Chicago's Family Resource Center, a private adoption agency, nevertheless finds much to praise about Easter House. It runs big ads in the Yellow Pages, the first place unwed mothers look for help. It also offers a 24-hour phone line and dispatches caseworkers to a new mother's bedside within hours. Many traditional agencies don't answer the phone at night or on weekends. ''There's nothing magic about it,'' says Pearlman of Easter House's success in finding babies. Financial factors also discourage adoptions. The disparity between what a young woman can receive from government welfare programs if she keeps her baby and what she can get if she gives up the child is a powerful deterrent. Gail Johnson of Sierra Adoption Services in Nevada City, Calif. says that when a woman comes in intending to keep her baby, ''we tell her what services exist to help her -- Medi-Cal, Aid to Families with Dependent Children, food stamps and food supplements.'' That can be worth $8,000 a year. By contrast, says Johnson, ''If she wants to make an adoption plan for her baby, we give her in- depth counseling to help her resolve her feelings of loss.''

DO-IT-YOURSELF ADOPTION While public agencies struggle along without babies, there has been a boom in so-called independent or private adoptions -- those undertaken without the supervision of licensed agencies. Such gray-market adoptions are legal in all but six states and may account for 60% of all infant adoptions today, or an estimated 17,000 this year. They work like this: would-be parents put personal ads in newspapers and send resumes and letters to lawyers, obstetricians and clergy across the nation in the hope of finding an unwed mother willing to relinquish her baby. The system pays off in part because many birthmothers are attracted by the ''perks,'' as Elizabeth Cole puts it: ''Private medical care rather than Medicaid, possibly a living allowance before and after the baby is born, more privacy and the right to choose the adoptive family.'' Few couples who go independent have trouble finding children. Consider the Soballes. Vivian Soballe and her husband Stephen of Chicago decided to adopt six years ago after their infertility treatments failed. Agencies told them that they would have to wait at least five years even though ''we would have taken any infant,'' says Mrs. Soballe. Determined to have a family, she persuaded a suburban newspaper chain to run her ad asking pregnant women to call her. Six months later, the couple had a son. ''When I got Chris, people told me, 'Thank the ground you walk on. That's the only child you'll ever have,' '' she says. But since then the Soballes have adopted three others the same way, at an average cost of $6,000 each -- for medical expenses for the birthmother, advertising and legal fees. The gray market can turn black, however, when birthmothers or brokers sell babies to the highest bidders. ''It's a free market -- one that hurts adoptive parents, birthmothers and children,'' says Morton Laitner, an attorney with the Florida Department of Health and Rehabilitation Services who has successfully prosecuted baby brokers. State laws forbid setting prices for babies but are easy to skirt. The laws are also inconsistent from state to state. According to Laitner, for example, Richard Gitelman of Coral Springs, Fla. has run ''baby farms'' in at least three other states by long-distance phone. Gitelman charges $15,000 per adoption, not counting medical and legal expenses, which, says Laitner, ''may run another $9,000 to $30,000.'' Gitelman's lawyer denies his client has any direct involvement with baby farms. The worst casualties of inadequate state laws are children who are given up to unfit families. A year ago the nation was stunned by the case of Lisa Steinberg, the six-year-old illegally adopted daughter of Manhattan lawyer Joel Steinberg and his live-in companion Hedda Nussbaum. Ambulance workers called to Steinberg's apartment found Lisa naked, bludgeoned and in a coma. She died two days later. Steinberg, who suggests that Lisa's death was caused by a rare illness, Reye's syndrome, went on trial in October for killing her. Lisa's 16-month-old brother Mitchell was luckier. Police found him alive, tied to a chair, wearing a urine-soaked diaper and clutching a bottle of sour milk. Both children had been born to unwed teenage mothers who gave up their babies on the assurance that they would be placed with stable married couples. Instead, they ended up with Steinberg, who never filed for adoption. Mitchell has been returned to his biological mother. Lisa lies in a small suburban grave. THE LOST CHILDREN Each year, thousands of children are moved from their parents to foster care. Sometimes parents, who may be homeless or ill, consent. Most of the children, however, are rescued from abuse or neglect. ''That's about 59% of the caseload,'' says Betty Stewart, director of the U.S. Children's Bureau, a federal agency. Nobody knows how many children are in foster care, though child-welfare- refor m legislation passed in 1980 required the federal government to collect the data. Eight years later, the Department of Health and Human Services is still studying how to gather the statistics. What little is known comes from the Voluntary Cooperative Information System, run on a $99,000-a- year federal contract. States are not required to submit data for that study, and those that do so send an incomplete array. The association's Toshio Tatara guesses there are 276,000 children in foster care. Of them, nearly 65% are age six or older; almost 40% have spent more than two years in the system; 14% have been in for five years or more; and nearly 80% have no disabilities. Critics like Bill Howard, editor of Child Protection Report, a newsletter that monitors child-welfare programs, believe there are 500,000 foster-care children, not 276,000. Whatever the actual figure, everybody involved agrees that the nation's drug epidemic is increasing the caseload. And, MaryLee Allen, a program director at the Children's Defense League, notes, ''many of the children are older and have more serious problems.'' Foster care, which dates from about 1910, is supposed to provide temporary shelter until the family resolves its problems or turns to adoption. By the late 1970s, however, foster care had become a permanent and punishing way of life for many children. Kids often spent their entire childhoods bouncing from one foster home to another without developing any dependable relationships. If they got close to their foster families, they were often moved because the placement was supposed to be temporary. The 1980 legislation provided financial incentives to help biological families stay together. Only if all else failed was the state supposed to seek the termination of parental rights and turn to adoption. Time limits were imposed, however. After 18 months, a judge would make a final disposition -- either to return the child home or to free him or her for adoption. Beverly Stubbee, who monitors state compliance for the U.S. Children's Bureau, acknowledges that the law has not been entirely effective. A 1983 federal lawsuit filed against Louisiana by the American Civil Liberties Union for noncompliance with the federal law asserted that the average child there had more than two placements and about 7% had six or more. ''It's not a pretty picture,'' adds Stubbee. ''Time is not measured the same way by children as it is by adults,'' says judge Judith Rogers of Little Rock. ''A year or two out of a child's prime development years is an irrevocable loss.'' When baby Del A., a plaintiff in the ACLU suit, entered foster care in 1981, he was evaluated as ''alert and responsive.'' By the time he was five, he was depressed, withdrawn and behind in his development.

