Bloomberg News

Mets Owners Win Review of Madoff Trustee’s $1 Billion Lawsuit

June 11, 2011

June 11 (Bloomberg) -- New York Mets owners Fred Wilpon and Saul Katz won the right to a federal judge’s review of a $1 billion lawsuit against them by the trustee liquidating Bernard Madoff’s firm.

The owners of the Major League Baseball team asked U.S. District Judge Jed Rakoff in Manhattan last month to decide whether trustee Irving Picard, hired to liquidate Madoff’s firm, has a right to sue them on behalf of Madoff’s clients. Rakoff set a hearing on the case for July 1, according to a June 6 court filing.

Picard sued the Mets owners in bankruptcy court in December, demanding return of $300 million in what he called “fictitious” profit and $700 million in principal taken out of the Madoff firm by Sterling Equities Inc. and its partners. An amended suit in March was “rife with false allegations,” and raises “significant questions” about Picard’s interpretation of federal legislation, the Sterling partners said in their request to Rakoff.

A higher court’s ruling on the case might affect many of Picard’s lawsuits, according to Wilpon and Katz. The trustee has filed more than 1,000 suits seeking $90 billion for Madoff investors.

“Resolution of these issues will directly affect the resolution of this case and likely will affect all of the cases brought by the trustee against BLMIS customers,” they said in their May filing, referring to Bernard L. Madoff Investment Securities LLC.

Right to Sue

The Mets owners’ move to take their case out of bankruptcy court is another challenge to Picard, who with his firm has charged more than $175 million for work since Madoff’s 2008 arrest.

U.S. District Judge Colleen McMahon in Manhattan has said she will decide whether the trustee has the right to sue JPMorgan Chase & Co. for $6.4 billion on behalf of Madoff customers, as Picard claimed he did. HSBC Holdings Plc has asked Rakoff to dismiss a $9 billion lawsuit against it and so-called feeder funds, saying Picard doesn’t have legal authority to bring such suits on behalf of Madoff customers.

Rakoff also is reviewing whether Picard has the right to use U.S. racketeering law against Italy’s UniCredit SpA.

Amanda Remus, a spokeswoman for Picard, didn’t immediately respond yesterday to an e-mail seeking comment.

Wilpon and Katz contend Picard is seeking to recover money that Sterling took out from Madoff’s firm as far back as 25 years ago, wrongly deeming the withdrawals to be fraudulent. Under federal regulations, brokerages must issue customer statements and trade confirmations that are “legally enforceable evidence” of a broker’s obligation to customers, entitling customers to take out money, they said.

Valid Debt

“By definition, a transfer to a creditor that discharges a valid debt -- such as BLMIS’ transfers to customers -- cannot be avoided as fraudulent,” they said.

The Sterling partners also challenged Picard’s assertion that they should have investigated Madoff instead of ignoring warnings that he may have been a fraud. The assertion was key to Picard’s demand that Sterling should return all money taken from their brokerage accounts.

“The trustee’s legal conclusions are unprecedented,” Sterling said. “The Sterling defendants were customers of a registered broker. No federal securities law imposes upon a brokerage customer a duty to investigate his broker to ensure that the broker is not engaging in fraud,” they said.

The bankruptcy court case is Picard v. Katz, 1:10-ap-05287, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The review is Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan).

--Editors: {Fred Strasser}, {Glenn Holdcraft}

To contact the reporter on this story: {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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