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Friday, January 27, 2012

Mets Owners ask Judge to dismiss Madoff Trustee's Case

The New York Mets’ owners asked a judge to dismiss $386 million in remaining claims brought by the trustee liquidating Bernard Madoff’s firm, saying their “early faith” in Madoff was well-founded because of his reputation.

U.S. District Judge Jed Rakoff threw out most of trustee Irving Picard’s $1 billion in claims against the team owners. The judge said Picard must prove they were willfully blind to the convicted Ponzi schemer’s crimes if he wants to recoup money they withdrew from their Madoff accounts, the Mets owners noted. Since Picard hasn’t proved that, he has no case against them, they argued.

“Defendants trusted their broker, Bernard L. Madoff, and never suspected him of any fraud, let alone a Ponzi scheme,” team owners Fred Wilpon and Saul Katz said in a court filing yesterday. Picard can’t show they believed there was “a high probability” that Madoff was running a Ponzi scheme or that they took “deliberate action” to avoid seeing what was going on, they said.

The Mets owners, after losing money in the Ponzi scheme and an income stream from Madoff, have said they are trying to sell stakes in the Major League Baseball team. Picard’s claims remain a threat to their finances.

Fictitious Profits

Asking Rakoff to rule on one of his remaining claims, Picard said the Mets owners must return $83 million in fictitious profits taken from Madoff’s Ponzi scheme in the two years before his 2008 arrest. The law allows him to take back the money simply because the operation was a fraud, he said in a court filing yesterday.

To get the money, Picard need only prove that Katz and Wilpon didn’t give value in return for the money, and they can’t possibly prove they did, as they were net winners, he said.

To get the other $300 million, Picard must prove the Mets owners were willfully blind to the fraud, Rakoff has said. s that they didn’t know of the fraud, Wilpon and Katz attached testimony from Arthur Friedman, a partner in their company, Sterling Equities, who handled their investments with the Madoff firm, depositing checks, making withdrawals and trying to duplicate Madoff’s investment strategy.

Under 17 hours of questioning by Picard, Friedman testified that he made, on paper, less than half of Madoff’s reported profits, though he was satisfied the strategy worked.

Fraud Insurance

Friedman told Picard that he couldn’t spell the word “Ponzi” when he looked into buying insurance against investment fraud. Friedman said he never bought the insurance and was comfortable with the way Madoff did business. He said he “understood” that Madoff was on a “short list” to become chairman of the U.S. Securities and Exchange Commission.

Picard, a partner at law firm Baker & Hostetler LLP in New York, originally demanded $300 million in profit and $700 million in principal from Wilpon, Katz and a group of family members and related entities, saying they turned a blind eye to Madoff’s Ponzi scheme. The partners denied the allegation.

In September, Rakoff dismissed all or part of nine of 11 claims in Picard’s suit against Wilpon and Katz. He has set a March trial for the rest of the claims.

Refusing to let Picard appeal his decisions this month, Rakoff, a fan of the New York Yankees, cited a quotation usually attributed to that team’s Hall of Fame catcher, Yogi Berra.

“Whether on the ball field or in court, ‘It ain’t over till it’s over’ is both shrewd observation and sound advice,” the judge said.

The case is Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan).

Source: Business Week

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