Mets Say Madoff Trustee Made Charges to Force Accord

(Corrects to show Sterling Stamos didn’t invest in Madoff’s firm in 16th paragraph of story published yesterday.)

The New York Mets owners said the trustee liquidating the business of convicted fraudster Bernard L. Madoff concocted allegations against them to force a settlement.

Irving Picard, seeking $1 billion in Ponzi scheme profits and principal from the baseball team’s owner, Sterling Equities Inc., sued in New York, accusing the team and the owners of participating in Madoff’s fraud and ignoring “red flags.”

Asking a judge to dismiss Picard’s suit, the Sterling partners said yesterday in court papers that they weren’t professional investors and saw no warning signs. Fred Wilpon, the Mets chairman, and Saul Katz, the ball club’s president, described Picard’s accusations as a “work of fiction.”

Picard’s calculation that the Sterling partners and companies made $300 million in false profit from the Ponzi scheme ignored their Madoff accounts that had net losses, Sterling said in a filing in U.S. Bankruptcy Court in New York. After losses, Sterling’s fake profit was about $150 million over 25 years, according to the filing.

“Let us be very clear: We did not know that Madoff was engaged in a fraud,” Katz and Wilpon said yesterday in a statement. “There were no red flags and we received no warnings.”

The Mets said in January that they are seeking to sell as much as 25 percent of the Major League Baseball team to raise money to settle a Madoff-related lawsuit. Picard’s suit, filed in December, was kept under seal until last month.

Ruth Madoff

Picard revised the suit on March 18 to add a claim that Sterling and Madoff disguised a $54 million loan from Madoff as an investment by his wife, Ruth Madoff, to help Sterling purchase the Mets’ broadcast rights from Cablevision Systems Corp. in 2004.

The amended complaint showed the “deep dependency” of Sterling businesses on the Madoff fraud “and certain knowledge of indicia of fraud” by the Sterling partners, David Sheehan, Picard’s lawyer, said in a statement.

The partners paid Madoff the next day for the single loan he had ever advanced to them, making any incorrect documentation irrelevant, Sterling said in its filing. Sterling’s liquidity problems when Madoff failed were not a sign of “dependency,” it said.

The Sterling companies used Madoff accounts like a bank, for instance, depositing surplus cash when Mets season tickets were sold in the winter, and withdrawing money later for expenses, Sterling said.

Applying Pressure

“Just as would have happened if their bank had failed, when BLMIS failed they faced liquidity problems,” it said, referring to the Madoff company, Bernard L. Madoff Investment Securities LLC.

“Examination of the evidence makes clear the trustee’s complaint was crafted to pressure the Sterling Partners to pay a huge settlement,” Sterling said in its statement.

According to Picard, Peter Stamos, who ran the Sterling Stamos hedge fund and was part of the Mets owners’ inner circle, “repeatedly warned” that Madoff’s results were “too good to be true.”

While Stamos evolved “stringent” rules barring his fund from investing with Madoff, he testified under oath that he assumed Madoff was “honorable” and called him a “legend” in the hedge fund industry, Sterling said in its filing.

Required Transparency

Picard said Sterling should have known about the fraud because Merrill Lynch & Co. warned that the money manager’s firm wouldn’t satisfy its due diligence tests.

Merrill simply required transparency of all managers, Sterling said. Sterling Stamos didn’t invest with Madoff.

In a Dec. 15, 2008, e-mail, “Stamos stated that Sterling Stamos would not invest with Madoff because BLMIS would not pass Sterling Stamos’ due diligence requirements and that he had warned Saul Katz and Fred Wilpon not to invest,” Picard wrote in the amended complaint.

Sterling, in its response, said the Merrill “directive was not aimed at BLMIS, and no inference of wrongdoing is properly drawn from the change.”

In his suits against Sterling and banks including JPMorgan Chase & Co., Picard has said long and close contact with Madoff should have tipped off sophisticated customers and bankers to the fraud. JPMorgan and Sterling have denied that.

Katz and Wilpon told Picard before he sued that they lacked investment expertise and relied on Madoff to handle their money, Sterling’s filing said.

‘Not My Business’

“I’m not good at it. It’s not my business,” Katz told Picard, according to the Sterling filing. Wilpon told Picard he didn’t understand “in any depth” how Madoff made money, the filing said.

Major financial institutions regularly reviewed Sterling’s Madoff holdings for collateral, even for margin loans, and as a source of liquidity, Sterling said. Bank of America Corp. (BAC) was “comfortable” with Madoff, Sterling said. Travelers Cos., the insurer, interviewed Madoff personally in the course of due diligence and afterward wrote Sterling providing “comfort” about their Madoff investments, the filing said.

Sterling said it didn’t fail to conduct due-diligence examinations of Madoff, as Picard alleged. Sterling partner Arthur Friedman tracked trading prices and tried to replicate Madoff’s so-called split-strike conversion strategy and concluded the strategy worked, Sterling said.

Bayou Scheme

According to Picard, the Mets owners should have recognized Madoff’s fraud partly because they had been caught in Bayou Group LLC’s Ponzi scheme. The warning sign in Bayou was a sudden shift in investment strategy, while there was no shift at Madoff, who was consistent, Sterling said.

The Mets have the third-highest value in the major leagues at $858 million, behind the New York Yankees ($1.6 billion) and Boston Red Sox ($870 million), Forbes magazine said in April.

A sale of 20 percent to 25 percent would be worth $171.6 million to $214.5 million, based on the Forbes figures.

Revising his suit last week, Picard claimed that, after Madoff’s fraud was disclosed publicly in December 2008, Sterling Equities restructured its debt to attempt to block the trustee from recovering assets on behalf of victims. He has said the Mets used $90 million in Madoff profits to help fund day-to-day operations.

Picard has no evidence for alleging that Sterling restructured to block him because it anticipated a lawsuit, Sterling said in its filling. Sterling partners had more than $500 million in their Madoff accounts at the time of his failure, their lawyers said in February.

Mario Cuomo, the former New York governor and father of the state’s current governor, Andrew Cuomo, was appointed Feb. 10 to mediate the dispute between Picard and the Sterling defendants. The mediation process is under way.

The case is Picard v. Katz, 10:05287, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Dex McLuskey in Dallas at at; Linda Sandler in New York at

To contact the editors responsible for this story: Michael Sillup at; David E. Rovella at

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