(METS CO-OWNER) Katz's Family pulled $357M from Madoff (financial brains behind the team?)

Saul Katz, Fred Wilpon's BIL, co-founder of Sterling Equities, and Mets co-owner, will repeatedly tell you he is a CPA........the brains behind Sterling's investment portfolio and business operations.....in charge of all the family finances invested with Madoff. And yet the investment pro, claims he had no knowledge that Madoff was running a Ponzi. Katz took out over $120M just in the last six years. Katz's three sons, who work for Sterling Equities, snared more than $237M. Katz married Wilpon's sister, Iris, more than 50 years ago and in 1972 went into business with Fred.

BACKSTORY Madoff complained in a 2004 phone call, that Wilpon's BIL and Mets co-owner, Saul Katz told his country club friends that "nobody knows how Madoff does it." Katz's blathering likely irritated Madoff because his epic Ponzi scheme depended on an air of mystery and intrigue to ward off regulators and lure customers. IF TRUE, THAT PROVES THE WILPON'S KNEW!

Mets co-owners and their families reaped millions from Bernie Madoff’s scheme. There were, at last count, 483 Wilpon accounts with Madoff:

Fred Wilpon Sterling Equities co-founder; Mets co-owner Earnings: $52.8M from 57 Madoff accounts

Judith Wilpon Fred’s wife Earnings: $24.7M from six Madoff accounts

Iris Katz Saul’s wife Earnings: $35M from six Madoff accounts

Saul Katz Sterling Equities co-founder; Mets co-owner Earnings: $45M from 68 Madoff accounts

Jeff Wilpon Fred and Judith’s son, Sterling exec VP, Mets COO Earnings: $37M from 62 Madoff accounts

Richard Wilpon Fred’s brother, Sterling Equities partner, Mets board member Earnings: $23.1M from 60 Madoff accounts

Michael Katz Saul’s brother, Sterling Equities partner, Mets board member Earnings: $19.1M from 59 Madoff accounts

Heather Katz Knopf Saul and Iris’ daughter Earnings: $33M from 44 Madoff accounts

SOURCE http://www.nypost.com/p/news/local/amazin_kin_all_had_to_bern_dwIueqtoYrU2uhjaoXEUaL

BACKSTORY Sterling Equities Inc, asked a court to order the trustee liquidating con man Bernard Madoff's firm to turn over documents supporting a $1 billion claim against Sterling. ..... < snip > The $1 billion legal fight, in which trustee Irving Picard wants to recover $300 million in alleged phony profit from Madoff's scheme made by Sterling and as much as $700 million in principal, is being mediated by former New York Governor Mario Cuomo. The mediation has started and “will be impossible if the Sterling defendants do not have access to all of the trustee's pre-complaint discovery,” according to the filing. ..... < snip > ..... Picard claims the Mets owners used $90 million in Madoff profits for day-to-day operations, blinding them to “red flags” signaling that Madoff was a fraud. Mets Chairman Fred Wilpon and Saul Katz, the team's president, have called the claims “abusive, unfair and untrue.” ..... Sterling Equities (Wilpon and Katz) which owns the Mets Major League Baseball team claims Picard is delaying production of the requested relevant documents they need to keep the $1Billion Picard's clawing back. Court-appointed trustee Picard claims that requested documents and transcripts are the "good faith" allegations and dismisses Sterling's filing for documents as "frivolous."

Despite what Bernie said (contrived to save Wilpon's ***), these people need to understand the paramount legal principle that one cannot profit from a fraud. Any monies they made have to be given back so that those defrauded can be repaid (they get just cents on the dollar b/c the Madoffs spent most of it on a luxury lifestyle beyond imagination).

WILPON KNEW B/C HE ABIDED BY THE "CONDONATION" LEGAL PRINCIPLE The compelling legal principle of “condonation” is operating here---implied forgiveness for certain behavior. Meaning investors implicitly “condoned” Madoff’s actions over a period of time--sometimes decades.

