Judge throws out 9 counts in $1B Madoff claim
- Last Updated: 8:13 AM, September 28, 2011
- Posted: 11:17 PM, September 27, 2011
The owners of the Mets came back from behind in their fight against a $1 billion lawsuit accusing them of ignoring Bernie Madoff’s massive Ponzi scheme -- but they are far from safe.
Manhattan federal judge Jed Rakoff yesterday tossed nine of the 11 counts against Mets owners Fred Wilpon and Saul Katz -- a move that could dramatically reduce the amount the owners will have to pay as a result of their ill-gotten investments with Madoff.
The late-inning decision to throw out much of the case also significantly raises the bar for the bankruptcy trustee, Irving Picard, to prove Wilpon and Katz knew Madoff’s firm was a big fraud.
But Rakoff said Picard can still pursue $300 million of allegedly fictitious profits and $700 million of principal from the Mets owners.
Wilpon and Katz have been dueling with the trustee, who seeks to claw back billions for Madoff’s victims, since Picard hit them with a suit in 2009.
Picard is seeking a whopping $1 billion from the Mets owners and their investment arm, Sterling Equities, including $300 million in alleged profits and $700 million in principal.
Normally, the trustee would just go after the profits, but in the case of the Mets’ owners, the trustee claims they willfully turned a blind eye to the fraud and should pay back principal, too .
While Picard seems to have struck out in this inning, he’s not out of the game just yet, sources said. Indeed, Rakoff said he could still pursue the profits -- and even the principal -- if he can show the owners knew about the fraud and ignored it.
But showing “willful blindness” can be a high hurdle. Also, Rakoff eliminated many of the other legal arguments Picard planned to use against the Mets, which may have been easier to prove in a courtroom.
“The trustee and his counsel are aware of the District Court opinion and order and are reviewing the decision,” said a spokeswoman for Picard.
A Mets’ statement said, “The Sterling Partners are pleased that the court dismissed nine of the 11 counts in the Trustee’s complaint, and that the lone remaining count in which the Trustee seeks to recover payments from the Sterling Partners is limited to a two-year period.”
One remaining question is how much profit and principal Picard can pursue. If Picard is limited to a two-year statute of limitations, he could be restricted to seeking far less than the full $1 billion -- potentially as little as $84 million in profits.
What’s more, that amount could be offset by loss claims of around $160 million made by the Mets owners, which is what they argue they lost to Madoff’s scheme.
If Picard is not bound by the two-year statute, he could fight for the full $1 billion dating back to the Mets owners’ early days of investing with Madoff.
Rakoff said in his ruling said he has not yet decided the time frame in question.
The court decision comes at a convenient time for the Mets owners, who are trying to sell minority stakes in the cash-strapped team to raise funds.
Last month, the Mets said they would try to sell smaller slices of the team after failing to sell a 49 percent stake to hedgie David Einhorn.