Notes on a Ponzi scheme: How Picard will try to hobble the Wilpon witnesses before they even get going
Citi Field. paul.hadsall, via flickr
10:10 am Mar. 14, 2012
Considering that the owners of the New York Mets and the trustee for the victims of Bernie Madoff’s Ponzi scheme are selling two very different versions of events—the trustee is suing for an amount of money that would likely break the owners financially, or at least force them to sell the team—the witness lists both sides have submitted for the upcoming trial in Southern District Court look awfully similar.
The trustee, Irving Picard, will be attempting to prove to a jury that the Mets owners knew or should have known what Madoff was doing on their behalf; he’s hoping to force the Mets owners to pay back $386 million in alleged “false profits.”
Of the 18 witnesses to be called by Picard and the 12 scheduled by to be called by the attorneys for Mets C.E.O. Fred Wilpon and his business partners, five overlap: Wilpon’s business partner and brother-in-law Saul Katz; Mark Peskin, the C.F.O. of Wilpon’s company, Sterling Equities, and the New York Mets; Peter Stamos, the C.E.O. of holding company Sterling Stamos; Arthur Friedman, a Sterling partner; and Steve Kenny, an executive with Fleet Bank (now Bank of America).
Of the other seven to be called by Wilpon's attorneys, four are big-name character witnesses who are being challenged by Picard as irrelevant: Hall of Fame pitcher Sandy Koufax, former Manhattan district attorney Robert Morgenthau, North Shore-LIJ president Michael Dowling and C.E.O. of First Long Island Investors Robert Rosenthal.
If the trustee prevails in striking those four, just three witnesses for the defense will not first have been called first by Picard—Fred Wilpon, former Sterling Stamos chief strategist Ashok Chachra and the managing director at American Securities, Charles Klein.
A detailed look at the witnesses have already testified to reveals exactly how crucial the judge’s decision may turn out to be about the four witnesses whom the trustee wishes to strike. Because Picard will have the means of treating the rest of them pretty rudely.
In Katz, the defense will present the jury with a defendant who has testified that he simply doesn't remember a large portion of what makes up the trustee's case—namely, conversations he had in which he was allegedly told explicitly that Madoff’s returns were impossible to achieve by legitimate means—even though he was present for almost all of it, based on the documents he signed or by uncontested notes from meetings.
Katz has testified that he doesn't remember a meeting described by Noreen Harrington, the whistle-blowing former C.I.O. of Sterling Stamos, who said she told Katz that Bernie Madoff was either front-running or “a fiction.” Katz has also testified that he doesn’t remember getting angry in response to being told this information, as Harrington recalls.
Katz also has said in his previous depositions that he doesn't remember signing a paper he acknowledged as fraudulent, pretending that a $54 million payment from Sterling's Madoff accounts was actually an investment in the cable network that would become SNY from Ruth Madoff. He did acknowledge that the signature on the document was his, however.
And he says he doesn't remember signing it though acknowledges that he did sign a letter to the New York attorney general in 2000 which withheld Bernie Madoff's name from a questionnaire about the investment decisions made by the Iris and Saul Katz Family Foundation, after his partner Friedman received guidance from Madoff's office about how to answer the questions.
Picard will point to Katz's repeated memory lapses to undermine his credibility from the start of the case. Picard has Katz scheduled second, after Bruce Dubinsky, an expert witness.
Friedman is third on the trustee's list, and he is problematic for the defense as well. He served as the Sterling partners' liaison to Madoff, oversaw the company's 483 Madoff accounts, and reported their status at Sterling meetings. His deposition also described a number of times when the Sterling partners had “raised an eyebrow” of suspicion over Madoff, specifically due to S.E.C. investigations. This could be problematic, too, since both Wilpon and Katz gave depositions saying that they never heard anything about an S.E.C. investigation after 1992.
But this is a symptom of the larger issue: Friedman's testimony is full of detailed accounting he provided to Katz and Wilpon, potentially hurting the defense's case that the two men were unsophisticated investors who had no idea how Madoff was coming up with the steady stream of money that fueled their business and the operations of their baseball team.
Peskin, who still serves as C.F.O. of the New York Mets and Sterling Equities, will certainly be asked about the ample evidence of these communcations, such as emails and notes from Sterling meetings, and about the need to use Madoff account money to simply meet basic operating expenses of the team. Peskin will also be asked about the testimony of Joseph M. Reese, an adviser who told the Mets that offering Madoff as an alternative for their 401K plan for Sterling employees was grossly irresponsible.
It is worth noting that elsewhere in the filing that includes the witness lists are a number of facts that both sides agree are not in dispute. One of them reads: “Revenues generated by Mets operations typically were deposited into Mets-related BLMIS accounts when they were earned, often before the start of the baseball season, and then were withdrawn during the course of the baseball season as needed to meet expenses.”
The agreed-upon language negates the argument Fred Wilpon still makes publicly that he had no idea Madoff's collapse would affect the operations of the Mets until the lawsuit happened, and goes a long way toward explaining why the Mets are still having trouble meeting basic operating expenses to this day without Madoff profits.
And Peskin's testimony, based on his deposition, will support a key tenet of the trustee's argument, which is that the reason the Sterling partners stayed with Madoff wasn't because they had no suspicion something was amiss, but rather that they needed the money far too much to withdraw it.
Stamos is not a defendant, but still works as the C.E.O. of Sterling Stamos. His testimony on the Wilpon group’s behalf will be countered by emails his brother Basil (who is on Picard's witness list) and Chachra sent touting his foresight about Madoff immediately following Basil's discovery of the fraud.
Klein, who is also being sued by Picard, famously purchased fraud insurance against his Madoff holdings at American Securities, and suggested that the Sterling partners do so as well.
That leaves Fred Wilpon, who has acknowledged signing the fraudulent documents in the case of the $54 million loan from Madoff and a document sent to the New York attorney general back in 2000 that was identical to Katz's. Wilpon has testified that he doesn't recall signing any of them.
