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Wilpon and Katz served as buffers between investors and Madoff

Feb 21, 2011, 9:42 AM EDT

Fred Wilpon

Maybe Fred Wilpon and Saul Katz didn’t know anything about Bernie Madoff’s fraud, but after reading this in today’s New York Times do NOT tell me that they were “just like everyone else who was duped.”  Because as far as I know, no one else who was duped served as a buffer between everyday investors and Madoff, shielding him from any inquiries:

Mr. Wilpon and Mr. Katz marveled at Mr. Madoff’s record of success and talked of returns that would consistently outperform the market. But to be among those referred by the Mets’ owners, one had to agree to odd and puzzling terms that restricted direct contact with or questioning of Mr. Madoff. Sterling Equities, the family company that owns the Mets, would administer all the referred accounts and handle the transactions between the investors and Mr. Madoff’s firm.

Those invited into this rarefied club — including relatives of Sterling management, an investment banker who is also a supper club entertainer, a technology entrepreneur and a theater industry executive — would not send money to Mr. Madoff. Instead, it would be filtered through the Sterling partner and the Mets board member Arthur Friedman, a certified public accountant with a law degree who served as the liaison to Mr. Madoff’s operation.

Even if they hadn’t a reasonable doubt about Madoff in the world, the fact is that Wilpon and Katz were not mere victims like others were. They were a key part of his operation, however unwitting to the fraud, and they had higher duties than did common investors, and thus they have a greater responsibility to the other investors.

  1. paperlions - Feb 21, 2011 at 9:48 AM

    What part of having no access to the man investing your money doesn’t seem shady? There is no way the Wilpons (or anyone dumb enough to have invested through them) could paint this as business as usual or above board.

  2. Jonny 5 - Feb 21, 2011 at 9:58 AM

    They were a key part of his operation, “however unwitting to the fraud.”

    That second part there is complete BS and you know it. Don’t you?

    • Craig Calcaterra - Feb 21, 2011 at 9:59 AM

      Well, I don’t “know” it, even if I suspect it. And of course, the “however” part could mean “absolutely not unwitting.”

      All I can say for sure is that it is most irregular, and I’ll leave it at that.

      • Jonny 5 - Feb 21, 2011 at 10:17 AM

        Lol!!! ahhhh, refreshing words from the lips of lawyers.

  3. yankeesfanlen - Feb 21, 2011 at 9:58 AM

    And now there are no card games? Comin’ down hard on the guys.

  4. chrisny3 - Feb 21, 2011 at 10:05 AM

    Serving as a “buffer” — or quasi administrator — for an investment is not illegal. Nor is it out of the ordinary as the NYT’s notes there were many larger investors with Madoff who did the same thing for other smaller investors.

    Nor do I think this will impact the lawsuit or any settlement or judgment. It has no bearing on whether the Wilpons “knew or should have known” that it was a scheme.

    The fact is, that was the only way other smaller investors could get into those Madoff investments and they were well aware of that going in.

    In terms of being “victims” of Madoff, and in terms of the “known or should have known” liability, yes the Wilpons were just like any other investor and I believe will ultimately be treated as such by the courts, even if Picard (and the NYTs) are attempting to do so differently.

    • paperlions - Feb 21, 2011 at 10:28 AM

      I agree. The Wilpons were just like any other investor who 1) had personal access to Madoff, 2) acted as a buffer between Madoff and other investors, 3) completely failed to vet Madoff’s operation despite receiving repeated warnings from other financial companies that refused to invest with Madoff, 4) actively recruited investors into the Ponzi scheme, 5) made over $300MM “investing” with Madoff, and 6) where experience, sophisticated, and (allegedly) intelligent investors who should have figured out what Madoff was doing long ago.

      • chrisny3 - Feb 21, 2011 at 10:48 AM

        No, what I am saying is that in terms of any legal liability, whether or not the Wilpons had personal access to Madoff or served to administer investments for others will not matter.

        Everyone knows the Wilpons were friends with Madoff, so of course they had personal access to him. So did many other Madoff investors. That is not new news. And, there were other investors who ALSO administered accounts for smaller investors.

        “…completely failed to vet Madoff’s operation despite receiving repeated warnings from other financial companies that refused to invest with Madoff”

        Again, as I told you yesterday, those so-called warnings do not rise to the level required for investigations under the law. For example, Merrill wouldn’t invest in Madoff because “black box” investing was against their strategy. But “black box” strategies are perfectly legal. No one ever told the Wilpons and Katz that they suspected a fraudulent investment.

        “…where experience, sophisticated, and (allegedly) intelligent investors who should have figured out what Madoff was doing long ago.”

