Judge Deals a Financial Blow to Mets Owners
By RICHARD SANDOMIR
A federal judge in Manhattan on Monday cleared the way for a jury trial on March 19 that could put the owners of the Mets on the hook for hundreds of million of dollars.
Jed S. Rakoff, a district court judge, not only rejected a bid by the team’s owners to have the remaining claims of a lawsuit filed by the trustee for the victims of Bernard L. Madoff’s fraud dismissed, but he also decided that the trustee was entitled to collect up to $83 million in fictitious profits from the men. He said the exact amount would be determined in a “subsequent order.”
Barring a settlement, the trial will focus principally on whether the Mets’ owners, Fred Wilpon and Saul Katz, were willfully blind to indications that Madoff was engaged in a fraud during their 25 years of investing with him.
If a jury finds that they turned away from those cautions to continue to reap the returns from their Madoff investments, the men could be liable for as much as $300 million.
Mets’ Owners Agree to Settle Madoff Suit for $162 Million
By RICHARD SANDOMIR and KEN BELSON
Published: March 19, 2012
Fred Wilpon and Saul Katz, the owners of the Mets, on Monday settled the federal lawsuit brought against them by Irving H. Picard, the trustee for the victims of Bernard L. Madoff’s Ponzi scheme, for $162 million. Picard, in turn, dropped all claims that the men turned a blind eye to warnings that Madoff was operating a fraud during their many years of investing with him.
The agreement, which must be approved by the court, is a significant victory for Wilpon and Katz. In addition to no longer having to fight a costly and damaging legal battle against a well-heeled opponent who accused them of being willfully blind, they are now obligated to pay a fraction of the $1 billion the trustee originally sought.
Wilpon and Katz, and their families and businesses, will not have to pay much money, if any, out of pocket. Instead, they will now be eligible to receive up to $178 million from the billions of dollars that the trustee collects from the net winners.
If they get the full recovery within three years, $162 million of it will go to the trustee; if not, Wilpon and Katz are responsible to pay the rest over the fourth and fifth years.
The settlement of $162 million represents the amount of fictitious profits that Wilpon, Katz and their associates withdrew from their Madoff-related accounts over the six years before the liquidation of Madoff’s businesses. The figure includes the $83 million that the Mets owners had already been ordered to pay the trustee by Judge Jed S. Rakoff of United States District Court. Sheehan said the chances of recovering all the money from the Mets owners was good, and it would allow the trustee to spend more time trying to recoup money from hundreds of other net winners.
“This settlement is for the benefit of all the customers,” David J. Sheehan, counsel to the trustee, said outside the courtroom. “That was our ultimate goal, to enhance the fund, which we did today, by $162 million. That is what we focused on. It isn’t whether we win or lose, it’s whether we enhanced the fund and helped the victims. That’s what we did today, so that’s why we did it.”
While Sheehan was eager to move on, legal analysts were mystified why the trustee settled for so little. Wilpon and Katz may not have to spend any money and the trustee no longer views them as having acted in bad faith.
“The terms seem too good to be true for Wilpon and Katz,” said Bradley D. Simon, a former federal prosecutor who now focuses on white-collar civil litigation for Simon & Partners. “I certainly consider this a capitulation by the trustee. It seems quite one-sided.”
Simon said Judge Rakoff’s rulings, in which he strongly expressed skepticism of the trustee’s ability to prove that the Wilpons turned a blind eye to the Madoff fraud, could have persuaded Picard and Sheehan to concede defeat in this case and instead turn their focus to the hundreds of other cases they have before them.
Annemarie McAvoy, a professor at Fordham Law and a former federal prosecutor, said the trustee had “done away with the risk that he might get nothing at trial.” She added, “He’s not getting $300 million, but he’s getting $162 million.”
Despite the settlement, the Mets are still under financial strain. They lost $121 million the last two seasons; slashed their player payroll by $50 million — the largest one-season cut — and were unable to retain their best player, Jose Reyes. They borrowed $25 million from Major League Baseball in late 2010, which is still unpaid, and another $40 million last year from Bank of America.
They also owe about $400 million to a syndicate of banks and are still in the process of raising $200 million from outside investors.
Jury selection in the trial had been scheduled to begin Monday morning after more than a year of acrimonious court filings and hearings. Mario M. Cuomo, the former New York governor who has been mediating high-profile disputes for decades, played a prominent role in mediating this settlement. Cuomo was appointed by the bankruptcy judge previously in charge of the case.