The New York Mets may have to pay just $30 million following a court ruling against them, a fraction of the $386 million sought by the trustee representing victims of Bernard Madoff’s Ponzi scheme from the team and related defendants.
Fred Wilpon, Saul Katz and other defendants must give up as much as $83 million in fictitious profits from Bernard Madoff’s Ponzi scheme and face a trial over whether they acted in bad faith, a decision that could cost them $303 million more, U.S. District Judge Jed Rakoff ruled.
However, the two main entities that own and operate the baseball team are liable for no more than $30 million of the $83 million, although Wilpon and Katz personally might owe as much as another $11 million, according to court documents. The fraud cost investors an estimated $20 billion in principal, according to Irving Picard, the trustee liquidating Madoff’s investment firm.
“The court remains skeptical that the trustee can ultimately rebut the defendants’ showing of good faith, let alone impute bad faith to all the defendants,” Rakoff said in his ruling in U.S. District Court in Manhattan. “The principal issue remaining for trial is whether the defendants acted in good faith when they invested in Madoff securities in the two years prior to bankruptcy or whether, by contrast, they wilfully blinded themselves to Madoff’s Ponzi scheme.”
March 19 Trial
Picard must prove to a jury that the Mets owners and other defendants were “wilfully blind” to Madoff’s Ponzi scheme to recover the $303 million. The trial is set to start March 19 in Manhattan.
Rakoff said he will decide separately how much of the $83 million must be given up, and by whom. The sum represents fictitious profit from the Ponzi scheme in the two years before the con man’s 2008 arrest. Picard alleges the money was stolen from other investors who lost money in the fraud.
The defendants include partnerships, trusts and related entities of Wilpon, Katz or their relatives. Sterling Mets LP, the partnership most closely identified with the team, is liable for as much as $1.7 million in fictitious profits from the two years before Madoff’s arrest, according to Picard’s filing.
“I’m sure the Wilpons would have liked to win today and had the suit thrown out, but when you look at the numbers thrown around, this wasn’t a billion-dollar suit, so it could have been much worse,” said Robert Boland, chairman of the sports management program at New York University’s Robert Preston Tisch Center. “The problem is that the trial comes as the Wilpons take hits on their personal finances, nest egg and franchise simultaneously.”
The Mets owners, after losing $500 million in the Ponzi scheme, have cut the team’s basic payroll to about $90 million this season, from $140 million. They also have sold seven minority ownership stakes in the team, Wilpon said last month. His target is to sell a total of 10 shares valued at $20 million, each representing about 4 percent of the franchise.
Rakoff ruled just hours before the Mets played the Washington Nationals in Port St. Lucie, Florida, in their first spring training game before the regular season starts in April. Rakoff last year threw out most of Picard’s $1 billion lawsuit against the owners, saying Picard could pursue only $386 million at trial.
In his suit, Picard tried to show the Mets owners blinded themselves to Madoff’s fraud because it benefited their businesses, ranging from the team to real estate. Wilpon and Katz countered by saying they trusted their money manager, who they said had a solid reputation. Both sides presented conclusions disguised as facts that might not be admissible at trial, Rakoff said.
Nothing But Bombast
“Conclusions are no substitute for facts, and too much of what the parties characterized as bombshells proved to be nothing but bombast,” he said in the ruling.
If Picard doesn’t present evidence of wilful blindness at trial, the Mets owners could ask Rakoff again to dismiss the remaining suit.
“We are preparing for trial,” the Mets owners said in an e-mailed statement. “We look forward to demonstrating that we were not wilfully blind to the Madoff fraud.”
Picard is “in the process of reviewing the decision,” his spokeswoman, Amanda Remus, said in an e-mail.
The issues at trial will be whether Picard can take back principal the defendants withdrew from Madoff’s firm over two years or transferred to others, and what the status of their claims against the Madoff estate should be, Rakoff said.
David Sheehan, a lawyer for Picard, told Rakoff last month that he believed a jury would see the Mets owners as having been wilfully blind.
Sterling Mets LP, which runs the team that plays at the Citi Field stadium in Queens, New York, took $51 million out of Queens Ballpark Co. in 2010, down from about $100 million in 2009, excluding non-recurring amounts, according to the stadium’s latest published annual results, available on the Municipal Securities Rulemaking Board website. Financial results for the full year 2011 aren’t published yet.
Since 2009, annual attendance at the stadium has dropped 27 percent, to 2.29 million last year, as the team lost more games than it won, according to Standard & Poor’s analyst Jodi Hecht.
Revenue from the stadium fell 12 percent through November, she said in a December report. Stadium managers’ projections of a rebound in attendance in 2012 to 2.5 million appear “aggressive,” she said.
Madoff, 73, pleaded guilty in 2009 to orchestrating what prosecutors called the biggest Ponzi scheme in history, and is serving a 150-year sentence in a federal prison in North Carolina. Picard and his law firm, Baker & Hostetler LLP (1155L), have charged about $273 million in fees for liquidating the Madoff firm since it collapsed in December 2008.
The case is Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan).