The owners of the New York Mets asked a judge to end a $386 million lawsuit by the Bernard Madoff brokerage trustee without a trial, saying at a hearing yesterday that he hasn’t proved his contention that they ignored the fraud because it benefited their business.
U.S. District Judge Jed Rakoff threw out most of Madoff trustee Irving Picard’s $1 billion lawsuit against the baseball team’s owners last year, saying he could pursue only $386 million at a trial set to start March 19 in Manhattan federal court. To get most of the money, Rakoff said Picard must prove the defendants, including Fred Wilpon and Saul Katz, were willfully blind to Madoff’s crimes, which Picard has said cost investors about $20 billion in principal.
Rakoff banned two witnesses for the trustee from testifying, including Harrison Goldin. The Mets owners lost one of their witnesses. Rakoff said he will rule on the Mets owners’ dismissal request on March 5.
Wilpon and Katz contend they should be allowed to keep the $386 million. Picard isn’t entitled to a trial because he hasn’t proved what Rakoff said he was supposed to, Karen Wagner, a lawyer for the Mets owners said in a court filing this month.
“There is no evidence that any defendant believed Madoff was a fraud and deliberately ignored it” as Picard alleged, Wagner told Rakoff yesterday. Wilpon and Katz were “completely open” about their Madoff investments, showing them to their banks and using them as collateral for loans, she told Rakoff. “They wouldn’t have done that if they’d thought there was anything to hide.”
Saying Picard had failed to show willful blindness as alleged, and as he was legally required to take back most of the money he sought, she cited the case of a woman carrying a bulging suitcase who was held to be willfully blind because she failed to open it to check what was inside. Wilpon and Katz had no such obvious reason to suspect Madoff, she said.
David Sheehan, a lawyer for Picard, said the defendants were sophisticated investors and he believed a jury would see willful blindness.
Sheehan asked Rakoff to let Picard claim $83 million before the trial, leaving a jury to decide the rest of the suit. To get that amount, which the Mets owners received as profit from Madoff’s Ponzi scheme in the two years before his 2008 arrest, Rakoff said Picard need only prove that Wilpon and Katz took the money without giving equal value in return.
Madoff, 73, pleaded guilty in 2009 to orchestrating what prosecutors called the biggest Ponzi scheme in history. He is serving a 150-year sentence in a federal prison in North Carolina. Picard and his law firm, Baker & Hostetler LLP, have charged about $273 million in fees for liquidating the Madoff firm since it collapsed in December 2008.
Picard can’t take back the $83 million in fictitious profits because the money was owed by a registered brokerage to its clients, the Mets owners said in a court filing.
The Mets owners, after losing money in the Ponzi scheme and an income stream from Madoff, have said they are trying to sell stakes in the Major League Baseball team. They have cut the team’s payroll and hired a restructuring firm to advise on their finances, which remain under threat from Picard’s claims.
Picard contends the Mets owners had a financial motive to ignore Madoff’s fraud. Wilpon and Katz were so “hooked” on money from Madoff that they used it in place of disability insurance for the baseball team and to fund players’ deferred-compensation plans, the trustee told Rakoff in a court filing. The Mets’ Madoff accounts also funded working capital, as well as insurance and compensation, he said.
‘Bridge the Gap’
“When faced with cash crunches from week to week, the Mets routinely and confidently relied on future Madoff returns to bridge the gap,” with any excess cash going back into Madoff’s firm, Picard said in a Feb. 9 filing. “The Mets relied on Madoff’s returns as a predictable source of income for a business -- professional baseball -- with an otherwise unpredictable revenue stream.”
Profits from real estate and other businesses went into Madoff accounts, which provided “guaranteed returns” that were used to pay quarterly taxes, living expenses and loan interest, Picard said. The assets of the team owners’ company, Sterling Equities Inc., including their stake in television network SportsNet New York, “are by their very nature illiquid, meaning they could not and cannot provide cash on demand when needed by the many Sterling businesses,” he said.
$1 Billion Demand
Picard originally demanded $300 million in profit and $700 million in principal from Wilpon, Katz and a group of family members and related entities. Rakoff last month refused to allow Picard to appeal the judge’s September decision dismissing all or part of nine of 11 claims against the Mets owners.
The Sterling partners built a successful business before investing in Madoff, they said in a Jan. 26 filing. They have said they were drawn to Madoff because of his prominence in the investment community, and entrusted hundreds of millions of dollars to him before losing $500 million in the fraud.
The case is Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan).