Judge throws out two experts hostile to the Wilpon partners, but the most damning witness still looms
Fred Wilpon and his partners in Mets ownership could really use a win.
Their team, with its payroll ravaged by the owners' financial missteps, has struggled on the field. They lost hundreds of millions of dollars when Bernie Madoff's Ponzi scheme was exposed, after relying on that same scheme for years as a steady source of cash. They are approaching repayment deadlines on hundreds of millions in debt against their baseball team, their cable network and their stadium.
And, of course, Irving Picard, trustee for the Bernie Madoff victims, is suing Wilpon and his partners for $386 million for the "fictitious profits" paid out to Wilpon and his partners, and for the principal they invested over the final two years of Madoff's fraud.
In only one place can it be said that the Mets ownership group has experienced any kind of sustained success: in the Federal District courtroom of Judge Jed S. Rakoff. On Thursday afternoon, fighting on a number of legal fronts—including one that could be the ownership group's death blow—Wilpon and his partners received a split decision on expert testimony that was, on balance, a minor victory.
As for the larger questions—whether Picard will win a summary judgment that would effectively set the floor for Wilpon and his partners at $83 million, or whether the Wilpon group will succeed in getting the case dismissed entirely—the judge said he will rule by March 5. The trial date is set for March 19.
The discussion over allowing a pair of experts testify for the trustee—Steve Pomerantz and Harrison J. Goldin—and allowing an expert for the Wilpon group, John Maine (who is an authority on industry practices, not the once-promising former Mets pitcher of the same name), largely centered around the first two, and whether the usefulness of their expertise would be outweighed in practical terms by its potentially prejudicial effect on the jury.
In the case of Pomerantz, who would have testified about industry standards, the trustee wished to provide the jury with a baseline of practices, providing a contrast with the practices employed by Wilpon, Saul Katz and the other partners. Goldin would have provided particular expertise about the due diligence involved in 401K and other retirement plans.
Early in the presentation of Wilpon attorney Robert Wise, Rakoff asked whether Wise intended to call Maine regardless of Rakoff's decision about Pomerantz and Goldin. Wise indicated that Maine was essentially a defensive measure. After further arguments, Rakoff took the path of least resistance, and struck all three expert witnesses. He cited Federal Rules of Evidence Section 403, which essentially says expert evidence may be struck, even if relevant, if it is prejudicial, confusing or misleading.
Rakoff said that the rule clearly applied to Maine and, in a “more sophisticated way," applied to Pomerantz and Goldin as well. He promised written opinions to elaborate on the decision.
As for the larger questions of summary judgment: Rakoff spent a significant portion of the time considering the testimony of Noreen Harrington, the former Chief Investment Officer of Sterling Stamos. Rakoff read pages of Harrington's testimony aloud in the courtroom.
Harrington testified that she told Wilpon's partner Saul Katz in 2003 that she believed, given his methods and returns, that Bernie Madoff was either front-running, or an outright fiction. (Either action is fraudulent.) She testified that Katz grew angry in response. Harrington said she'd manage to clear things up if she could meet with Madoff and go over his practices. She never received that meeting, and when she was told that Sterling Stamos would be investing in a Madoff feeder fund, she resigned. Katz, in his testimony, says he doesn't remember the meeting.
The Wilpon defense on this point is complicated-sounding, perhaps by design on their part. For one thing, the defense rests on the idea that the reason Harrington never got her meeting is that she quit soon after asking for it. This ignores a vital intervening detail, which is that Harrington was told by Sterling Stamos C.E.O. Peter Stamos that the investment was to go ahead, making any due diligence on Harrington's part moot. It also ignores that this is precisely why Harrington says she resigned.
The other part of the defense is based on the idea that while Harrington cited the incompatibility of Madoff's pretend strategy with his returns, she didn't provide further evidence in that initial meeting. That evidence, of course, would have come from the meeting with Madoff.
Harrington is the part of the trustee's case that brings every element of it together—an industry expert who was engaged in sophisticated analysis for Saul Katz in his role on the board of a large investment fund (in the trustee's parlance, a sophisticated investor), who brought the reasons to suspect Madoff directly to Katz, and who watched Katz respond by turning away. Nothing to infer there, as the trustee sees it.
If Rakoff doesn't view that testimony as evidence that's relevant to what a jury could find as part of a willful blindness verdict, he could choose to dismiss the remainder of the case, sending it to the Second Circuit Court of Appeals and short-circuiting the March 19 trial. Essentially, Rakoff would have to decide that Harrington's testimony wouldn't be sufficiently useful in helping the jury decide what the partners knew and when they knew it, even if the testimony is determined to be perfectly true.
As for the $83 million sought by the trustee, Rakoff was more circumspect. Rakoff has suggested, back in a Sept. 27 opinion, that Picard “might well prevail” if he filed for summary judgment in the matter. And the method the trustee used in determining the $83 million sum came down to cash in minus cash out, or the “net investment method.” The trustee believes that standard should be applied over the final six years of Madoff's fraud, and will likely raise that on appeal regardless.
But even an $83 million judgment would be immediately problematic for Wilpon and his partners, who would have the choice of either paying that $83 million, or posting a bond worth 110 percent of that total simply to appeal. For a group still trying to raise money just to pay back some fast-approaching loans, such a judgment could prove their undoing.
If anyplace is likely to give the ownership group some news it desperately needs, though, it is this particular court—a home field for Wilpon and his partners in a way Citi Field, sadly, has never been.