The Mets' owners and the trustee in the Bernard Madoff case square off Monday in a $303 million federal trial that, whatever the outcome, will have major implications for the team's future.
The first major case to go to trial from the Madoff scandal pits Irving Picard, the court-appointed trustee, against Fred Wilpon and his brother-in-law Saul Katz, owners of a closely held New York real estate and sports empire.
Picard, who has so far recovered $9 billion for Madoff's swindled investors, wants to claw back money the Wilpon group originally invested with Madoff, claiming it ignored red flags about the Ponzi scheme. He already has a court judgment for Wilpon's group -- who say they were also victims -- to turn over up to $83 million in fake Madoff profits.
A victory for Picard would tighten the financial squeeze on the owners, who have been bleeding big money from flagging attendance at Citi Field. To raise immediate cash, the team is trying close a sale of 10 minority ownerships totaling $200 million. The Mets have also slashed their payroll by nearly $50 million.
"How much can Wilpon withstand?" asked sports economist Andrew Zimbalist of Smith College. "Will it at the end of the day mean that he has to sell the Mets? It could mean that. They have bank debt, debt to Major League Baseball and debt to the stadium."
Zimbalist thinks a verdict as large as $180 million might be a hit the Wilpons and their Sterling Equities partners can still absorb without selling off real estate or the Mets.
Under a worst-case scenario, Major League Baseball could be compelled to step in to manage the team's finances, legal and sports business experts have said.
Barring a last-minute settlement, Judge Jed Rakoff is expected to pick a nine-person jury quickly Monday.
After opening statements, Picard's lawyers are scheduled to call Katz as one of their first witnesses. The trial is expected to last two full weeks.
One of the first issues Rakoff will have to handle Monday is deciding what kind of evidence the jury gets to hear in the civil trial.
Wilpon wants to bring in high-profile witnesses like Hall of Fame pitcher Sandy Koufax and former Manhattan District Attorney Robert M. Morgenthau, who are expected to testify that they were told by Wilpon that investing with Madoff was safe. The defense contends that if Wilpon had suspicions about Madoff, he would not have provided such assurances to friends.
Picard wants to keep the Wilpons from bringing in evidence about fees the trustee's law firm has made in the Madoff case -- around $281 million -- while the Wilpons want to stop the trustee's lawyers from using the phrase "other people's money" -- meaning victims of Madoff's scheme -- to describe the profits they took from the Madoff operation.
Picard's case, Rakoff has said a number of times, is far from rock solid. The trustee has to prove that the Wilpon defendants were willfully blind and ignored warnings about Madoff.
Noted white-collar defense attorney and author Stanley Arkin describes the concept of willful blindness this way: "You turn your head away from facts that cry out for inquiry and you take no steps to make inquiry."
Rakoff said it will be up to the Wilpons and partners to demonstrate that they weren't willfully blind to the fraud. Court records show they plan to provide evidence to show that they didn't believe Madoff was running a Ponzi scheme.
Wilpon, Katz and their partners vehemently insist that despite steady investment returns of at least 10 percent annually and often far more, they didn't suspect Madoff was a fraud. They said even government watchdogs had failed for years to uncover his scheme.
If Wilpon and Katz can convince the nine-person jury on this pivotal point and win the case, they stand a better chance of lifting the financial doubts cast over them after Madoff's scheme collapsed in late 2008.
"Fred Wilpon is going to do anything he can to hold on to this franchise," said Wayne McDonnell, an associate professor of sports management at New York University. "This is a man who has such a profound romanticism about the game of baseball and especially his ballclub."
With Steven Marcus
KEY PLAYERS IN METS-MADOFF TRIAL
JED RAKOFF, 68, is senior U.S. district judge in the Southern District of New York in Manhattan.
The outspoken jurist took over from Bankruptcy Court many of the clawback cases filed by Bernard Madoff case trustee Irving Picard. In doing so, Rakoff in September dismissed most of Picard's $1 billion lawsuit against the Wilpons and their Sterling Equities partners.
Rakoff has made cutting remarks about the Wilpon case, which has $303 million still at stake. He once said in court that Picard's 300-page complaint read like a Tolstoy novel and almost put him sleep. He has made clear that he thinks the trustee's case is thin and criticized some evidence put forth by both sides, saying "too much of what the parties characterized as bombshells proved to be nothing but bombast."
IRVING PICARD, 70, is partner at law firm of Baker & Hostetler in New York.
A low-key litigator, Picard has earned his stripes as an expert in bankruptcy law.
In trying to clean up the largest fraud in Wall Street history, Picard has gone on a worldwide search for assets and has found $9 billion so far in a scam which lost investors between $17 billion to $20 billion. He has filed more than 1,000 lawsuits against those he said collected phony profits.
Picard has been criticized by some members of Congress, including Rep. Peter King (R-Seaford) for bringing those lawsuits. He also has been vilified by some critics for the fees he and his law firm have been approved for, currently at $281 million, which are paid by the Securities Investor Protection Corp.
Lawsuits and appeals have kept Picard from disbursing over $6 billion in recovered assets. He has paid out $321 million so far.
Picard is represented by his law firm partners David Sheehan, Fernando Bohorquez Jr., and Regina Griffin.
FRED WILPON, 75, is co-founder and chairman of Sterling Equities and chairman and chief executive of New York Mets.
Along with his brother-in-law, lifelong friend and co-defendant, SAUL B, KATZ, 73, Wilpon built Sterling Equities into a major real estate firm with holding around the country and hold a controlling interest in the Mets. Wilpon became a co-owner of the Mets in 1986 and bought out ex-partner Nelson Doubleday Jr. in 2002.
Wilpon and Katz's firm is closely held with Wilpon's son Jeff, 50, involved with management of the Mets, and Katz's brother Michael, managing many of Sterling's investments.
Fred Wilpon was also an old friend of Madoff, who had choice season seats at the new Citi Field. Wilpon said last year of Madoff's fraud: "That betrayal is very difficult for me. Because this was a man, we were friends for 35 years and investors for 25 years." He said "the plain truth is that not one of the Sterling partners ever knew or suspected that Madoff ran a Ponzi scheme."
The Wilpons and their partners are being represented by Robert Wise, Karen Wagner and Dana Seshens of Davis, Polk & Wardell.
Sources: Judicial biography, websites of Baker & Hostetler; David, Polk & Wardell; Sterling Equities