Mets Owners Say Jury Must Hear of SEC ‘Inaction’ on Madoff

Hall of Fame pitcher Sandy Koufax and former Manhattan District Attorney Robert Morgenthau will be called as witnesses in a trial of whether the owners of the New York Mets can keep $303 million they withdrew from Bernard Madoff’s Ponzi scheme.

The trustee liquidating Madoff’s firm claims the owners, Fred Wilpon and Saul Katz, blinded themselves to evidence of Madoff’s fraud and shouldn’t be allowed to keep the principal they withdrew before the fraud became public in 2008. Wilpon and Katz intend to use Koufax and Morgenthau to show the jury they were unaware Madoff was a con man, they said in court papers filed yesterday.

“Mr. Koufax will testify about how he came to open his account and the positive things Mr. Wilpon told him about investing with Madoff Securities,” according to the filing. “It strains credulity to think that Mr. Wilpon would expose his oldest and closest friend to potential financial ruin -- for no benefit to Mr. Wilpon himself -- if he subjectively believed that Madoff Securities might be operating a Ponzi scheme.”

Koufax and Morgenthau were named on a list of 12 witnesses, including Wilpon and Katz themselves, who the owners plan to call at the trial. The disclosures came in a flurry of court papers filed yesterday and today, giving a preview of the evidence both sides expect to present in the trial scheduled to begin March 19 in Manhattan federal court.

Profits and Principal

The trustee, New York lawyer Irving Picard, sued Wilpon and Katz in 2010, along with dozens of family members, trusts and related businesses, trying to get $1 billion in profits and principal they withdrew from their Madoff accounts. In a series of rulings, U.S. District Judge Jed Rakoff has limited the amount Picard may claim.

Today, Rakoff dismissed 32 of the defendants saying they weren’t affected by the trustee’s remaining claims against the Mets owners. The dismissed entities include Brooklyn Baseball Company LLC, Charles 15 Associates and Sterling American Property III LP, according to Rakoff’s court order.

Rakoff ruled on March 5 that the Mets defendants must give up as much as $83 million in fictitious profits from Madoff’s Ponzi scheme and face a trial over whether they acted in bad faith, a decision that could cost them the $303 million in principal withdrawn from their Madoff accounts. In the ruling, Rakoff said he is “skeptical” that Picard can prove Wilpon and Katz acted in bad faith.

Nine Jurors

Rakoff last week said nine jurors will hear the case and set other rules for the trial. The parties said they expect the trial to take 10 days, which may result in a verdict before the team opens the season against the Atlanta Braves on April 5.

Wilpon and Katz said in court filings they should be able to tell jurors about the failure of the Securities and Exchange Commission to take action against Madoff before his arrest in December 2008.

The Mets owners said they invested with Madoff believing his firm was regulated, they said. The fact that the SEC never imposed sanctions on the con man can help them establish they trusted their money manager and weren’t turning “a blind eye” to the available information about his operations, they said.

“The absence of any regulatory action against Madoff Securities is relevant to defendants’ good faith,” Wilpon and Katz said.

SEC spokesman John Nester declined to comment on the Mets owners’ filing.

High School Ball

Koufax, who was elected to Baseball’s Hall of Fame in 1972, played high school baseball with Fred Wilpon in Brooklyn, according to a court filing. He held a Madoff account maintained by the Mets’ owners.

Morgenthau will testify that in 2006 Wilpon donated $500,000 to the Police Athletic League, of which Morgenthau was chairman. Wilpon suggested to Morgenthau that the money be invested with Madoff’s firm, according to the filing.

Wilpon wouldn’t have encouraged Koufax, one of his oldest friends, and Morgenthau, who was then Manhattan District Attorney, to invest in Madoff’s firm if he had thought it was a fraud, the Mets owners argued.

Picard asked Rakoff to bar the testimony of Koufax and Morgenthau, claiming their testimony is intended to improperly influence the jury in favor of the defendants.

Koufax, 76, was born in Brooklyn and played his entire career for the Dodgers in Brooklyn and Los Angeles, retiring in 1966 at the age of 30 with three Cy Young Awards, one Most Valuable Player Award, four no-hitters, one perfect game and the nickname “The Left Arm of God,” according to Baseball- Reference.com. He was youngest man ever elected to the Hall of Fame, at the age of 36 in 1972.

Morgenthau

Morgenthau, 92, began his prosecutorial career when President John F. Kennedy appointed him U.S. Attorney in 1961. As district attorney he prosecuted cases ranging from street crime to securities fraud, including one against former Tyco International Ltd.’s former chief L. Dennis Kozlowski, convicted in 2005 of looting the company. Morgenthau retired as D.A. in 2009 and is now in private practice.

The Police Athletic League was founded in 1914 by New York Police Commissioner Arthur Woods as a not-for-profit to help New York City children. The league offers after school and summer activities, including day camps and Head Start programs. On its website, it describes itself as the city’s “largest independent youth development non-for-profit organization.”

Fees

Separately, Picard sought to bar evidence about his fees from the trial. He 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.

He and the Mets owners also sparred in court filings about how each should portray the issues to the jury, using particular phrases. According to Picard, the $303 million is really “other people money.” Picard said they are trying to portray him as stealing from the rich to give to the poor. The Mets owners say the money is rightfully theirs.

Picard is also fighting to present evidence that a Merrill Lynch executive articulated his doubts about Madoff to Sterling Stamos, a hedge fund run by Peter Stamos, chairman of Major League Baseball’s investment advisory board, with the Mets owners as partners.

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.

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

To contact the reporters on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net Linda Sandler in New York at lsandler@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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