Picard: Mets owners sought fraud insurance

The owners of the Mets were so concerned that Bernard Madoff's business might be a fraud that they sought insurance to guard against Ponzi scheme losses, said the bankruptcy trustee who is suing the Wilpon family.

In court papers filed Thursday in Manhattan bankruptcy court, trustee Irving Picard said he disclosed the insurance search to shore up earlier allegations that the Wilpons and their partners in Sterling Equities, which owns the Mets, turned a blind eye to Madoff's scheme and continued to reap over $300 million in profits from an operation they should have known might be a fraud. Picard is seeking to recoup all of those profits.

Among Picard's allegations were excerpts from handwritten notes by one of the partners that show that in 2001 the business was looking for insurance to protect its Madoff investments against risk of fraud "and in particular a Ponzi scheme." The notations by Arthur Friedman, made after a meeting with an insurance broker, indicated that any insurance for Madoff investments would provide coverage for "Fraud or Fidelity (Ponzie)," court records stated.

"These handwritten notes demonstrate that the Sterling Partners themselves not only suspected Madoff might be engaging in fraudulent activity, but that they even suspected specifically that their . . . (Madoff) investments might be involved in a Ponzi scheme," said Picard in his legal brief.

Court papers didn't say whether any insurance was secured but one legal source familiar with the case said no coverage was purchased. Friedman's note indicated coverage of a $200-million investment would cost $600,000.

The Wilpons have consistently said they had no idea Madoff was a fraud.

"The Sterling Partners were innocent customers of a highly respected and regulated broker, and the trustee has shown you nothing that changes that reality," Sterling Equities said in a statement Thursday.

Since December, when Picard filed his suit, the trustee and the Wilpons have been involved in a bitter legal battle that, despite mediation attempts by former Gov. Mario Cuomo, appears to be no closer to a settlement. Uncertainty over the trustee's lawsuit pushed the Wilpons to put a stake in the Mets up for sale.

Picard had disclosed the Sterling attempt to buy insurance in a March filing. He filed his latest papers Thursday to rebut a March motion by the Wilpons in which they asked the court to dismiss Picard's $1-billion clawback lawsuit against them on the grounds they didn't know Madoff was running a fraud and saw no "red flags" about a Ponzi scheme.

In his 118-page legal brief, Picard said he doesn't have to prove that the Wilpons and their partners knew they were dealing with a Ponzi scheme.

Rather, investors would have acted in "bad faith" and be on the hook to pay back money if they knew enough about Madoff's operation "to inquire further but chose not to do so, choosing instead to turn a blind eye and enjoy the fruits of the fraudulent scheme."

Because the Wilpons and their partners in Sterling failed to investigate Madoff, the trustee is seeking not only the $300 million in profits but also an additional $700 million in principal, said Picard in his court papers.

Picard noted other Madoff investors, after they became aware they couldn't keep money stolen from other people, had returned as much as $10 billion to the trustee and federal prosecutors.

Of the Wilpons and their partners, he said in his court filing: "They continue, to this day, to refuse to turn that money over to the trustee."