Photo: By eviltomthai on Flickr
U.S. District Court Judge Jed Rakoff has reportedly issued a ruling in the $1 billion lawsuit filed against the owners of the New York Mets by the trustee of the Bernie Madoff bankruptcy.Bloomberg’s Michele Steele reports that all but two of the charges have been dismissed.
The trustee, Irving Picard, had accused Fred Wilpon and Saul Katz for profiting from Madoff’s ponzi scheme and ignoring warning signs that the investments were a fraud.
Picard sought more than $700 million that their company, Sterling Equities, withdrew from Madoff accounts, plus close to $300 million in “fictitious” profits.
Wilpon and Katz have admitted that the finances of their company – and the baseball team it owns – relied heavily on Madoff and company to manage their money. Madoff has claimed from jail that they knew nothing about his scams, but Picard argued that smart businessmen should have suspected the fraud.
Rakoff essentially ruled that payments recovering their principle (the $700M) was not part of the fraud, and cannot be recovered by the trustee — unless he can prove that they knowingly and willingly participated in the scheme. (Which even Picard is not really claiming.)
The profits, however, don’t belong to Sterling and can be seized. Here’s the key paragraph:
Under Count 1, the Trustee may recover defendants’ net profits simply by proving that the defendants did not provide value for the monies received, but the Trustee may recover the return of the defendants’ principal only by proving that the defendants wilfully blinded themselves to Madoff Securities’ fraud.
Judging by what we’ve read of the ruling – you can download the whole thing here – it seems that Rakoff is not inclined to buy that argument, but is not ruling it out completely. The nine counts that were dismissed related to transfers of payments from Madoff to the defendants shortly before the bankruptcy, that Picard claimed were suggestive that they knew the fraud was collapsing.
Wilpon and Katz are not out of the woods yet. They could still stand to lose the $300 million and in theory, the full $1 billion, and that’s money they can’t afford to lose right now.
However, the ruling definitely seems to put them on more solid footing and gives them leverage to negotiate a more favourable settlement with the trustee. Picard basically has to prove that they knew they were investing in a fraudulent scheme and
The trial continues tomorrow.
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