The New York Mets' owners "willfully turned a blind eye" to Bernard Madoff's Ponzi scheme as they raked in hundreds of millions of dollars to beef up the ballclub and other businesses, according to a lawsuit unsealed Friday.
In a scathing complaint filed by the Madoff victims' trustee in federal bankruptcy court, Fred and Jeff Wilpon, partner Saul B. Katz and their businesses and families were accused of feeding off of Madoff's scam for years. They even offered Madoff a chance to buy into the team, it said.
The trustee wants them to give up at least $300 million in fictitious profits to help pay back ripped-off Madoff investors, the suit said.
Court papers indicated that amount could grow by hundreds of millions more, and perhaps even triple, experts said.
Trustee Irving Picard also is seeking extra unspecified damages because he says the owners ignored repeated warning signs about Madoff's fraud and should have known his returns were "too good to be true," the complaint showed.
Legal experts familiar with the Madoff case said those damages could, in a worst-case scenario for Fred Wilpon, his son Jeff and Katz, easily top $500 million and go as high as $900 million. Interest alone would amount to 9 percent annually, going back years to when the money was taken from the accounts, the experts said.
Some $94 million in fictitious profits taken by the Wilpons and their related Sterling Equities businesses were used to fund the day-to-day operations of the Mets, the complaint alleged. Profits also were used by Sterling to secure hundreds of millions of dollars in financing and lines of credit for their businesses, it said.
The Wilpons and their partners "made so much easy money from Madoff for so long that despite the many objective . . . [signs] of fraud before them, the Sterling partners chose to simply look the other way," the complaint charged. "Sterling was simply in too deep," it said.
Added Fernando A. Bohorquez Jr., a lawyer for Picard: "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," including warnings from financial industry experts and trusted advisers.
Picard sued Sterling and its owners in December. Because settlement negotiations were under way, all sides agreed to file the complaint under seal. But after a rancorous week of sniping in the media between the two sides, talks ended and the parties asked Judge Burton Lifland to unseal the document.
Firing back at Picard, Fred Wilpon and Katz accused him of legal "strong-arm" tactics. A week ago, they said they were looking for a minority partner to buy as much as 25 percent of the Mets. They said they needed the cash to weather the trustee's suit.
"The plain truth is that not one of the Sterling partners ever knew or suspected that Madoff ran a Ponzi scheme," Wilpon and Katz said in a statement. "We have done nothing wrong. We played by the rules," they said.
Their attorneys also blasted the lawsuit as baseless. They said the $300-million profit alleged in the complaint, even if true, was not large and ignored the fact that some Sterling accounts lost $160 million with Madoff.
As he has done in other cases, Picard is seeking the fake profits given to the Sterling defendants because they represent net winnings - money exceeding the original investment by about $300 million.
"If you start adding interest over a number of years you are talking about serious bucks," said attorney Norman Kaplan of Great Neck, who represents other clients of Madoff. "This could more than double what the claim is."
Picard also is seeking $14.1 million in money withdrawn in the 90 days before Madoff was arrested in December 2008. Under the law, any money taken from a bankrupt entity in that time period has to be returned, regardless of why it was withdrawn.
While Picard and the Wilpons are squaring off for a trial, legal experts believe a settlement still is possible.
"Settlement talks are always possible," said Garden City attorney Jerome Reisman who also represents Madoff victims. "When one side calls it off . . . [it] doesn't preclude a settlement in the future."
But employees of Sterling who lost money in company retirement accounts invested with Madoff could use the Picard allegations to sue Sterling and the Wilpons, said Reisman, noting one such federal lawsuit has already been filed. With John Riley
The charges and the denials
The Mets' owners played defense Friday as they faced a barrage of allegations in the Madoff trustee's complaint. Here are excerpts:
"The Sterling partners, their family members, trusts and Sterling-related entities made so much easy money from Madoff for so long that despite the many objective indicia of fraud before them, the Sterling partners chose to simply look the other way."
"The plain truth is that not one of the Sterling partners ever knew or suspected that Madoff ran a Ponzi scheme. Because the Trustee has no evidence to support his claims even after a year-and-a-half review of over 700,000 pages of documents and many, many hours of depositions, he has created a claim that we 'knew or should have known' that Madoff was a fraud."
"Over the last three decades, the Sterling partners, their family members, their trusts and related entities received approximately $300 million in fictitious profits from Madoff . . ."
"The Trustee is suing not only for what he defines as 'fictitious profits' but for monies that we deposited with Madoff over almost 25 years. That is outrageous, unfounded and inconsistent with the law. Let us be clear, the Trustee is attempting to seize money originally invested with Madoff, which was earned from the Sterling businesses.
"The Sterling partners' reliance on Madoff to not only generate returns to help support their businesses, but also to provide them with collateral
and creditworthiness, led to a cycle of dependency whereby Madoff money helped create and expand new and existing Sterling businesses that in turn generated profits to re-invest . . ."
"The Trustee also alleges that we were blinded to Madoff's crimes because our businesses "depended" on the returns. That is complete nonsense. We have good, sound businesses that were successful years before we invested with Madoff, including both real estate and the New York Mets."
"The warning signs were many and varied . . .
But the Sterling partners were simply in too deep - having substantially supported their businesses with Madoff money - to do anything but ignore the gathering clouds."
"We thought that Madoff was a friend for 25 years. Each of the Sterling partners and their families invested with Madoff in good faith right up to the day his crime was exposed. We were as shocked as the rest of the world when the money in our accounts vanished along with the billions he swindled from thousands of other innocent people.'