Kallas Remarks by Steve Kallas
It doesn’t seem to be getting any better for the Wilpon family. Real-estate hasn’t been very good for a few years. The New York Mets haven’t been very good for a few years. And now, with a sealed lawsuit hanging over their heads in the Madoff case, comes word from the New York Times about a strange older case where an investment firm started by Fred Wilpon and Saul Katz, his brother-in-law and partner, had to pay back $13 million two years ago when a hedge fund collapsed due to fraud.
THE MADOFF CASE
It’s hard to decipher all of the case (or cases) against the Wilpons, the Mets and all the related entities. The “clawback” case that has been in the news is a relatively simple one: when you take out more money than you put in to an investment and the company goes bankrupt, a trustee can come after that differential whether the Wilpons had any knowledge of the fraud or not. Obviously, however, it’s much worse if they were involved, had knowledge or, those dreaded words, “should have known” about the wrongdoing.
In the specific clawback case filed in the bankruptcy court in the Southern District of New York, trustee Irving Picard is suing Wilpon and Katz for at least the difference between the $522.7 million that they put into Madoff accounts and the $570.5 million that was taken out (that is, a profit of $47.8 million).
When the suit was announced in early December 2010, the Mets organization, and especially Jeff Wilpon, Fred’s son, repeatedly said that it would have no impact on the Wilpon family’s ability to run the Mets franchise.
Until they announced this past Friday that it would.
FEBRUARY 9 IS THE BIG DAY
While there has been much speculation as to how much the trustee is trying to get from the Mets (hard to believe even a $47 million loss would cripple the Wilpons so much as to seek a “minority partner or partners” for the team), it’s hard to figure out what exactly is going on. Are there numerous suits relating to Wilpon entities that put the Wilpons and the Mets at risk for a loss of hundreds of millions of dollars (everyone now seems to agree that the $1 billion number bandied about last week is way too high)? Did the Wilpons and Katz have any knowledge of the wrongdoing? Did the Mets borrow against monies they turned out not to have, causing them severe cash flow problems?
These are just a few of many questions that need to be answered.
Lots of information on these and other fascinating questions may well be answered in bankruptcy court in Manhattan on February 9, 2011. The New York Times and WNBC Channel 4 have filed a motion in the bankruptcy court to unseal the court records relating to the Madoff/Mets case(s).
Nobody even seems to know at this point why the case(s) was sealed in the first place. A rare occurrence, usually there must be some very good reason, like a trade secret that couldn’t be disclosed or some other confidential business information.
It’s very hard to seal a complaint and many legal experts have spoken out against such a holding in this particular case. Here’s what part of the motion says:
“To the extent there are any allegations of financial impropriety by the team’s owners, the taxpayers who have provided them substantial financial support have the right to know about it.”
Yikes! That’s a direct reference to the $300 million dollars of taxpayers’ monies that were given to the Mets over the last few years. Scary stuff, no?
It would be hard to see how a judge will justify not making this and maybe other complaints public. At a minimum, the judge will have to explain why they were sealed in the first instance. A viewing of this and other related lawsuits would shed more light on the problems of the Mets and their owners
BUT IT ONLY GETS WORSE FOR WILPON AND KATZ
Now the New York Times is reporting that something similar to the Madoff scam has already occurred with a company founded by Fred Wilpon and Saul Katz. According to an article written by Alison Leigh Cowan in the Times, Wilpon and Katz started an investment firm that, two years ago, had to pay back nearly $13 million when a hedge fund collapsed from a Ponzi scheme.
The Times goes into the many similarities between this $450 million fraud, perpetrated by Samuel Israel III (now serving 22 years in prison), and the Madoff scam. The firm that Wilpon and Katz started, called Sterling Stamos, was accused of withdrawing money from a Sam Israel-entity named The Bayou Group after detecting evidence of possible fraudulent activity. Because of this alleged knowledge, lawyers for the defrauded went after Sterling Stamos for more than the $30 million that they took out (possibly something that the trustee in the Madoff case is trying to do; that is, go far beyond the simple “clawback” number of $47.8 million).
Sterling Stamos settled the case for the afore-mentioned $13 million with no admission of liability. In the present Madoff case, Fred Wilpon announced on Friday that his lawyers are trying to settle the present suit by Irving Picard, the Madoff trustee. As to the older case, a spokesman for the Mets said that Wilpon and Katz would not comment.
In a further bizarre side note, the third partner, Peter Stamos, a brilliant Rhodes Scholar and Harvard Law School graduate, was married for 29 days to fellow law school student Silda Wall, years before she married former Governor Eliot Spitzer. According to the Times, a spokesman for Mr. Stamos declined to comment.
Is there a movie here somewhere or what?
SO, WHERE DO WE GO FROM HERE?
Well, in this writer’s opinion, much will be determined on February 9, unless the lawyers for Wilpon and Katz find out a way to globally settle the case by then. If they don’t, it will be hard to understand how the present Madoff cases will remain sealed. If unsealed, many (but not all) questions may be answered. As for the Times uncovering of the older hedge fund fraud, that is nothing but bad news for Fred Wilpon and Saul Katz.
Whether they like it or not, they’ve got a lot of explaining to do. It will be hard to dance around the cumulative impact of what’s going on.
It’s now tougher than ever to be a Mets fan, don’t you think?
© Copyright 2011 by Steve Kallas. All rights reserved.