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Bernie Madoff says Wilpons “knew nothing” about Ponzi scheme

Feb 15, 2011, 10:13 PM EDT

Fred Wilpon

In a lengthy jailhouse interview with the New York Times, Bernie Madoff claims Fred Wilpon and Saul Katz knew nothing about his Ponzi scheme.

“They knew nothing. They knew nothing.”

And this matters because?

Madoff isn’t exactly the most trustworthy fellow — that’s why he’s in the slammer in the first place — and Irving Picard isn’t simply arguing that the Wilpons and Katz actually knew about the Ponzi scheme. He’s also saying that they should have known. I’m speculating here, but the likely reality is that the Wilpons and Katz just looked the other way as the money just poured in. They probably weren’t alone in that regard.

  1. chrisny3 - Feb 16, 2011 at 12:27 AM

    “To the contrary, he’s saying that they should have known. ”

    Actually, Picard is saying both — he states in the lawsuit that “they knew or should have known.”

    Picard is shooting in the dark so he’s leaving all his options open in that respect. So far he has failed to show anything concrete that the Wilpons & Katz knew there was a fraud going on. As for “should have known” well, yeah, everyone “should have known” especially the SEC who ignored warnings for years and allowed thousands to be bilked out of savings — including the Wilpons & Katz. But Picard is going to have a helluva time proving to a judge and/or jury that the Wilpons/Katz “should have known” in the strict legal sense. He’s going to fail on that point.

    • D.J. Short - Feb 16, 2011 at 12:34 AM

      Right. That didn’t come out quite the way I wanted it to. Noted for accuracy.

    • Craig Calcaterra - Feb 16, 2011 at 5:46 AM

      I’ve gone back and forth on whether I think you’re a lawyer or not chrisny3, because sometimes you sound like one and sometimes you don’t. But I’m kind of assuming your’re not. And that’s a good thing.

      And if you’re not, you have no reason to know this, but the phrase “they knew or should have known” is a stock term of art used to get at the concept of constructive knowledge. It is not some damning accusation of specific knowledge. It leaves the possibility that, sure, one may be able to prove that they actually knew something, but nearly 100% of the time its use means “the evidence will show that a person in their position should have inquired, suspected, or done something different than they did given the circumstances.”

      Picard’s inclusion of it in the complaint — and my or anyone else’s use of it in talking about the Wilpons — is not irresponsible like you’ve been implying. You’re trying to make anything that is said about the Wilpons into a smear, when no one is trying to smear them.

      As for Madoff: his credibility is pretty awful so I think, ultimately, his comments aren’t worth a hell of a lot. And it’s kind of hard to reconcile how he thought all the banks and hedge funds had to have suspected something but say that the Wilpons and Katz, who themselves are sophisticated investors and hedge fund operators, were completely in the dark.

      • BC - Feb 16, 2011 at 10:44 AM

        Hey, people should have known about all these derivative securities that killed Lehman Brothers, et. al., and nearly sent us into Great Depression #2. But it was all covered up, or no one cared to look. So now we’re stuck with 9 percent unemployment and a job market that, well, sucks.

      • chrisny3 - Feb 16, 2011 at 3:28 PM

        Craig, I told you point blank before that I was not a lawyer. I don’t know why you didn’t believe me then and are bringing up the question again. I am not a lawyer, nor have I ever studied law beyond one perfunctory constitutional law class in college as part of a history curriculum.

        I understand “known or should have known” is a stock legal term. Picard has used the same term in other Madoff clawback suits. But I would be surprised if there weren’t dozens of these suits filed by him that didn’t have that language in it. Hence, that’s why I called him irresponsible. He is overreaching in this case as the evidence he has simply won’t support a “known or should have known” accusation. His irresponsibility also extends to the purposeful leaking and PR campaign his staff has carried on for the last few weeks in order to get their one-sided narrative out there. This is very irregular and doesn’t speak well of his professionalism. And, yes, I think it was an attempt to smear the Wilpons’ name and get the public on their side instantly,. They did a good job of it. Their PR skills seem better than their lawyering skills.

        .As for Madoff’s credibility, you sure wouldn’t question it if he had instead told the NYT’s in that interview that Wilpon/Katz knew. To the contrary, you would have been doing the happy dance, writing up another scathing piece on Wilpon/Katz, and even telling me how blind and wrong I was – even though Wilpon and Katz have yet to file their own response to the lawsuit. I think your approach to this has obviously been biased and one-sided. I accused you also of smearing the Wilpons and I still believe you did and that was your intent. You bought into the Picard side 100% — lock, stock, and barrel. Without hearing or listening to the other side. That is your choice, as a writer and blogger. I just think you’re wrong.

