The owners of the New York Mets baseball team turned a blind eye to jailed financier Bernard Madoff’s massive fraud, reaping US$300 million in false profits and using a large chunk to run the team, according to a lawsuit.
The lawsuit unsealed on Friday claims the owners were so dependent on the disgraced financier’s too-good-to-be-true returns that they “faced a severe and immediate liquidity crisis” when Madoff’s crimes were revealed in 2009.
The searing allegations were made by Irving Picard, the trustee appointed to recover funds for investors burned by Madoff’s scheme.
The suit filed by Picard in federal bankruptcy court in Manhattan names Sterling Equities, along with its partners and family members, including Mets owner Fred Wilpon, team president Saul Katz and chief operating Jeff Wilpon, the owner’s son. Picard said Sterling withdrew over US$94 million in fictitious profits from Mets accounts with Madoff.
“Given Sterling’s dependency on Madoff, it comes as no surprise that the partners willfully turned a blind eye to every red flag of fraud before them,” Fernando Bohorquez Jr, a lawyer representing Picard, said on Friday.
The suit had been filed under seal in December while the parties tried to work out a settlement, but lawyers told a judge this week that talks had collapsed and consented to having the complaint made public.
Its opening salvo: “There are thousands of victims of Madoff’s massive Ponzi scheme. But Saul Katz is not one of them. Neither is Fred Wilpon.”
The complaint alleges the partnership “received approximately US$300 million in fictitious profits” from hundreds of accounts opened with Madoff’s firm. Of that, it says, US$90 million of “other people’s money” were withdrawn to cover day-to-day operations of the team.
Wilpon and Katz fired back on Friday with a statement calling the suit “an outrageous strong-arm effort to force a settlement by threatening to ruin our reputations and businesses we built for over 50 years.”
The pair called the accusations “abusive, unfair and untrue,” insisting they were victims of the fraud.
“We should not be made victims twice over — the first time by Madoff and again by the trustee,” they wrote.
The lawsuit said Wilpon and Katz had meetings with Madoff in his office at least once a year, a privilege few investors enjoyed, and Katz at times spoke directly with Madoff at least once a day.
It also said Wilpon and Katz maintained investments in Madoff accounts, even though Ivy Asset Management expressed concern in 2002 and the Sterling Stamos hedge fund warned repeatedly Madoff was “too good to be true.”
The suit said a Sterling consultant advised Katz something was amiss in 2003, and Merrill Lynch warned them about Madoff as early as 2007.
The suit alleges that by December 2008, Sterling had referred approximately 178 “outsider” investor accounts to Madoff. It also said that when Wilpon and his family also bought Nelson Doubleday’s 50 percent ownership of the Mets in 2002, Madoff declined a chance to invest in the team that he was offered by Sterling.
The lawsuit said cash from Madoff accounts, including fictitious profits, was used for team payroll, players’ deferred compensation and stadium operations.
The suit has cast a cloud over the Mets ownership, which has said it’s exploring a partial sale of the team. Wilpon and Katz denied on Friday that the operation was ever dependent on Madoff.