His investors willingly acquiesced to Madoff's activities in several ways:

(1) Sending Madoff enormous sums of money, sums that were spread out over time (some families invested for generations), even AFTER they had the opportunity to assess their investments;

(2) Referring other investors to Madoff (if the investment was so bad, why did they bring in other investors?);

(3) Taking profits out of the investment, rolling it over, or putting more money in;

(4) Writing PERSONAL checks to Madoff's subrosa spinoff vehicle that was not listed on the Securities Exchange (tax evasion modus);

(5) Accepting, without question, Madoff’s obviously flawed monthly statements.

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THE MADOFF MO As he ID'ed Madoff's assets, Picard found a super-secret labyrinth of interrelated international funds, institutions and financial entities of almost unparalleled complexity and breadth......with assets and businesses in multiple places overseas that hid thievery, money laundering and tax evasion.

That serves to underline that Madoff was running simultaneous scams:

(1) a tax evasion scheme for wealthy businessmen ("losing" money is a tax write-off;

(2) a money laundering scam;

(3) a protection racket for affinity groups,

(4) aiding and abetting wealthy tax-exempt foundations to evade US banking laws and the IRS.

(5) hiding money for wealthy businessmen some of which was used for campaign donations (FEC fraud), and foundation fraud (IRS fraud)

Keep in mind Bernie‘s investors were savvy, astute successful business people, accustomed to constructing, picking apart and analyzing financial statements. One investor who spoke to reporters was a stockbroker (her family invested with Bernie for generations---the family's patriarch founded the wildly successful Stop and Shop supermarket chain). Other inevstors gave Madoff $100-500 millions to "invest" for years and years.

Did Madoff’s plan have SEC approval? If so, how could people who took money out be required to give it back?

Oh, please---that's a key element of the fraud---not being a registered financial entity. Remember Madoff also ran a so-called legit investment business above the 17th floor where the Ponzi was operating.

Even some of Madoff's billion dollar feeder funds were not registered.

ITEM Stanley Chais, a private investor from Beverly Hills whose investors were mostly from well-to-do Jewish families on the West Coast. Chais, 82, lived in Beverly Hills for many years before absconding to Jerusalem. Touting himself as a financial whiz kid, Chais boasted about his investment pool called The Arbitrage (later found to be unlicensed), which received returns of about 10 to 15 percent every year.

ITEM Chais charged substantial fees - 4.5% of clients’ assets, according to paperwork given to news organs. Four of his investors told the Journal that they had never heard of Madoff until his arrest when they received a letter from Chais’ accountant, saying that all their money had been invested with Madoff (many other feeder funds never advised clients they were invested w/ Madoff).

Later his spox said, “Mr. Chais was shocked to learn of what appears to be a Ponzi scheme of unprecedented proportions operated by Bernard Madoff, an individual whom he had known for decades,” Eugene Licker, a lawyer for Mr. Chais, said in a statement to the Journal. “If the allegations are true, Mr. Chais and his family, like others, have watched personal wealth evaporate overnight.”

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Madoff facilitator, Stanley Chais, Beverly Hills, operated the Chais Family Foundation and Brighton Co Investments. Chais is a "philanthropist" who served on "charitable" boards with Madoff. Chais (pronounced Chase) told the Jewish Journal of Los Angeles that he personally invested with Madoff but also "facilitated" others who wished to do likewise. However, spokesmen for the SEC and the California Dept of Corporations said they could find no record of Chais registering as an investment advisor or a broker.

Stanley Chais offers remarks at the Weizmann Institute of Science.

Madoff was not acting alone. But these kind of schemes on a smaller scale are peddled all the time and resonate even with people who "should have known" better, but apparently "turned the blind eye" seduced by the whiff of "rare opportunity" / "privileged access" / "inside information"...

Recently sentenced mini-Madoff Kenneth Starr (not that Ken Starr, but the the money manager of some the Hollywood actors, producers and celebrities) ran a long $59M Ponzi scheme. R. Allen Stanford allegedly ran a $7B Ponzi scheme of "safe" CDs with more than 7% returns.