  2. marinermousse - Feb 16, 2011 at 3:07 AM

    Picard is doing what he is supposed to be doing and trying to get as much as he can for the “Estate.” The people whom he is pursuing range from those who made profits that they actually translated into cash flow to institutions whom he feels enabled the fraud. As for “should have known”…..great argument in court and one might think that a fairly sophisticated businessman “should have known.” However, Madoff represented that he was following a strategy of buying blue-chips and writing covered calls and thus was able to “moderate” downturns, perform ahead in moderately higher markets and would UNDERperform in rapidly upward moving markets. The attraction to people was not that he was offering 30% p.a. forever…but rather 7 or 8 % when the market was down, 10-12% when the market was sideways and 12-16% when the market was up. His office cranked out buy/sell tickets, printouts, reconiciliations etc., all of which a seasoned business executive might well take as legit, especially when he would show 14% in a year the market went up 28%. The people who began to sniff him out were ones who were trying to reverse-engineer his technique and when they tried to simulate what he did they discovered that it did NOT generate those levels of returns and that is when several people wrote to the SEC with suspicions. I really wasn’t there, I don’t know Wilpon’s personal relationship and I don’t know his intimacy with the inner workings of Madoff’s enterprises, but any person who would sign Oliver Perez to that contract might NOT have known ;>>

    • browngoat25 - Feb 16, 2011 at 11:25 AM

      I think it would be AMAZING if the Wilpons used the “We signed Ollie, so it proves we are stupid” defense. If it worked, it would be the most brilliant legal maneuver since the Chewbacca defense

    • chrisny3 - Feb 16, 2011 at 3:48 PM

      In general I agree that Picard is doing what he is supposed to be doing — with the exception that he is not supposed to be leaking to the media and going on a PR campaign in order to gain public favor. He is also overreaching in certain cases.

      “…but any person who would sign Oliver Perez to that contract might NOT have known”

      LOL, actually there is truth there and I made a similar argument to Craig last week. The argument being that Wilpon has a glaring weakness — his blind loyalty to friends and associates. It blocks out common sense. The same blind loyalty that allowed him to put so much faith in Madoff for all those years is the same blind loyalty that allowed him to give Omar Minaya an extension even after he had made a lot of failed moves such as Oliver Perez. It’s why they are still paying for Omar today, just as they are paying for Madoff. It’s a personal failing in Wilpon.

  3. simon94022 - Feb 16, 2011 at 10:51 AM

    Craig is right about Picard’s allegation. Picard is saying, “it doesn’t make any difference what the Wilpons did or didn’t know, because a reasonable person in their position would have known that something about Madoff wasn’t right, asked tough questions, and acted accordingly.” To win his case, Picard just needs to establish that the Wilpons failed to do the things that a reasonable person in their position would have done. He doesn’t need to prove they actually knew what Madoff was doing, and he’s not trying to.

    That’s why all the protests coming from the Wilpon camp that “we didn’t know!” are completely beside the point and sound more like desperate attempts to win over public opinion than a credible defense against Picard’s allegations.

    • chrisny3 - Feb 16, 2011 at 3:40 PM

      “To win his case, Picard just needs to establish that the Wilpons failed to do the things that a reasonable person in their position would have done.”

      No, he has to establish first that the Wilpons were on “inquiry notice” and were therefore required to do the things that a “reasonable person in their position” would have done. That is where Picard is going to fail. The SEC defense will also come into play here. Picard won’t win on this part of his suit. Which was the “irresponsible” part of the lawsuit.

      The Wilpons didn’t know it was a Ponzi scheme, and it’s unreasonable to say they “should have known” when the SEC and hundreds of other sophisticated investors didn’t know.

  4. mrhojorisin - Feb 16, 2011 at 11:01 AM

    It seems to me that the same line of questioning and/or accusation can be leveled at politicians regarding the housing mess. When people were able to purchase homes with mortgage payments totalling more than 60% of their monthly income, and then draw second mortgages on those homes to basically finance lifestyles, someone in a position of authortity should have known something was amiss. And frankly, I’m more pissed off about that than I am about the Wilpons and Madoff. But I guess there’s no target there from which to extract millions, and it doesn’t support the “little guy’s” anger, because in those cases, the little guy is as responsible as anybody else.

    I know this is off-topic for a baseball conversation, but all of this is a distraction and a dog and pony show to try to make some people whole and to make others feel satisfied.

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