Feb. 4 (Bloomberg) -- The trustee in the Bernard Madoff bankruptcy is seeking more than $295 million from the owners of the New York Mets, claiming they ignored warnings of the fraud because they were “in too deep” financially.
In a complaint unsealed today, the trustee, Irving Picard, is seeking to recover alleged phony profits from Madoff’s scheme from Sterling Equities Inc., which owns the Mets baseball team, along with Mets LP, Mets Chairman Fred Wilpon, Mets president Saul Katz and chief operating officer Jeff Wilpon, and almost 100 related parties. Picard also claims an unspecified amount of principal from the Sterling defendants.
“The Sterling partners were simply in too deep -- having substantially supported their businesses with Madoff money -- to do anything but ignore the gathering clouds,” according to the complaint. “Despite being on notice and having every resource at their disposal to investigate the litany of legitimate questions surrounding Madoff, the Sterling partners chose to do nothing.”
The complaint was filed under seal Dec. 7, to facilitate settlement negotiations in the case, the trustee and the owners said. Yesterday, both sides sent letters to U.S. Bankruptcy Judge Burton R. Lifland in Manhattan telling him that the talks had ended amid media disclosure of some of the contents of the complaint.
“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,” Fred Wilpon and Saul Katz said in a statement today. They called the allegations in the complaint “abusive, unfair and untrue.”
The Sterling partners had more than $500 million in their Madoff accounts at the time of his failure, their lawyers said in a statement today.
Wilpon and Katz said that none of the Sterling partners ever suspected Madoff was running a fraud.
According to the complaint, the Mets used $90 million in Madoff profits to help fund the team’s day-to-day operations.
Sterling also used Madoff profits to meet capital commitments for its real estate funds, Picard said in the filing. Madoff profits also provided cash flow for Sterling’s internal bank, “a clearing house” for funds and obligations among Sterling partners, their families and trusts, he said.
Picard claimed that the Wilpon and Katz families had a “close friendship” with Madoff and his family that began in the late 1970s, often inviting him to weddings and bar mitzvahs.
The relationship between Madoff and the Wilpons started with their children, according to the complaint. Fred Wilpon’s son Jeffrey and Madoff’s sons, Mark and Andrew, attended school together.
Sterling, founded in 1972, opened its first Madoff account in 1985. Madoff held Mets season tickets with seats close to Fred Wilpon and Saul Katz.
Picard said Fred Wilpon, Saul Katz and Sterling Equities were “sophisticated investors” who should have known the returns they were getting from Madoff were impossible to sustain. They turned a blind eye to warnings about Madoff and opened 483 accounts with Madoff. The Sterling partners’ family, trusts and other entities held about 300 accounts, making them one of the biggest beneficiaries of Madoff’s fraud, Picard claimed.
The rest of the accounts, including their employees’ 401(k) savings plan, were invested with Madoff, Picard said in the complaint. Sandy Koufax, the Hall of Fame pitcher, and Tim Teufel, who played second base for the Mets team that won the 1986 World Series, had Madoff accounts through Sterling.
Sterling ignored specific warnings about Madoff, from advisers and business partners including Merrill Lynch & Co. and from Sterling Stamos, a hedge fund run by Sterling and Peter Stamos, chairman of Major League Baseball’s investment advisory board.
The firm continued to invest with Madoff even after losing money to the $400 million Bayou Group LLC Ponzi scheme orchestrated by the hedge fund’s co-founder, Samuel Israel III.
“There are thousands of victims of Madoff’s massive Ponzi scheme,” Picard said in the complaint. “But Saul Katz is not one of them. Neither is Fred Wilpon. And neither are the rest of the partners at Sterling Equities.”
The Wilpons said last week that they might sell as much as 25 percent of the Mets because of Picard’s lawsuit, after insisting for months that the club was safe from the biggest Ponzi scheme in U.S. history.
Madoff, 72, pleaded guilty to masterminding the fraud in March 2009 and is serving a 150-year prison sentence. At the time of his arrest in December 2008, his account statements reflected 4,900 accounts with stated balances of $68 billion. Investors lost about $20 billion in principal, Picard has said.
In addition to its direct losses on its Madoff investments, Sterling used its Madoff accounts as collateral for loans, according to the Picard complaint. Sterling faced “a liquidity crisis” when Madoff’s fraud was revealed in late 2008 and was forced to restructure more than $500 million in debt, Picard claimed.
At a news conference in October, Fred Wilpon said the Mets “absolutely” have the financial resources to pursue free agents and field a winning team. Later that day, in an interview on New York’s WFAN Radio, Jeff Wilpon said the Mets hadn’t been financially damaged by the family’s investment losses in the Madoff fraud.
The father and son owners said Jan. 28 that they hired Steve Greenberg, a managing director at Allen & Co., as their adviser to address “the air of uncertainty” created by the lawsuit. On a conference call, the Wilpons said they would remain principal owners.
The Mets were the third-highest-valued team in the major leagues at $858 million, behind the Yankees, at $1.6 billion, and Boston Red Sox, at $870 million, Forbes magazine said in April 2010. It said the Mets’ value had dropped 6 percent from 2009, with $268 million in revenue and operating income of $26.2 million.
A sale of 20 percent to 25 percent, as outlined by the Wilpons, would be worth $171.6 million to $214.5 million, based on the Forbes figures. Greenberg said the market for the team “has never been stronger.”
The Wilpons said any sale wouldn’t involve Citi Field, their home stadium, or SportsNet New York, their regional sports network. That unit was created by Sterling Entertainment Enterprises, Time Warner Inc. and Comcast Corp. in 2006, according to the network’s website.
Fred Wilpon and Nelson Doubleday purchased the Mets for $80.8 million in 1986, after Doubleday & Co. was purchased by Bertelsmann AG. The co-owners’ relationship deteriorated and Wilpon bought Doubleday’s share of the team for $131 million in August 2002, according to the New York Times.
The complaint quotes from e-mails that purport to show that people at Sterling were warned that Madoff was running a fraud. In one e-mail from 2008, sent the day after Madoff was arrested, a Sterling Stamos employee wrote:
“Our CIO always said it was a scam ‘too good to be true.’ Well, there (you) go. It was too good to be true.”
The case is Picard v. Katz, 10-AP-5287, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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