''Social workers are given the message that they can succeed only if they reunite the family,'' says Richard Ducote, a New Orleans child-rights lawyer. So adoption is delayed, even when families seem untreatable. According to Dr. David Jones, a British psychiatrist, parents rarely get rehabilitated when they abuse their children and deny it or refuse treatment. Dr. Jones insists that more study is needed to identify such families. But Ducote argues that caseworkers should be able to spot some. He adds: ''They waste resources on families that can't be fixed, have little left over for those who can be helped and send thousands of kids down the tubes.'' A New York City foster father recalls one three-year-old in particular. Though social workers were watching the family, the boy came to him with / cigarette burns and elliptical scars from whippings with an electrical cord. ''Every time he did something wrong,'' says the man, ''I just spoke to him quietly. Finally, he became so frustrated that he started banging his head against the wall because, I think, the only kind of attention he had received from his father until then was abuse.'' In the upside-down world of an abused child, cruelty comes to mean love. More disturbing are the cases of abused children who are sent home to supposedly rehabilitated families only to be abused again, like baby Tess Maye. During the year she was in foster care, both New York-area families who had her asked to adopt her. Caseworkers, however, decided to return the baby to her natural mother, even though they knew that the woman was beaten by her husband and had emotional problems, says one of Tess' foster parents. In March 1987, five months after Tess went home, her mother beat her to death. Unfortunately, that case is not unique. In California, for example, 25% of abused children who were returned to their families from foster care were abused again. ''The system is trying to rehabilitate torturers,'' says Andrew Vachss, a New York City child-rights lawyer.

Right now, only about 36,000 of the 276,000 to 500,000 foster children have a formal plan for adoption. And about 60% of them are hard to place -- some because they have been emotionally damaged by their long stays in the very system that was supposed to protect them.

RESHAPING ADOPTION There are no easy fixes for the adoption mess, but we can begin this way: -- The government should collect accurate adoption and foster-care data. Says Peter Forsythe, director of children's programs for the Edna McConnell Clark Foundation in New York City: ''We have no way of knowing the size of the problem, and not knowing keeps us from dealing with it as effectively as we could.'' -- Adoption agencies should seek out unwed mothers and offer them comprehensive counseling about adoption and their abilities to raise children. -- The states need a uniform law to regulate independent adoptions. -- Social workers should make prompt decisions about foster children to prevent them from getting lost in the system. The courts can begin by strictly enforcing the time limits in Congress' 1980 child welfare law. In addition, social work professionals must develop the skills to differentiate troubled biological families who need only temporary help from those who may be untreatable. Without reform, the children, who cannot speak up for their own rights, will continue to be casualties of a system that is little more than a national shame.

BOX: Adoption was born on a train

Adoption, that peculiarly American institution, began in 1854 when 46 orphans from age seven to 15 went by train and boat from New York City to Dowagiac, a tiny town in southwestern Michigan. When they arrived, the rumpled regiment paraded past townspeople, who had come from miles around, and entered the Presbyterian church, where they were chosen by farm families eager to give them homes. Over the next 75 years, ''orphan trains'' transplanted nearly 100,000 abandoned and often starving children from New York City slums to the Midwest, New England, the South and Texas. Until those first trains, children were not ''placed out'' for their own benefit; they were simply handed over to families as indentured servants. The train effort was spearheaded by the Rev. Charles Loring Brace, who founded the Children's Aid Society at age 27 to help ''the immense number of boys and girls floating and drifting about our streets.'' Children's Aid hired agents to find towns willing to take the children, and local committees screened adoptive families. After the orphans arrived, they were taken to meeting halls, where they often sat frozen with fright and wept when they were separated from brothers or sisters. By the end of World War I, social welfare agencies shifted to trying to keep troubled families together. Then in the 1920s, after infant formula was developed, policymakers decided adoption was suitable only for babies. Brace's pioneering effort came to an end in 1929, when the last orphan train chugged West.-- M.H.

CHART: NOT AVAILABLE CREDIT: Source: (c) National Committee for Adoption, 1989 Adoption Factbook, forthcoming CAPTION: No two states agree on adoption DESCRIPTION: Laws of each state about adoption.