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.

Joe Janish began MetsToday in 2005 to provide the unique perspective of a high-level player and coach -- he earned NCAA D-1 All-American honors as a catcher and coached several players who went on to play pro ball. As a result his posts often include mechanical evaluations, scout-like analysis, and opinions that go beyond the numbers. Follow Joe's baseball tips on Twitter at @onbaseball and at the On Baseball Google Plus page.
  1. Ryan February 22, 2011 at 1:59 pm
    One can look at the Mets organization under the Wilpons as a defacto money laundering agency for the Madoff pyramid. Fred injected the Madoff funds with real cash via “investments” and “deposits” while directing others to do the same. By withdrawing funds, using them, and then re-depositing club earnings with Madoff, the franchise was a real winner and could have easily been used by Madoff to suggest legitimacy to targeted clientele. You need real cash to play the “shell game” properly and Wilpon was a real cash contributor.

    In other words, Wilpon could be the world’s most colossal dupe, and tragically so. Dupe or abettor, unknowing or “inside man”, the Wilpons are finished and it’s only a matter of time before the franchise is wrenched from their control.

  2. srt February 22, 2011 at 2:21 pm
    If the Wilpons didn’t ‘do their due diligence in researching the legitimacy of Madoff’s funds, ignored warnings from others’, they were in good company. Neither did the SEC.
    • Joe Janish February 22, 2011 at 3:30 pm
      A valid point, SRT. Though, would you call the SEC “good” company?

      I’m curious, though — does the fact that the SEC didn’t “catch” Madoff for so long mean that his agents are absolved of responsibility? I imagine there is some kind of precedent from a similar case in the past.

  3. gary s. February 22, 2011 at 3:24 pm
    This dumb parroting that the SEC missed the problem with Madoff is getting really tired.Govt agencies never go out of business.Crooked and indigent baseball owners eventually are forced to sell their teams.I’m hoping it’s sooner than later for the idiotic Wilpons who now have added money laundering to their dubious talents.
  4. Izzy February 23, 2011 at 10:34 am
    Actually, I hope it significantly impacts the team on the field. The more impact, the worse Met ticket sales and SNY ratings will be and the sooner the Wilpons will be foreced to sell out completely. They don’t deserve the Mets and we as fans don’t deserve them as owners. If they stay the mess will linger far longer than any transfer of ownership would last.
  5. wohjr February 23, 2011 at 12:27 pm
    Hi Joe-

    Thanks for drawing this wrinkle out, you’re right that it is significant from a legal perspective… these folks who gave money to Wilpon that ended up with Bernie have a real case– warnings to Wilpon are documented as early as 2003

  6. micalpalyn February 23, 2011 at 5:13 pm
    WOW!!

    I have not considered that! That the Wilpons could be FORCED out by Baseball IF they ARE found to guilty/negligent….

    • Izzy February 23, 2011 at 8:20 pm
      I don’t see MLB forcing the Wilpons out. I see a continually worsening cash flow problem and a law suit that most probably will be successful, based on the Trust’s history to date, as forcing the Wilpons out. Hopefully, none of the rich will be willing to buy 25% to watch Fred and son run things poorly.
  7. mrtasan February 24, 2011 at 12:58 am
    lets raise the price…$5 billion from the wilpons!!! lets sell those mets!!!
  8. Mic February 26, 2011 at 10:49 am
    So now the Wilpons borrowed money from Selig….ouch.
    So how much is 25%? 125M?