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Sunday, March 20, 2011
Mets owners say lawsuit 'work of fiction'

By Adam Rubin
ESPNNewYork.com

JUPITER, Fla. -- The owners of the New York Mets fired back Sunday, filing their response in U.S. Bankruptcy Court to a $1 billion lawsuit alleging they knew, or should have known, Bernard Madoff was operating a Ponzi scheme.

Trustee Irving Picard's suit seeks $300 million in what he labels "fictitious profits" -- money team owners Fred and Jeff Wilpon and Saul Katz withdrew over the principal they invested. Picard also seeks $700 million in principal because, he alleges, the Wilpons acted with disregard to indications Madoff was acting improperly.

Picard is charged with recovering money for Madoff victims who lost principal.

The Mets ownership family's response claims Picard trumped up allegations and aims to soil their name in order to force a settlement.

The Wilpons further contend their investment relationship with Madoff was no different than other investors -- that they were in no special class with sophisticated information unavailable to others.

Picard has alleged the Wilpon family's three-decade relationship with Madoff afforded them direct access to Madoff that was unavailable to others, and that their business acumen differentiated them from mom-and-pop investors.

"After months of damaging leaks, false accusations and withholding of evidence, we can finally legally respond to the work of fiction created by the Trustee," Fred Wilpon and his brother-in-law Katz said in a statement. "Let us be very clear: We did not know that Madoff was engaged in a fraud. There were no red flags and we received no warnings. It's important to remember that before Madoff confessed his crimes, most of the world, including the SEC, viewed Madoff as a legendary Wall Street figure who was a pioneer in electronic trading and had served with distinction as the Chairman of NASDAQ.

"At every step in this process, the Trustee has dismissed our requests for information in his possession when we have cooperated fully with him. We will continue to defend ourselves vigorously and set the record straight."

The Wilpons even dispute Picard's assertion they have withdrawn $300 million more than they have invested. They say Picard is isolating certain funds that turned a profit, while ignoring others in which the Wilpons had invested more than they had withdrawn at the time Madoff was caught. (Independent lawyers have said that because the funds had different variations of owners, Picard may be correct in picking certain funds that made profits while ignoring others.)

Nonetheless, the Wilpons also dispute Picard's allegations that red flags existed that suggested they should have known a Ponzi scheme might be occurring. Their response notes the Securities and Exchange Commission failed to uncover Madoff's fraud as well.

Former New York Gov. Mario Cuomo has been appointed to mediate the dispute in an attempt to avoid a trial.

In Picard's complaint, he alleges the Wilpons' own hedge fund, Sterling Stamos, tried to replicate Madoff's strategies and returns, failed, and then warned Mets owners something was amiss. The Wilpons' response quotes from fund manager Peter Stamos' deposition in which, asked if he ever communicated to the Wilpon family it may be too good to be true, Stamos said: "I can't ever recall using those words to describe Mr. Madoff."

Stamos also did not advise the Wilpons to avoid investing with Madoff, according to the response. It asserts Stamos only recommended they diversify their investments and invest no more than 10 percent in one place.

That directly contradicts an email in the original complaint, allegedly from Stamos after Madoff's collapse, which read: "Fortunately, our [hedge-fund] firm did not invest with Madoff. That firm and fund wouldn't make it through our risk and ops controls -- lack of transparency, no third party administrator, etc. Unfortunately, our partners -- Saul and Fred -- against our recommendations invested as individuals and through their real estate firm."

Trying to demonstrate they had no way of knowing of Madoff's fraud, the Wilpons also note that they received several loans from banks using funds invested with Madoff as collateral -- suggesting sophisticated banks also were satisfied Madoff investments were aboveboard.

Some banks are now being sued by Picard as well for allegedly overlooking the fraud.

The Wilpons also face a separate lawsuit from their company's employees claiming the family violated its fiduciary duty by investing employees' 401(k) money with Madoff. A court filing last week indicates settlement hearings are ongoing in that case.

Adam Rubin covers the Mets for ESPNNewYork.com.