Even more "curious case" is Kenneth Wayne McLeod of Jacksonville, FL who ensnared hundreds of current or former law enforcement agents from FBI, DEA, IRS, ICE in his $43M Ponzi scheme running for over 20 years:

From Hundreds of Federal Agents Fall Victim to Ponzi Scheme - AOL, 2010 July 08

FBI agents are supposed to unearth scams, not become victims of them. This time is different.
Some 300 retired and current federal agents -- representing the FBI, the Drug Enforcement Administration and Immigration and Customs Enforcement -- collectively invested tens of millions of dollars of retirement money in what turned out to be a Ponzi scheme allegedly run by a Florida man who committed suicide last month, an attorney in the case said. ..... < snip > ..... "There are definitely [agents] who have lost their life savings," Fort Lauderdale attorney Michael Goldberg, who is representing the victims, told AOL News. The reaction of the agents? "Pretty much what you expect," Goldberg said. "Shock and anger."
Behind it all, authorities said, was a self-described retirement investment adviser named Kenneth Wayne McLeod, 48. For years McLeod served as a trusted adviser to federal agents around the country, making free financial projections for retirement and in some cases offering high-yield returns of 8 to 10 percent on certain investments, according to an SEC filing in the case. ..... < snip >
..... According to the SEC, McLeod for years put on retirement seminars that federal agencies paid as much as $15,000 for. ..... In many instances, he offered high returns -- 8 to 10 percent -- through bonds. "The security of the government bonds was a key element of McLeod's deception but he never purchased any bonds," the SEC said in a statement on June 25. ..... < snip >

Oh, and because he was "investing in government bonds", these returns were also "safe" and "tax-free". His MMF, F&S Asset Management Group, was legitimate, but his "special bond" operation was basically an equal opportunity affinity fraud.

McLeod was described as a "charmer" who was using his reputation, familiarity and name-dropping to other federal agents, including boasts of his "best friend, Bob" (FBI Director Robert S Mueller) and his wife staying at his place on their vacations. The scammed federal employees were in GS-13/GS-14 wage brackets.

He also scammed clients that he met through charity work and non-profit groups that help families of agents killed in the line of duty.

More details here:
From Wayne McLeod: The Life and Death of a Mini-Madoff
He gave seminars, handled investments, and ran a Ponzi scheme for an unlikely group: law enforcers
Niche-Market Madoff Duped Law Enforcement Agencies in Ponzi With a Twist - RGM/BW, by Robert Schmidt, 2010 September 02

< snip > ..... McLeod lured them with what he called his "special fund," government bonds that he promised would return 8 percent to 10 percent interest annually, tax-free. Few if any clients bothered to ask how such good returns could be duplicated year after year. Like those who put their money with Bernard Madoff, they didn't think they were being too greedy. They weren't trying to get rich overnight. It all sounded perfectly reasonable. Then, in June, working on a phoned-in tip, investigators from the U.S. Securities and Exchange Commission barged into McLeod's Jacksonville office. ..... < snip >
..... As primitive as they are, Ponzi schemes are not easy to spot. As long as money flowing in from new investors covers the payouts to current investors, nobody wises up to the fraud. That often changes during tough economic times as more clients try to withdraw money and the requests can't be covered. ..... < snip >
..... The government's silence on the question of how McLeod was able to conduct the fraud is frustrating to some of his victims, and some wonder privately if their employer is concerned about its liability. ..... < snip >
..... Goldberg says the case is more disturbing than most. McLeod wasn't promising outrageous returns, he notes, and the agents seemed to be relying on the approval of the government when they signed up with the investment adviser. ..... < snip >

Just like Madoff who, having been "investigated" a few times by the SEC acting on tips, had the cover and was able to brag about "clean bill of health" of his operation.

CP, you always provide goods source material and inciteful analysis, but with respect, in this this I think you missed the point I was trying to make.

Madoff's scam was totally different from the examples you cite in several key ways:

1. Madoff was dealing with sophisticated investors and financial institutions. His false statements had to be able to withstand a far higher degree to inspection.

