Sterling Filtered Madoff Funding
NOTE: pass on this article if you are tired of all the Madoff talk; we’ll return to baseball stories soon.
Yes, I’d really like to focus on the baseball stuff right now, being that the players are out on the field and running around in the sunshine of Florida.
Unfortunately, I for one cannot stick my head in the sand and ignore what’s happening with the Madoff situation — because it has already, and will continue to, affect the team on the field and ultimately our fan experience of the Mets (i.e., “consumers of the product on the field”).
So, while I won’t linger over small developments in the case, I will react when bombshells drop — such as the one reported by The New York Times yesterday. In case you missed it, The Times discovered that Sterling Equities — the parent company of the Mets — selectively recruited people to invest with Madoff, and handled the transaction process:
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 … 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.
The Times quoted one of the trusting victims of the fraud thusly:
One woman who, along with her husband, held several accounts with Mr. Madoff said she thought it was peculiar that they were told never to communicate with Mr. Madoff, but it did not stop them from wanting in.
“We never questioned the fact we weren’t allowed to contact Madoff because of our confidence in Sterling,” said the woman, who did not want to be identified as an investor with Mr. Madoff. “We invested because we trusted these two people absolutely; because they were big business and we assumed they knew what they were talking about.”
I’m no expert, but this doesn’t sound too good from the perspective of Sterling / the Wilpons / the Mets.
In response, Fred Wilpon and Saul Katz are turning this upside down:
Mr. Wilpon and Mr. Katz, his brother-in-law, insist that neither they nor their executives have done anything wrong and describe themselves as honest and longtime — albeit naïve — investors with Mr. Madoff. … Bringing relatives and friends into the Madoff investment circle, they contend, is further evidence they were unaware of Mr. Madoff’s deceit.
If it’s true that Wilpon and Katz were “duped”, it would be a nice argument but not relieve them of responsibility — you can’t use ignorance as an excuse. Once Sterling Equities took money from people and managed transactions on behalf of Madoff — effectively, becoming an agent for him — they became responsible for what happened to that money. If it comes out that Sterling did not do their due diligence in researching the legitimacy of Madoff’s funds, ignored warnings from others, and did not communicate “red flags” to the investors they recruited and managed, it’s going to be difficult for Fred Wilpon to “vindicate” himself. Ignorance may be bliss, but it doesn’t always protect people in a court of law.
Again, I’m not an expert on this, but some of you out there are, and I encourage you to share your thoughts in the comments.