Karen Wagner, an attorney for owners Fred Wilpon and Saul Katz, argued to U.S. District Judge Jed Rakoff that the trustee, New York lawyer Irving Picard, has failed to show evidence they ignored red flags that should have alerted them to Madoff’s fraud.
Picard’s case “doesn’t plead anything amounting to willful blindness,” Wagner said in a hearing in Manhattan yesterday.
The trustee, New York lawyer Irving Picard, claims Wilpon and Katz must turn over the $300 million in profits for the benefit of Madoff victims who lost more than they gained in the fraud. Picard claims they can’t keep the $700 million principal because they “turned a blind eye” to concerns Madoff was running a fraudulent scheme.
Rakoff said he will rule on the request by the end of September. He scheduled a two-week trial to begin March 5 if he doesn’t dismiss the suit. Rakoff said he will permit the parties to go forward with the exchange of evidence in the case.
Former New York governor Mario Cuomo, who attended the hearing, said it had given both sides additional information to determine whether the case can be settled. Cuomo was appointed by the bankruptcy court as a mediator in the case.
“This was a very helpful exercise,” Cuomo said after the hearing. “Now both parties know more about their positions than they did yesterday.”
David Sheehan, a lawyer representing Picard, argued in the hearing that he has to show only that Wilpon and Katz had information that should have prompted them to question Madoff about his operations.
Sheehan said the trustee wants the case heard by a jury if it goes to trial.
In December 2008, Madoff, 73, admitted that his firm, Bernard L. Madoff Investment Securities LLC, was a multibillion- dollar Ponzi scheme, paying older investors money it gathered from newer investors. He pleaded guilty in 2009 to running what has been called the biggest Ponzi scheme in history. Madoff is serving a 150-year sentence in a federal prison in North Carolina.
‘Dagger in the Heart’
Wilpon has said the news of Madoff’s confession was “like a dagger in the heart.” The Sterling defendants claim they lost $500 million in the fraud.
In December 2010, Picard sued Wilpon and Katz and their real estate company, Sterling Equities Inc., along with dozens of related family trusts and companies in bankruptcy court in New York. Sterling Equities owns the Mets and a controlling stake in the broadcaster SportsNet New York.
Rakoff agreed in July to review the case, saying there are legal issues in the case that required it to be moved from bankruptcy court. He said yesterday he is convinced the case should remain in his court.
Picard has sued about 1,000 investors, banks and others, seeking a total of about $100 billion. He has raised more than $8.6 billion, or almost half the $17.3 billion in principal he calculates investors lost in the fraud, including a $1 billion settlement with hedge-fund firm Tremont Group Holdings Inc., announced July 28.
Sheehan told Rakoff yesterday that only 60 of the 1,000 cases claim the investors knew or should have known of Madoff’s fraud.
This week, Picard won a ruling from a federal appeals court in New York approving his method of determining which investors can claim money from the Securities Investor Protection Corp. and from the funds he’s recovered for victims. Picard has said he intends to pay “net losers,” investors who put more money in their Madoff accounts than they withdrew, before “net winner” investors, including the Sterling defendants, who took out more than they put in.
Sheehan said the ruling lends support to Picard’s suit against the Mets owners. Wagner told Rakoff it doesn’t apply.
The Sterling group first started investing with Madoff in 1985, according to court papers filed in the case. The Sterling defendants said they cooperated with Picard’s investigation, turning over almost 700,000 pages of documents over the course of a year.
In opening yesterday’s hearing, Rakoff, a fan of the New York Yankees, greeted the lawyers by saying “Welcome to my ballpark.” He said he was grateful they’d given him such lengthy briefs to read.
“Otherwise I probably would have had to watch a Mets game, which would have been a very painful process,” Rakoff said.
The case is Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Bob Van Voris in Manhattan federal court at firstname.lastname@example.org