Photo: By David Berkowitz on Flickr
The New Yorker has a long profile this week on Fred Wilpon, the owner of the New York Mets, that focuses on his relationship with Bernie Madoff and the billion-dollar fraud lawsuit that threatens his ownership of the team.For baseball (or Madoff) fans who have been following the saga of Sterling Equities, there isn’t a lot new here.
However, it is a good refresher course for those wondering what exactly is going on with the lawsuit filed by Irving Picard, the bankruptcy trustee looking to recover money for Madoff’s victims.
The full story is online, but here’s a quick summary for those who don’t have time to read the whole thing:
- Wilpon grew up in Brooklyn, where he was obsessed with the Dodgers. They actually offered him a contract out of high-school (as a pitcher), but he went to college instead and blew out his arm.
- Fred was childhood friends with Sandy Koufax, who only tried out for baseball so he could hang out with Fred. Now’s he in the Hall of Fame. Koufax lost money investing with Madoff.
- Wilpon and his brother-in-law, Saul Katz, made their fortunes in real estate in the early 1970s, then bought a controlling share of the Mets in 1979. They bought out all their partners in 2002.
- Fred’s son, Jeff (the Mets’ current COO), went to high school with Bernie’s son, Mark Madoff. That’s how the two families were introduced.
- Fred Wilpon’s 2010 tax return was 2,000 pages long.
- Wilpon and Katz began investing small amounts of money with Madoff, but over time those assets grew to more than $500 million, kept in hundreds of different accounts, all associated with Sterling Equities employees, charities, and friends. They lost all of that when Madoff was arrested.
- Sterling used Madoff like a bank, giving most of their cash with him to manage, then drawing out what they needed to cover payroll and other bills.
- The transactions were so commonplace that Sterling employees made a $1 million deposit with Madoff the day after he was arrested.
- Madoff insists that Wilpon and Katz were not sophisticated enough to understand his scheme. He says only banks and large institutional investors would have enough information to know it was a scam.
- Wilpon referred dozens of clients to Madoff over the years, but did not make any commissions for steering them to the firm.
- Using a formula of how much they cashed out vs. how much principal they put in, Sterling Equities made about $160 million of profit from Madoff.
- However, the bankruptcy trustee Irving Picard, is asking for nearly $1 billion in damages, claiming their profit was closer to $300M and that the firm withdrew $700M in principal over the years.
- Picard claims that Peter Stamos, a second money-manager who partnered with Wilpon, warned him that Madoff was “too good to be true.”
- However, Stamos also gave a deposition during Picard’s investigation where he said he told Sterling’s partners that “my assumption is [Madoff] is perhaps one of the best hedge fund managers in modern times.”
- The two sides have tried mediation, but there is no sign of a settlement.
On the Mets
- Wilpon says shortstop Jose Reyes won’t get “Carl Crawford money” in free agency this offseason.
- He also says David Wright is “not a superstar”
- It’s not clear if he’s joking or not, however, since he later call his team “shitty,” “lousy,” and “snakebitten.” (All objectively true statements.)
All in all, the profile is sympathetic to Wilpon and seems to buy his argument that he was simply too trusting of a bad man. (“If Wilpon and his partners had so many reasons to suspect that Madoff was a fraud, why did they leave so much money under his supervision?”)
The bottom line, however, is that even if Picard cannot prove that the Wilpon and Katz were aware of the fraud, the legal fight alone could force them to give up their beloved team. The franchise is struggling on and off the field and Sterling Equities no longer has the financial freedom to prop them up until attendance returns.
They’ve offered to sell part of the team, but have had trouble finding takers. There are plenty of rich New Yorkers who might want to buy in, but no one wants to do it without gaining some control of the team. The longer the fight drags on, the more their options dwindle and the greater likelihood they will have to surrender the entire thing.
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