Our friends in the Mets Media Relations Department sent over this article from the Wall Street Journal – interesting read !
Madoff and the Mets; The bankruptcy trustee is using dubious methods based on flimsy evidence.
The Wall Street Journal
May 11, 2011
Bernie Madoff perpetrated the largest financial fraud in American history, but are his crimes now being compounded by the trustee charged with unwinding the Ponzi scheme? We’re beginning to wonder after scrutinizing the evidence against Fred Wilpon and Saul Katz, the New York Mets owners who stand accused of colluding with Madoff.
Messrs. Wilpon and Katz and their families are being sued by Irving Picard, a New York bankruptcy attorney appointed to liquidate Madoff assets and recover money from those who benefitted from his Big Con. Mr. Picard is borrowing from the method of overzealous prosecutors everywhere: distorted accusations, tailored for the media, that intimidate public figures into settling to avoid further embarrassment. His methods raise basic questions of transparency and due process.
In an amended complaint in March, Mr. Picard is looking to recover $295 million in fake profits that the Wilpon-Katzes made from Madoff investments—i.e., other investors’ money that Madoff allegedly passed on to them. He is also seeking $710 million that they withdrew against their principal, to repay the investors who came out net losers. Mr. Picard claims they were sophisticated businessmen who knew or should have known that Madoff’s returns were too consistent to be true, and that they “willfully turned a blind eye to every objective indicia of fraud before them.”
One of Mr. Picard’s marquee pieces of evidence is supposedly Peter Stamos, a friend of Mr. Katz and an investment partner. Mr. Picard claims Mr. Stamos “repeatedly warned” the Wilpon-Katzes that Madoff’s returns were fishy. But the Wilpon-Katzes later obtained Mr. Stamos’s deposition, long after Mr. Picard’s accusations had been splashed all over the New York tabloids—and it turns out that his full testimony directly and specifically contradicted Mr. Picard’s selective edit.
In 1972, the Wilpon-Katzes founded Sterling Equity Partners, a closely held family partnership that manages their empire of real estate, professional baseball, a TV network, and private equity and hedge funds. Sterling first invested with Madoff in 1985. In 2002, Sterling joined with Mr. Stamos to create the hedge fund Sterling Stamos.
Mr. Picard contends that Mr. Stamos “openly questioned Madoff’s legitimacy for years and recommended to the Sterling Partners that they should redeem” their other investments with Madoff. But Mr. Stamos actually testified under oath that “I’m embarrassed to say that I said to Mr. Katz on a number of occasions that my assumption is that Mr. Madoff is the most honest and honorable man, among the most honest that we will ever meet. Number one. And number two, that he is perhaps one of the—my assumption is he’s perhaps one of the best hedge fund managers in modern times.”
Mr. Picard maintained in court and led the media to believe that Mr. Stamos was a whistle-blower. Mr. Stamos did send an email in December 2008 saying that “Fortunately, our firm did not invest with Madoff. That firm and fund wouldn’t make it through our risk and ops controls—lack of transparency, no third party administrator, etc. Unfortunately, our partners—Saul and Fred—against our recommendations invested as individuals and through their real estate firm.
Based on the public evidence so far, it looks as if Mr. Stamos was merely being a good fiduciary, urging the Wilpon-Katzes to diversify their investments and warning them about the risks of proprietary trading strategies like the one Madoff said he was running. The Sterling partners had about nine-tenths of their securities investments with Madoff, Mr. Picard estimates. As Mr. Stamos put it, “What I recall telling him [Saul Katz] was don’t put more than 10% of your assets in any one manager.”
Mr. Picard also makes much of an email from Sterling Stamos’s chief strategist Ashok Chachra calling Madoff “too good to be true” and a “scam.” But that email was sent a day after the fraud was exposed—and Mr. Chachra testified that beforehand there was “no reason to think there was anything wrong.” His deposition, which the Wilpon-Katzes also obtained, reveals that Mr. Picard’s team did not ask Mr. Chachra about the email, while Mr. Stamos said that “I can’t recall ever using those words to describe Mr. Madoff.”
Mr. Picard left out such details because the case in still in “pre-compliant discovery” under U.S. bankruptcy court rules. Defendants aren’t entitled to see even exculpatory evidence until litigation begins months from now, and they couldn’t respond publicly until they countersued. So far Mr. Picard has refused to open his case. After the Wilpon-Katzes acquired Mr. Stamos’s deposition from his lawyer, Mr. Picard’s shop sent a letter threatening them for their “premature self-help efforts” and for “pressuring third-parties” to supply the same information Mr. Picard already knows.
His legal strategy seems to be to prevent the public from knowing all the facts before passing judgment. What else is he keeping under his hat?
We could continue with other distortions, but let’s get to what seem to be Mr. Picard’s most damning allegations. In 2004, the Wilpon-Katzes had an option with Cablevision to buy back the valuable broadcast rights of the Mets for $54 million, and a narrow contract window in which to do it. As the deadline drew near, the bank loans they had applied for hadn’t come through.
So they approached Madoff to withdraw the $54 million as a contingency plan, but Madoff claimed their accounts were “in the market” and that he would give them a bridge loan instead. The only documentation for this unorthodox transaction was a false agreement on Mets letterhead describing it as an “investment” by Madoff’s wife in what would become SportsNet New York, the Mets station.
As it happens, the bank loans closed in time and the Wilpon-Katzes repaid Madoff the day after he wired the money. They say they trusted their friend Madoff in a frantic business moment and didn’t know what they were signing. But in any case, how is any of this evidence of their knowledge of a pyramid scheme?
So should Messrs. Wilpon and Katz have known that Madoff was a crook? After all, he eluded serial Securities and Exchange Commission investigations, and he was once a pillar of the community, even briefly the Nasdaq chairman. His crimes depended on credulity in affluent circles, and trust is necessary for betrayal. The Sterling partners did not earn extraordinary returns as high as 100% to 900% typical of some high-level Madoff clients.
But more pointedly, do the investment errors of the Wilpon-Katzes—the failure of due diligence, their nondiversified cash management strategy—prove they were complicit with Madoff? Or do these errors merely prove they were lousy investors? The latter explanation seems more plausible, but it doesn’t help Mr. Picard’s strategy to recover more funds by portraying the unsympathetic rich as villains.
Mr. Picard has virtually unconstrained discretion under the bankruptcy code, including subpoena power and a team of investigators and forensic accounting experts. He has billed for $175.5 million in fees. Yet rather than shed more light on what happened, he seems most interested in collecting fortunes from public figures by humiliating them into a settlement, before his claims are ever tested in court.
Madoff’s crimes did enough damage and shouldn’t be compounded by treating his victims as accomplices without unequivocal evidence or due process.