        Right. And there were more experienced, sophisticated and intelligent financial people than the Wilpons and Katz who were defrauded as well. And the SEC, not only more sophisticated and experienced than the Wilpons, but who had the resources to investigate his firm, didn’t do or find a thing. So everyone else didn’t know. But the Wilpons were supposed to. The SEC defense is a powerful and I think will work to the Wilpons advantage in this case.

    • okobojicat - Feb 21, 2011 at 10:30 AM

      Serving as a buffer is extremely unusual if you are not pooling. If you are pooling your $’s, and you aren’t investing much, then you usually don’t get much attention by the big dog. But each of these investors had their own accounts. They got statements from Madoff. The fact that Sterling’s accountant and lawyer was handling all of the back-end, tax, and liability issues should’ve been a HUGE red flag to the investors, even more so to the Mets brass. The non-attention by Madoff isn’t a surprise. The fact that all the money went through Sterling is a huge no-no. How was Sterling verifying the transaction? What paperwork exists for that? How as Madoff verifying he got the cash?

      This isn’t just a sign of being a victim. They are sophisticated. If you are a sophisticated investor, and you are trying to stay on the up-and-up, you do not enter into any sort of agreement like this.

      They aren’t a victim. They actively helped Madoff. If they didn’t know about the Ponzi scheme, they are so AMAZINGLY INCOMPETENT that they should never ever be allowed to practice anything related to the financial world again.

      The fact that 300-some odd people invested through Sterling means that a whole lot of paperwork exists that that the Wilpons should’ve been much more attentive and should’ve recognized something was wrong….unless they were participating.

      • chrisny3 - Feb 21, 2011 at 10:59 AM

        The checks were made out to Madoff. The money didn’t actually flow through Sterling in that sense. They just forwarded the checks to Madoff. As for things like verifying transactions and paperwork, Friedman took care of all that according to the article. So I’m not sure what you’re trying to get at there.

        Also, serving as an administrator of investments is not that unusual. Not only did other Madoff investors do that for their friends and relatives, but Sterling was accustomed to doing so as administrators of employee pension plans and such.

        This isn’t just a sign of being a victim. They are sophisticated. If you are a sophisticated investor, and you are trying to stay on the up-and-up, you do not enter into any sort of agreement like this.

        Are you trying to accuse the Tim Teufels in this case of being more than victims? Of being somehow at fault here?

        They aren’t a victim. They actively helped Madoff. If they didn’t know about the Ponzi scheme, they are so AMAZINGLY INCOMPETENT that they should never ever be allowed to practice anything related to the financial world again.

        This is just nonsense. If that’s your definition of aiding and abetting, well then every investor in Madoff “actively helped” him. And everyone who invested in Madoff was amazingly incompetent. Including everyone at the SEC who had responsibility at the time to look into and stop Madoff.

  5. PanchoHerreraFanClub - Feb 21, 2011 at 10:40 AM

    Well, where are all the comments that the Wilpons should get to keep the $300M because they were investing in “good” faith and Picard is a greedy so-so lawyer that just wants 40% for getting back?

    The only good thing about all this for the Mets is that people have forgotten about the bookie running their clubhouse.

  6. BC - Feb 21, 2011 at 10:47 AM

    I say taser them.

    • JBerardi - Feb 21, 2011 at 10:56 AM

      That’s only for the commoners.

  7. apbaguy - Feb 21, 2011 at 12:28 PM

    Again, I refer to the Matt Taibbi article in Rolling Stone: No Wall Street types other than Madoff have gone to jail for their roles in this current financial crisis.

    http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216

    Using the SEC defense (The SEC is more sophisticated than the average investor. The SEC did nothing to pursue Madoff. Therefore, xxxx cannot reasonably be guilty of yyyy financial crime.) ignores the revolving door of SEC leadership to Wall Street influence in decision making to pursue financial crime investigations.

    Most people don’t understand how fundamentally the equality equation has shifted in this country over the last 30 years. More money is in the hands of fewer people than at any time since 1928. As an example, if the taxes on the top 25 hedge fund managers from 2009 were paid at the top earner marginal rate of 35% rather than their actual rate of 16.6%, more money would be returned to the US treasury than will be “saved” by freezing salaries of all 2,000,000 federal civilian employees.

    So any discussion of relative sophistication of investors that does not assume a tremendous gap in financial understanding between the middle class and the investor class is simply wrong. The top 1 tenth of 1 percent in wealth, such as the Wilpons, simply because of the financial environment in which they exist-and thrive-are extremely sophisticated financially compared to us.

    As for the SEC, everyone on staff at the agency does not have to be incompetent for there to have been no investigation into Madoff. The top management alone, the ones who are now working on Wall Street, could spike any request for an investigation. They did it often enough, as Taibbi’s article indicates.

