Monday, March 5, 2012
Mets owners must pay, go to trial
By Adam Rubin
PORT ST. LUCIE, Fla. -- The New York Mets are preparing for the baseball season, and the team's owners will have to prepare for trial.
U.S. District Court Judge Jed S. Rakoff ruled Monday that Mets principal owner Fred Wilpon, his family, businesses and charities must pay as much as $83.3 million to the trustee trying to recover funds to net losers in Bernard Madoff's Ponzi scheme. He also ruled that the sides will go to trial March 19 over an additional $303 million that trustee Irving Picard is seeking.
Of the approximately $83 million, only $1.7 million is associated with Mets accounts. The rest is associated with other Wilpon businesses and charities.
The Wilpons' lawyers had filed a motion to have the case tossed entirely, but that was rebuffed by Rakoff in Monday's ruling.
"We are preparing for trial," Sterling Partners, one of Wilpon's holdings, said in a statement. "We look forward to demonstrating that we were not willfully blind to the Madoff fraud."
As a matter of law, Picard had contended, he was entitled to $83,309,162 in Ponzi scheme profit allegedly made by the Wilpons in the immediate two years before Madoff's arrest on Dec. 11, 2008.
The Wilpons had asserted that because they thought they had $500 million invested with Madoff at the time his scheme was discovered by authorities, they actually were losers -- despite withdrawing more money than they had deposited with Madoff.
Picard believes he also is entitled to $303 million in principal invested by the Wilpons with Madoff because, he alleges, they had warning signs a fraud might be occurring. Rakoff has set a high standard for Picard to be able to collect principal -- "willful blindness," meaning the Wilpons would have had to all but have known something was awry with Madoff and purposely looked the other way.
Rakoff wrote in Monday's decision that he is skeptical that Picard can prove to a jury that the Wilpons acted in bad faith with respect to their investment with Madoff, but Rakoff decided the trustee had enough evidence and witnesses to allow him to try to attempt it at trial.
"The Court remains skeptical that the trustee can ultimately rebut the defendants' showing of good faith, let alone impute bad faith to all the defendants," Rakoff wrote in Monday's decision. "Nevertheless, there remains a residue of disputed factual assertions from which a jury could infer either good or bad faith depending on which assertions are credited."
He said he was concerned that much of the evidence offered by both sides in court papers so far would not be admissible at trial.
"Conclusions are no substitute for facts, and too much of what the parties characterized as bombshells proved to be nothing but bombast," he wrote.
In explaining why the $83 million figure is a cap but not the precise amount the Wilpons may owe in Ponzi scheme profits, bankruptcy attorney Michael J. Kline of Fox Rothschild LLP explained: "Judge Rakoff will entertain further briefing on whether Picard's calculation is correct, and in any event against whom of the many defendants the ultimate amounts will be divided and assessed."
Kline said how the judge apportions the money owed among the cash-strapped Wilpon family, its business and charities will be "critical." Any member of Wilpon's party seeking to appeal the ruling likely will be required to post a bond worth 110 percent of Rakoff's verdict against it. That would ensure that Picard ultimately will collect the money if the ruling is not overturned by a higher court.
"Unless there was some rare court order waiving the posting of a bond, that would be required to take the appeal," Kline said.
Picard originally sued for $1 billion. Rakoff reduced the amount to $386 million because, the judge decided, Picard is entitled to attempt to collect money from the Wilpons only from the two years immediately before Madoff's arrest -- not the six-year period Picard advocated as the correct term.
That point almost certainly will be appealed even if Picard ultimately gets a $303 million judgment from a jury, because the two- versus six-year standard could have a significant impact not only on this case but on how much Picard also can seek to recover from countless other alleged net winners in Madoff's Ponzi scheme.
Picard also could seek to appeal the "willful blindness" standard Rakoff established in order for the trustee to be awarded principal. Picard advocated an "inquiry notice" standard -- that the Wilpons allegedly failed to investigate amid warning signs of a potential fraud.
The Wilpons deny knowingly participating in a Ponzi scheme. Their attorneys maintain they were not sophisticated investors capable of recognizing Madoff was committing a fraud.
The trustee issued a statement Monday acknowledging the latest ruling but would have no further comment.
Nearly 5,000 investors were deceived in the fraud by Madoff, the former NASDAQ chairman, who told them their $20 billion investment had grown to $68 billion by November 2008. Weeks later, he revealed his fraud, confessing that only several hundred million dollars were left.
Madoff is serving a 150-year prison sentence in North Carolina for his multibillion-dollar Ponzi scheme.
Adam Rubin covers the Mets for ESPNNewYork.com. Information from The Associated Press was used in this report.