NEW YORK -- The trustee for victims of the Bernie Madoff Ponzi scheme is trying to recover $300 million, and possibly more, in what he calls fake profits from the owners of the New York Mets.
The lawyers for Mets principal owner Fred Wilpon countered that their accounts with Madoff went from $500 million to zero when the scheme was shut down. But trustee Irving Picard claims the Mets had already withdrawn profits and the balance of a fraudulent account doesn't matter.
He also claims that Wilpon and his associates knew or should have known that their gains were ill-gotten and wants victims compensated for that as well.
Lawyers for the Mets say Picard is only looking at funds in which the group withdrew more money than it invested, while other funds lost $160 million, and they have always claimed that they did not know Madoff was committing fraud.
The trustee's demand is made in a complaint ordered unsealed Friday in federal bankruptcy court in Manhattan.
The trustee's complaint names Fred Wilpon, chief operating officer Jeff Wilpon and others connected to the Mets and Sterling Equities as defendants. Lawyers agreed to make it public after settlement talks broke down.
"There are thousands of victims of Madoff's massive Ponzi scheme," the lawsuit reads. "But [Fred Wilpon's brother-in-law and Mets president] Saul Katz is not one of them. Neither is Fred Wilpon. And neither are the rest of the partners at [Wilpon-owned] Sterling Equities ['Sterling'] who, along with Fred Wilpon and Saul Katz, are sophisticated investors
who oversee and control Sterling and its many businesses and investments.
"The Sterling partners, their family members, their related trusts, and various entities they own, operate, and control were collectively one of the largest beneficiaries of Madoff's fraud, reaping hundreds of millions in fictitious profits over their quarter-century relationship with Madoff. The Sterling partners, their family members, trusts and Sterling-related entities made so much easy money from Madoff for so long that despite the many objective indicia of fraud before them, the Sterling partners chose to simply look the other way."
The Mets fired back in a statement.
"Contrary to what the Trustee asserts, the returns on the Sterling-related brokerage accounts were not 'staggering, easy money,' or 'too good to be true,'" a statement from the Wilpons' lawyers read. "The $300 million of profit alleged in the complaint, even if accurate, would not be 'staggering' or extraordinary when viewed in the context of the amount of principal invested over the past 25 years.
"In addition, the $300 million claimed in the complaint reflects only those accounts that the Trustee has selected for inclusion because they were profitable. It ignores numerous accounts that, in the Trustee's parlance, were 'net losers,' which, according to our clients' analysis, total approximately $160 million."
The lawsuit claims that the Mets owners and their businesses used their "close personal connection to Madoff" to support all of their enterprises.
"Sterling partners opened and administered 483 BLMIS [Bernard L. Madoff Investment Securities] accounts: approximately 300 for themselves, their families, their trusts and entities; and
the rest for their closest friends, employees, and business associates," the lawsuit says. "Madoff money flowed
through every aspect of Sterling's business."
"The Mets alone had 16 related BLMIS accounts from which Sterling withdrew
over $90 million in fictitious profits," the lawsuit adds, saying that money "helped fund its day-to-day operations."
In fact, the lawsuit says that Sterling was "so heavily invested" in Madoff that when his scheme was shut down, the group had to restructure "over half a billion dollars of Sterling's debt."
The Mets group denied that Madoff money fueled their enterprises.
"Madoff investments did not 'fuel' our clients' operating businesses. The Sterling partners' wealth was generated by their hard-earned success in real estate, sports, media, and other businesses -- not by investments with Madoff."
At the heart of the lawsuit are claims that Wilpon and his partners knew or should have known that Madoff was operating a fraudulent business.
"The warning signs were many and varied, ranging from cautionary counsel from
financial industry experts and trusted advisors, to Madoff's schemes to avoid regulatory scrutiny,
to the fact that the Sterling partners had even invested in a Ponzi scheme before BLMIS' collapse
that bore similar markings to another fraud right under their collective noses," the lawsuit says.
In fact, the lawsuit alleges that the Wilpon family was warned on at least three separate occasions in the past 10 years that Madoff's profits were suspect, most recently by Merrill Lynch.
One Sterling consultant advised Katz in 2003 that he "couldn't make Bernie's math work and something wasn't right," the court papers say.
The lawsuit says Sterling was on notice as early as 1991 that Madoff's firm was audited by a three-person operation in Rockland County, N.Y., that consisted of a certified public accountant, a semi-retired accountant and an assistant.
In 1996, it says, multiple banks refused to serve as custodian of Sterling's 401K plan because of concerns about Madoff's lack of transparency and inability to provide daily account balance information.
At one point after several financial news publications raised questions about the Madoff business in May 2001, Sterling considered getting fraud insurance that would have included a Ponzi scheme but Sterling ultimately rejected the insurance because coverage limits meant most of their money was uninsurable, according to the court papers.
The lawsuit said Sterling's Madoff accounts produced positive returns during the Black Monday stock market crash of 1987, the bursting of the dot-com bubble in 2000, the terrorist attacks of Sept. 11, 2001, and the recession and housing crisis of 2008.
"Remarkably, Sterling's [Madoff] investments were effectively immune from any number of market catastrophes, enjoying steady rates of return even during events that otherwise devastated financial markets," the lawsuit says.
The statement issued by Sterling's lawyers could not have been more clear in rejecting the claims of the complaint, even calling the lawsuit a "strong arm."
"The conclusions in the complaint are not supported by the facts," it reads. "While they may make for good headlines, they are abusive, unfair and untrue. We categorically reject them. We should not be made victims twice over -- the first time by Madoff, and again by the Trustee's actions."
Fred Wilpon and Jeff Wilpon announced last Friday they intended to explore selling 20 to 25 percent of the team to pay off any settlement stemming from the case. The sides said settlement talks broke down Thursday.
The lawsuit had been filed in U.S. Bankruptcy Court for the Southern District of New York in December under seal.
Madoff, 72, is serving a 150-year sentence in a federal prison in North Carolina after admitting that he ran his epic Ponzi scheme for at least two decades, using his investment advisory service to cheat thousands of individuals, charities, celebrities and institutional investors.
Losses are estimated at around $20 billion, making it the biggest investment fraud in U.S. history.