Picard stance may lower Wilpon liability

The trustee in the Bernard Madoff bankruptcy, who for the past two years has been playing hardball with the owners of the New York Mets to recoup hundreds of millions in alleged wrongful profits, is taking a position that could lower their potential liability, according to recent federal court filings.

The legal arguments are intricate but they boil down to Irving Picard maintaining that Fred Wilpon, Saul Katz and other defendants should only be held accountable for $83 million in profits, not some $215 million suggested by a federal district judge when he pared down the trustee's $1 billion lawsuit against the team owners in September.

A trial in the Wilpon clawback case is set for March 2012 and for the moment puts the $83 million in profits and about $300 million in principal at risk.

On Sept. 28, Judge Jed Rakoff drastically changed the legal landscape for Picard when he ruled that the trustee couldn't sue Wilpon and his partners for the $1 billion he had originally sought. He ruled Picard had the right under the law to go after two years' worth of excessive profits from Madoff's Ponzi scheme, not the six years' worth Picard wanted.

But Rakoff also complicated the picture when he said it was an open question if Picard could go after principal invested by the owners over the life of their relationship with Madoff. Rakoff also suggested the tallying of profits and principal be limited to the two years before Madoff's firm went bust on Dec. 11, 2008.

However, Picard said such a method would be unfair. Limiting the calculation of profits and principal to just the two years, under the complex math dictated by bankruptcy and federal law, would increase the profits at issue from Wilpon and his partners from $83 million to $215 million. Such a method would "unfairly punish" investors and would deprive Wilpon and the others of proper credit for principal invested outside of the two-year period, the trustee said in court filings.

Under Rakoff's ruling, Picard is also going after some $300 million in principal on the basis that the Mets owners knew or should have known Madoff was a fraud. But the trustee is seeking permission to appeal the decision to the U.S. Second Circuit Court of Appeals to clawback $700 million in principal he originally sought.

In their own court filings, lawyers for the owners said that Picard shouldn't disregard the account statements Madoff gave to customers, which were admittedly false. Adding those account balances to the equation would help customers like the owners and knock out Picard's claim for profits, the attorneys contend. Picard contends the fictitious account statements should be ignored.