A lawsuit brought by the trustee for the victims of Bernard L. Madoff’s multibillion-dollar Ponzi scheme accuses the owners of the Mets of being so enamored of the enormous profits they earned while investing over decades with Mr. Madoff that they ignored repeated and specific warnings that he might have been operating a fraud.
The lawsuit, unsealed in federal bankruptcy court in Manhattan on Friday morning, contends that the team’s owners, Fred Wilpon and Saul Katz, used the profits from their investments in Madoff to establish personal fortunes, create dozens of family trusts and financially fuel their array of businesses, from the Mets to real estate to the creation of a cable sports network.
At various times over the years, as their investments only widened and deepened, they were blind to what the lawsuit calls a litany of alarms sounded by those close to them, by fellow investors and by financial institutions.
Among the warnings, which the lawsuit says the two owners “consciously disregarded,” are these:
¶The chief investment officer at Sterling Stamos, a hedge fund independent of Madoff in which Wilpon and Katz invested, said he repeatedly warned the men and their families that Madoff’s returns were “too good to be true.” However, the suit says, the warnings were ignored. Other personnel at the Stamos fund expressed similar concerns about Madoff.
¶Merrill Lynch, the investment bank that acquired 50 percent of Sterling Stamos in 2007, had a prohibition on investing with Madoff and told Katz that Madoff’s operations would not pass its standards.
¶Ivy Asset Management, which was approached in 2002 to back Sterling Stamos, told Katz and two of his partners of its suspicions about Madoff’s investment business.
¶A consultant to Sterling Stamos told Katz in 2003, “He couldn’t make Bernie’s math work.”
But throughout, according to the trustee, Irving H. Picard, Wilpon and Katz kept investing with Madoff, in what the lawsuit calls a “cycle of dependency.”
The lawsuit says that across the decades of investing, and in the face of the warnings, Mr. Wilpon and Mr. Katz, and their partners at Sterling Entities, the corporate parent of their businesses, never had basic due diligence done on Mr. Madoff and his investment firm.
“There are thousands of victims of Madoff’s massive fraud,” states the lawsuit. “But Saul Katz is not one of them. Neither is Fred Wilpon.”
The lawsuit says that the two men, their families and their businesses “made so much easy money from Madoff for so long” that despite the many warnings they “chose to simply look the other way.”
Mr. Wilpon, since Mr. Madoff’s arrest in 2008, has portrayed himself as a victim of the fraud, one he conceded was carried off by a man who had been his friend for many years.
“The trustee’s lawsuit is an outrageous strong-arm effort to try to force a settlement by threatening to ruin our reputations and businesses, which we have built for over 50 years,” Mr. Wilpon and Mr. Katz said in a statement Friday.
This week lawyers for Mr. Wilpon said the trustee’s lawsuit was without merit.
The suit is seeking the return of what it calls $300 million in “fictitious profits,” a net gain from some 200 accounts held by Mr. Wilpon, Mr. Katz, their real estate business and the Mets organization that over the years Wilpon and Katz used to build and sustain their multimillion-dollar empire.
The trustee is also seeking hundreds of millions beyond those “profits,” in part because of what he alleges was the willful negligence by the team’s owners and their officers with the Mets and their real estate businesses. That total could reach beyond $1 billion, according to a lawyer working for the trustee.
Steady returns from Madoff “flowed through every aspect of Sterling’s business,” the lawsuit says: through the Mets and SNY, their regional sports, its commercial real estate ventures and its investment funds. Among nearly 500 internal accounts invested with Madoff, 16 were for the benefit of the Mets, through which Sterling withdrew $90 million in fictitious profits, the suit says.
Picard called the Mets’ owners sophisticated investors who should have known better but were “simply in too deep” to act on any warnings.
“They are a team of sophisticated professionals who built a business empire spanning four major industries, including real estate, professional baseball and sports media, private equity and hedge funds,” the lawsuit says. “Notably, very early on in their almost quarter-century-long business relationship with Madoff, the Sterling Partners discovered Madoff’s anomalous and implausibly high and consistent returns, and then found endless ways to exploit those returns.”
The lawsuit, and the hundreds of millions it seeks, clearly imperils the owners’ possession of the Mets, and perhaps the rest of their holdings. Last week Mr. Wilpon announced that he was seeking a partner to buy a 25 percent stake in the team. Mr. Wilpon, Mr. Katz and Mr. Wilpon’s son, Jeff, met with baseball’s commissioner, Bud Selig, in New York this week to discuss the suit and their financial situation.
NYTimes
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