A federal appeals panel reviewing a compensation plan for former clients of disgraced financier Bernard Madoff cast doubt on claims by the embattled owners of the New York Mets and other investors that they have a right to keep millions of dollars of fictitious profits.
At a Manhattan hearing Thursday, a lawyer for the firm that runs the baseball team argued that laws protecting investors say they're owed whatever amounts were reflected on investment statements in 2009 when Madoff's massive Ponzi scheme imploded.
"From the investors' perspective, the funds weren't fictitious. ... All the law says is that they were entitled to rely on the statements," said the attorney, Karen Wagner.
Dennis Jacobs, one of three judges hearing the case at the 2nd U.S. Circuit Court of Appeals, questioned whether a court-appointed trustee should be expected to make payouts based "on whatever amount Madoff made up while chewing on his pencil and looking at the ceiling."
During the same exchange, Judge Pierre Leval referred to the figures as a "figments of the imagination."
The panel said it would rule later on the legal challenge to a bankruptcy court decision allowing trustee Irving Picard to pursue funds from clients who took out more money from Madoff accounts than they put in. The court found that the victims are only entitled to their principal, since Madoff never made any real investments.
"All that's owed is what was put in," trustee lawyer David Sheehan told the panel, calling it a "zero-sum game."
Sheehan said the trustee has relied on Madoff's secret records rather than investor statements to unravel the scheme.
"Who in their right mind would rely on the statements?" he said.
Madoff, 72, is serving a 150-year sentence in a federal prison in North Carolina after admitting that for decades he used his investment advisory service to cheat wealthy individuals, charities, celebrities and institutional investors.
Burned investors were left holding statements saying they had $64 billion. The actual loss is currently estimated at about $20 billion — still the largest investment fraud in U.S. history.
Picard has aggressively sought to recover funds through so-called clawback lawsuits, including one naming Mets owner Fred Wilpon, team president Saul Katz and chief operating officer Jeff Wilpon, the owner's son. The suit seeks return of $300 million it says were phony profits, plus up to another $700 million as penalty for the defendants' alleged willful blindness to steady double-digit returns that defied down markets.
The Mets owners have steadfastly denied any wrongdoing, saying they were victims of the fraud. They didn't attend Thursday's hearing, nor were they mentioned by name.
In the courtroom was former New York Gov. Mario Cuomo, who was appointed last month as a mediator to try to broker a settlement between the trustee and the Mets owners.
"We are working on it every single day," he said afterward.