2.Madoff had thousands of clients, and EACH one of them had literally thousand of transactions..stock buys and sells AND option strategies EACH month. And because it was all fake, they had to make sure that the stock price was accurate for the date and TIME of each transaction. That's a staggering degree of data and complexity.

3. When the first reports of the fraud came out, much was made of the secretive offices, which no one could access, and the 20 year old IBM computer system, which supposedly handled all the data and produced the fake statements each month. That alone would seem to require a fair degree of computer savy, and programming ability, which no one as yet named in the investigation seems to possess.

I remain highly scepticle that this is a one o two person fraud. heck, Madoff would often be away from the office for weeks, even months at a time..galavanting around the world, yet each day the data monster had to be fed...

Madoff's scam was totally different from the examples you cite in several key ways:

Of course. I specifically noted the differences in scale and stated that Madoff couldn't possibly act alone or with a very few confidants - the closes relatives / employees / co-workers and certainly a lot of the data operators and "auditors" have been part of it... and some are already under investigation, indictment or convicted... and some may be walking away scott-free.

The question is whether some of his customers ("net winners" or "net losers" according to Irving Picard), even with [relatively] large amounts at stake and financial sophistication "had to know" that Madoff was specifically running a Ponzi scheme (as Irving Picard keeps charging and stating in his filings and PR, without having to prove an ounce of it)

For instance, KPMG couldn't find any fraud after two "risk audits" for Madoff's HSBC custodian account, including the latest audit in 2008 - less than a year from Bernie's undoing in December of 2008 from the redemptions caused by market meltdown...

He essentially got a Good Housekeeping Seal of Approval from the SEC several times after the rumours of "possible" "too good to be true" fraud led to investigations. In fact, the returns he promised and delivered to most of his customers - not the likes of "dial-a-return" Chais, Picower, Levy etc. - were not "too good to be true" - they were on a par or lagging behind average S&P500 returns (e.g., see the charts in Historical Returns S&P 500), but they were not as volatile and "avoided" the negative dips of the market, in which case they were not only safer, but far more "accessible" for leverage (which Wilpons and Katzes, among others, used for loans and other financial games. There are many investors and money managers who delivered far superior than "market returns" without excessive risk during the same period of time - Berkshire's Warren Buffett and Charlie Munger, Legg Mason's Bill Miller, Bridgewater's Ray Dalio, even bond managers PIMCO's Bill Gross and DoubleLine's Jeff Gundlach, just to name a few.

In other words, in financial language, he promised and "delivered" some alpha (positive relative returns) without excessive beta (volatility), or in layman terms - a "peace of mind". That may imply some shenanigans, or skills, or "insider's magic" but what it doesn't imply is the Ponzi scheme, especially if someone has been doing business on this scale for a long period of time - Ponzi schemes, as we all "know", by their very nature are not supposed to last long...

What enabled all these schemes to last this long (and have the same MO of understated returns) was 20+ years period of bull market and the investing culture of reasonably steady investment "into the market" where money was easy to roll over and steady deposits outnumber redemptions.

In any case, my point is that if you had an opportunity to invest in what you knew was a Ponzi scheme which ran for a while, would you "knowingly" invested in it, and would you stay with it for many years, and kept a "peace of mind"? Would the schemer have any incentive to tell any customer that he is running a Ponzi scheme (where he risks an immediate redemption which would collapse his pyramid), as opposed to implying that he has a "magic system" and "insider's track" or some sort of "secret sauce" (haven't we heard a variation on this many times?)?

Yes, Madoff had quite a few enablers and comrades in arms, but very few if any of his investors / clients (no matter how sophisticated) would "know" or even suspect that he was running a Ponzi scheme, or they would be looking to redeem their money as soon as possible.

What Picard accuses some Madoff's customers (because he needs to put pressure on them to get a better deal or create an outcry from the "victims") is simply illogical, contrary to any common or "sophisticated" sense, and was aptly characterized as "nonsense" under the guise of sleek legalese.

My main point was not about the mechanics of making the Madoff's scheme to work on that scale, but in the similarity of most victims / former clients of Madoff, Starr, McLeod et al - most would stay as far as possible if they suspected (let alone, "knew") about their investment being in the Ponzi scheme, and Picard's "had to know" / "should have known" / "turned the blind eye" is a ridiculous "broad brush" accusation to throw at most people / institutions with so much of their own money at stake.

