The cash-flow squeeze that faced the owners of the Mets was among the reasons why the trustee in the Bernard Madoff bankruptcy decided to settle his lawsuit for $162 million last month rather than go to trial, according to newly filed court papers.
In federal court filings late Friday night, trustee Irving Picard said the "restrictive" cash flow, as well as the owners' obligations to banks that lent them money, contributed to doubts that further litigation against Fred Wilpon, Saul Katz and their partners in Sterling Equities would produce a bigger payout.
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"We have become satisfied that defendants' cash flow and lender covenants would not have enabled me to recover more for the [Madoff] customer fund in the foreseeable future by litigating to the point of judgment," Picard said in an affidavit.
The settlement "is a practical and fair compromise" that avoided "a protracted and expensive trial and lengthy appeals," Picard explained in a statement.
A team spokesman said Saturday that the recent sale of some limited partnerships for $240 million has helped the Mets' finances.
"The recent cash infusion from our new investors-partners has left the Mets with the financial resources to meet all operational needs," the Mets spokesman said. The settlement is "not expected to have any impact on the operations or management of the Mets," he added.
The March 16 settlement averted a trial over the trustee's $303 million lawsuit in which Picard alleged that the team owners were willfully blind to Madoff's giant fraud, something the partners denied.
Picard's new filings were part of his motion for approval of the settlement by Judge Jed Rakoff.
The trustee didn't give details of the Sterling partners' cash flow issues, which he said were gleaned from a look at their finances. But Mets general manager Sandy Alderson has said the team lost $70 million last year.
The settlement is essentially a set of offsetting bookkeeping transactions under which the Mets' owners won't have to part with any cash for at least three years, if ever.
The Sterling partners have to repay $162 million in fictitious profits, but can submit claims, which Picard now accepts as legitimate, for $178 million in Madoff losses. As Picard continues to recover funds, the Mets' owners will be credited with their share.
Once Picard is able to pay 92 cents on the dollar on claims, the partners would be in the clear. But if there is any shortfall in repayments after three years, the Sterling partners have to pay the remainder over two years, with Fred Wilpon and Saul Katz guaranteeing up to $29 million.
So far Picard has recovered about $9 billion for customers. But because of appeals, the trustee has been able to disburse only about $320 million, or about 5 cents on the dollar.