Accusing the owners of the Mets of capitalizing on their friendship with Bernie Madoff, the Trustee alleges in a complaint Fred Wilpon and others profited to the tune of $300 million in the Ponzi scheme.
The partners in Wilpon's Sterling Equities are accused of ignoring clear warning signs that Madoff was a fraud.
- Read the complaint.
- Read the Mets lawyers' statement.
- Read a joint statement from Mets owner Fred Wilpon and President Saul Katz.
- Read the court order to unseal the complaint.
"It comes as no surprise that the partners willfully turned a blind eye to every red flag of fraud before them," according to the complaint made public after NBCNewYork and the New York Times pressed the Trustee, the Mets and Bankruptcy Court Judge Burton Lifland to make the documents public.
Lawyers for the Mets owners deny any wrongdoing, claiming the Sterling partners were innocent victims.
"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.' 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," said Robert Fiske of Davis Polk LLP.
Fiske adds others lost $160 million in other Madoff accounts. "No rational person who thinks his broker might be a fraud would leave such a substantial sum with him," he said.
The Trustee could be seeking hundreds of millions more in penalties.
Amid the fallout, Fred Wilpon has said steps are underway to try to sell a portion of the team in order to pay what they owe in connection with the Madoff mess.
In a statement, Wilpon and Saul Katz, President of the Mets and Wilpon's brother-in-law, defended their reputations.
"The Trustee's lawsuit is an outrageous 'strong arm' effort to try to force a settlement by threatening to ruin our reputations and businesses which we have built for over 50 years. This is a flagrant abuse of the Trustee’s authority and we will not succumb to his pressure," the statement read.
"The conclusions in the complaint are not supported by the facts. While they may make for good headlines, they are abusive, unfair and untrue."
According to the records now public, the Sterling partners had more than 300 accounts with Madoff and "$90 million in others people's money withdrawn from the Mets BLMIS (Madoff) accounts helped fund its day-to-day operations."
The Trustee alleges Sterling was so dependent on Madoff for loans and collateral that Sterling had to refinance $500 million in debt after the Madoff collapse.
Among the red flags allegedly ignored by Wilpon, Katz and others: they knew of Merrill Lynch's prohibition of investing with Madoff and had been warned by their own hedge fund "Sterling Stamos"; Ivy Asset Management also allegedly warned Saul Katz and others; and as early as 2003 another consultant warned he "couldn't make Bernie's math work and something wasn't right."
The Trustee said the consistently high returns over three decades were "too good to be true" and sophisticated investors like the Wilpons should have known better. The unsealing of the complaint comes two months after it was filed in secret by the Trustee and his team of lawyers.
No explanation was offered for why the documents were kept secret that time except that settlement talks were underway. Several legal experts said "ongoing settlement talks are not a legitimate reason for a court to seal complaints" in any case.
After first siding against reporters' efforts to obtain the documents in December, David Sheehan, counsel to the Trustee and a partner at Baker & Hostetler LLP, the court-appointed counsel for the Trustee, now says his firm is pleased the complaint was unsealed, given the "high level of public interest" in the matter.
Previously, Karen Wagner, who represents the Wilpons and other Mets owners, told Judge Lifland they now "agree that the complaint should be unsealed immediately."
Wagner said leaks made keeping the documents secret no longer practical.
Judge Lifland directed the release of the documents Friday only after having required the news media to file its own legal motion to try to gain access to what are presumptively public court records.
Bernie Madoff's wife and sons also had investments co-mingled with Sterling owners' accounts, Trustee Irving Picard alleged. Picard added Katz took out nearly $14 million in fictitious profits in addition to $31 million transferred out to other accounts.
Wilpon, who is the Mets CEO, allegedly took out $8 million in improper payouts directly, plus $44 million that had been transferred to other accounts, the complaint said.
Wilpon, in his statement Friday, said he was betrayed by Madoff - a friend of 25 years. "Eachof the Sterling partners and their families invested with Madoff in good faith up to the day his crime was exposed." The move to unseal the complaint comes two days after the Madoff Trustee made public its allegations that banking giant JPMorgan Chase had clear warning signs that Bernie Madoff was running a Ponzi scheme.