    • The Rabbit - Feb 21, 2011 at 3:59 PM

      As usual, your comments are on target. I haven’t verified your actual statistics but the concept is correct. I’ve researched this issue in the past. (I’m now happily retired but was formerly employed in fund development, financial analysis, and competitive intelligence for a major financial corp.)

      So any discussion of relative sophistication of investors that does not assume a tremendous gap in financial understanding between the middle class and the investor class is simply wrong. The top 1 tenth of 1 percent in wealth, such as the Wilpons, simply because of the financial environment in which they exist-and thrive-are extremely sophisticated financially compared to us. Absolutely correct.

      The obvious reason for Sterling Equities to act as a buffer if it weren’t pooling funds is that it was receiving fees in addition to return on its own investments. That’s not uncommon. See: Any broker who recommends a “house” stock. Therefore, it shouldn’t be a problem as long as there was disclosure.

  8. lardin - Feb 21, 2011 at 12:51 PM

    The problem the wilpons and sterling equities will run into is the fact that they have a fiduciary responisbility towards all those people they funneled to Madof. Sterling equities grouped funds toether from small investors and depostited the money with Madof. What they knew or didnt know is irrelevant. The fact is they had a fiduciary responsibilty to find out. They were warned by banks and other investors. But yet took no steps, to find out if the information was true. This is why the Wilpons are in so much trouble

  9. simplicitymadecomplex - Feb 21, 2011 at 1:55 PM

    My goodness fellow baseball fans get a grip; please.

    Just keep everything simple, as follows:

    1. Greed reigns supreme [and I do not give a rat's ass how you measure being "greedy"].
    2. Almost [99%] every “leader/controller of others’ lives/the biggest cheese in a given setting”
    is, by/thru nature and nuture, a psychopath [many studies which I will not reference are
    out there (and by there I do mean beyond the internet) so verify this on your own as it
    may help improve your mind)].
    3. Birds of a feather flock together.
    4. The wilpon family are “confirmed” leaders.
    5. The wilpon family are “confirmed” masters [lesser masters by "confirmed" standards but
    "masters" nonetheless] of point number 1.
    5. Very, very, very close “ties” with one Bernie M.
    6. Almost every justice system in the known universe is broken [I'm being kind].
    7. Leaders/psychopaths are among those who know EXACTLY how to work ANY system.
    8. Bread & circuses help obscure everything.
    9. Baseball, while a business, is essentially just one of the better “bread & circus” acts that
    leaders have to lull and dull the masses.

    So by MY standards the wilpons have, do, and will continue to, fuck over any & all just to improve their bottom line by $0.01 w/o any concerns [which includes getting caught see #s6 &7 ]. My ? is “how many other baseball owners used the services of BM in any manner ?”.

    Also anyone who actually believes/feels that baseball & politics are NOT connected is, again by MY standards, either uneducated or a complete fool. Everything is connected.

    James Hall.

    • simplicitymadecomplex - Feb 21, 2011 at 2:03 PM

      Oh yes, wilpon is not guilty until proven so [and good luck with that Mr. Picard].

      Note Craig C. as you see I finally broke the code at wordpress.com and joined the other minions of HBT. Let the good times roll.

      And finally do any other minions know of any “fantasy leagues” in search of new and/or expansion owners ?

      • joshfrancis50 - Feb 22, 2011 at 1:20 PM

        I too, would be interested in a fantasy league, simplicity.

  10. Reflex - Feb 21, 2011 at 2:15 PM

    Just going to re-iterate here: Given the level of involvement of multiple CPA’s and other trained financial advisors, there is simply no way in hell the Wilpon’s did not know this was a scam. They may not have known the nature of the scam, or how far it went, but there is no way that they did not have one single advisor who said to them “Uh, anyone guaranteeing rates of return is breaking the law and professional ethics.”

    Sorry, no way no how.

  11. seeingwhatsticks - Feb 21, 2011 at 2:39 PM

    If the Wilpons had invested with Madoff and later found out it was a Ponzi scheme, but needed to get their money out of it safely, wouldn’t they need to find an equal amount of cash from new “investors”?

    • Kevin S. - Feb 22, 2011 at 5:58 AM

      The moment somebody finds out they’ve been involved in a Ponzi scheme, there is no legal way to get their money out safely. Any action they take, other than reporting the scheme to the SEC, is defrauding the other investors, and if they report it, they’re still fucked eight ways to Cleveland, since A) chances are they won’t be able to get back to their initial level of investment if they haven’t withdrawn that amount yet, B) any profits they may have already made need to be returned, and C) the asset value of their stake in the scheme disappears overnight, which can be especially crippling if they’ve borrowed against that value. I’m not accusing the Wilpons of doing this, because there is no evidence that they actually did know what was going on, but if one theoretically did find out, there would actually be a powerful incentive to keep quiet and hope the scheme could ride out as long as possible.

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