Monday, March 21, 2011

Madoff's Dealings with the Mets: Lookin' Shady to Me

The New York Mets have made the news recently but, unfortunately for them, it's not because their spring season is boding well for the rest of the season. Instead, the Mets are finding serious opposition is coming from the trustee in the Madoff case, Irving Picard, who is suing the Mets' owners, the Wilpon and Katz families, for $1 billion.

As it turns out, the Mets may have thought their biggest rivals were  the Yankees or the Phillies, but this year, they may start wondering if Picard is working for one of their rivals. Picard's amended case is 381 pages long and is likely to be a bigger challenge to the organization than any of those teams can muster. From what I can tell, the most potentially damning allegation in the case is Picard's contention that the Mets' owners knew Madoff was accustomed to doing shady business and that he transacted some such business with the owners. Here are some details that may pose a challenge to the owners as stated in a recent NY Times article on the matter:

First, Picard is alleging that the owners were in need of cash to close a television deal and were uncertain if their financing would come through in time. Additionally, the article alleges that "Wilpon and Katz sought to cash out $54 million from their vast array of longstanding accounts with Madoff." However, Bernie apparently "told the men he could not do that, that their accounts were 'in the market,' and instead offered to wire them, and their partners ... a $54 million interest-free, cost-free loan, according to the lawsuit." The article went on to explain:
“Although Madoff and Sterling agreed that the $54 million transfer from Madoff was a loan, Sterling prepared on Mets letterhead a letter agreement dated May 25, 2004 from Fred Wilpon and Saul Katz to Ruth Madoff that falsely described the transaction as an investment by Ruth Madoff in the company that would later become SNY.”
The letter, the lawsuit said, was signed by Wilpon, Katz and Ruth Madoff.
In the end, the money from the banks came through, and Wilpon and Katz returned the $54 million to Madoff a day after receiving it. Ruth Madoff does not appear to have ever truly become an investor in SNY. And, at no time, Picard charged, did Wilpon or Katz ever speak to Ruth Madoff about the investment.
For Picard, it seems clear, the deal is important in two ways:
(1) As he asserts elsewhere in the lawsuit, Picard says Wilpon and Katz used Madoff and his money as their own bank, a source of loans that they would not have to disclose to the many banks from which they were, year in and year out, borrowing vast amounts of money.
(2) It established that Madoff was willing to participate in what amounted to a shady transaction, a fact, Picard asserts, that was one of many reasons Wilpon and Katz had to wonder about just how legitimate Madoff’s investment operation was.
The loan and the fraudulent investment letter, the lawsuit says, demonstrate that Katz and Wilpon “were on notice that Madoff would work with them to knowingly falsify a significant business transaction.”
If these allegations hold up under closer scrutiny, Picard has a pretty strong case against the Mets' owners. If it goes to court, the Wilpons and Katz families will probably not receive much sympathy from a jury who hears they were involved in shady dealings with Madoff. It's more likely that a jury will look at the Mets' owners as deep pockets who did shady business with Bernie and they ought to forfeit some of their spoils in order to help those who lost millions with Bernie.

As for the other side of the story, the NY Times article said that the general counsel for the Mets had this to say:
“This is more nonsense from the Trustee,” he said. “The $54 million represented funds the Sterling partners had invested with Madoff, as the Trustee acknowledges. As the Trustee also acknowledges, that money was never used — and in fact was returned the next day — because the necessary funds were received from Sterling’s lenders by the buyout deadline, and were used to fund the buyout.”
Sounds like a boiler plate denial to me. Hopefully, time will whether the Mets owners knew Bernie was shady...

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