Bloomberg News

Mets Owners Begin Trial to Deny $303 Million to Madoff Trustee

March 16, 2012

The New York Mets owners are about to try to convince a jury they have the right to keep $303 million they withdrew from Bernard Madoff’s Ponzi scheme.

For Mets owners Fred Wilpon and Saul Katz, a defeat in a trial that begins Monday could deal another blow to the baseball team’s finances, after the partners lost $500 million with the con man. For Madoff trustee Irving Picard, a loss might make it difficult to take investors’ principal in some of the 280 similar lawsuits awaiting U.S. District Judge Jed Rakoff’s attention after the Mets trial.

“The stakes are greater for Katz and Wilpon,” said Peter Henning, a former Securities and Exchange Commission lawyer who teaches at Wayne State University in Detroit. “If they were to lose, it’s Armageddon for the team -- and they have to come up with a lot of cash. The stakes are less for Picard because he doesn’t have skin in the game.”

Rakoff ruled on March 5 that the Mets defendants must return to Picard as much as $83 million in fictitious profits from Madoff’s Ponzi scheme and face a trial over whether they blinded themselves to Madoff’s fraud and should give back principal they withdrew before the fraud became public in 2008. In the ruling, Rakoff said he is “skeptical” that Picard can prove Wilpon and Katz acted in bad faith.

“When you have a judge who has already indicated hostility to one party’s theories, it’s going to be an uphill battle for that party,” said Michael Clark, a former federal prosecutor at Duane Morris LLP in Houston who has tried about 100 cases. “Even with a jury, a judge can strongly influence the outcome.”

Screening Jurors

In screening jurors, it would be risky for Picard’s lawyers to ask if they have read press reports about the judge’s skepticism, Clark said. “If they haven’t read it, you’ve brought it to their attention.”

The trustee’s lawyers “would certainly want to know” how many prospective jurors have strong feelings about the Mets, he said. Conversely, the Mets owners’ lawyers will want to know how many have strong feelings about the team’s owners, he said.

“A lot of people feel the owners are responsible for the team’s problems,” said Clark.

Wilpon and Katz must prove they acted in good faith when they took their money from the Madoff brokerage, Rakoff said on March 14. Rakoff hasn’t yet ruled on what evidence each side will be allowed to present to the jury.

The Mets owners intend to use Hall of Fame pitcher Sandy Koufax and former Manhattan District Attorney Robert Morgenthau to show the jury they were unaware Madoff was a con man, they said in court papers.

Preview of Evidence

Koufax and Morgenthau were named on a list of 12 witnesses, including Wilpon and Katz themselves, whom the owners plan to call at the trial. The disclosures came in a flurry of court papers filed this week, giving a preview of the evidence both sides expect to present to nine jurors in the 10-day trial in Manhattan federal court. The timeframe may bring a verdict before the Mets open the baseball season against the Atlanta Braves on April 5. Picard has objected to the calling of Koufax and Morgenthau, and Rakoff hasn’t ruled on whether he will permit it.

Trimming the team’s costs, the Mets owners cut the basic payroll to about $90 million this season, from $140 million last year. They also have sold seven minority stakes in the team, valued at $20 million each, mostly to existing business partners, Wilpon said last month. The money will be used to pay $65 million of short term loans from Major League Baseball and Bank of America Corp. A $303 million loss in the trial would hurt.

Picard’s Fees

Picard, a New York bankruptcy lawyer, wants Rakoff to stop the Mets owners from discussing his fees in front of the jury. He and his law firm, Baker & Hostetler LLP, have charged about $273 million for their work on the Madoff estate so far. Like the Mets, he can appeal to a higher court if he loses.

However, Rakoff is making it harder for the trustee to use lawsuits to pay other Madoff customers. Besides cutting Picard’s original claims against the Mets by about two-thirds, Rakoff and another district judge, Colleen McMahon, have tossed about $90 billion of Picard’s claims against banks including JPMorgan Chase & Co. Picard is appealing the rulings.

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.

Old Friend

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.

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, Rakoff has limited the amount Picard may claim.

Earlier this week, the judge dismissed 32 of the defendants, including Brooklyn Baseball Company LLC, Charles 15 Associates and Sterling American Property III LP, saying they weren’t affected by the trustee’s remaining claims against the Mets owners.

Fictitious Profit

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 it collapsed. To take it back, Picard has said he only has to prove that Madoff was running a fraud.

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 editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; John Pickering at jpickering@bloomberg.net


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