Would Picard et al do that to the "net winners" who didn't roll over their accounts with McLeod? These are G-13/G-14 government employees / agents whose business it is to deal with the crimes? Did they "have to know" / "turn a blind eye"? What it says that we shouldn't react like there is any substance in Picard's accusations every time he files something before a judge, especially since we saw how many times his "facts" are contradicting his own arguments when he is asserting and is trying to convince us that someone "had to know" / "should have known" something that in real world defies logic.

Just to clear something on your point 2:

Actually, most individuals (not high-net-worth individuals) would be in institutional/pension funds who invested with Madoff, so it would greatly reduce the number of accounts and not be thousands of client accounts (some accounts for the same client could be open and closed to show long-term/short-term gain/loss for tax purposes, as the case was with Wilpons / Katzes / Sterling).

Further, they were not self-directed (individually managed/traded) but "managed" by Madoff, so the clients wouldn't generate individual trades - they could just withdraw or deposit the money; Madoff could generate the "trades" any way he wanted to match redemptions / cash outflow in any account and "park" any kind of return ("dial-a-return" / Hillary's $100,000 from $1,000 "cattle futures" scheme) in any account he wanted/needed depending on the deposits / cash inflow.

That would greatly reduce the "paperwork." Yes, it's still time-consuming, but much more manageable and it was entirely under the control of Bernie and his accomplices, without clients knowledge of the mechanics.

It's a lot of work, but the pay was really good.

WRT Madoff’s obsession for detail, do not underestimate the greed factor. Greed was driving Madoff——Bernie had to shape up——greed kept the scam going.

He and the rest of the Madoffs had very, very expensive tastes. Bernie and Ruth were shopaholics——he bought $7500 sport jackets, she shopped everyday for designer clothing. Ruth and he both collected expensive jewelry and watches. All of the Madoff family’s real estate was located in prestige areas.

The bills for the Madoff family’s lavish lifestyle came due every month. That was a strong motivator.

Reading the several books that have surfaced in the aftermath-—one sees that not only Harry Markopolis was onto Bernie. Many MANY people asked the right questions——and reported their suspicions to L/E. But they could not get anyone to do anything about it. As I posted earlier, Bernie KNEW he was protected-—he knew that in L/E it’s a career killer to suggest someone of Jewish heritage was doing something illegal. No other explanation holds water.

Marshalling a protection racket was one of Bernie’s smart ploys. I would not doubt that Abe Foxman used the ADL club against anyone who dared suggest Bernie was a crook..........after a nice contribution from Bernie.

Looks like Picard may have been a naughty boy and became unhinged or maybe someone in his office is stuck on "stupid lawyers' tricks".

Somebody must have put the bug up somebody's "assets" if ex-Gov. Mario couldn't get a quiet settlement or slow down the talks while Sterling were looking for time to deleverage and come up with some cash:

Excerpt from Mets take swing at Madoff victims trustee - NYP, by Mark DeCambre, 2010 March 21

< snip > ..... The owners of New York's National League baseball franchise slammed Irving Picard in a lawsuit yesterday, alleging that the bankruptcy trustee tasked with clawing back money for Bernie Madoff victims fabricated evidence to force a billion-dollar settlement.
The 107-page complaint brought by Mets' co-owners Fred Wilpon and Saul Katz and their investment fund, Sterling Equities, alleges Picard knowingly made "false allegations" in a bid to force a settlement.
Wilpon and Katz hope to show that they weren't privy to any special information about Madoff and were never aware he was an epic scam artist. ..... < snip >
..... The Mets' complaint attempts to show that Picard intentionally omitted evidence that would have been "overwhelmingly favorable to the Sterling Partners that are directly contrary to the evidence available before the complaint [by the trustee] was filed." According to the suit, Peter Stamos, an outside hedge fund manager for Sterling, testified that he offered up a ringing endorsement of Madoff rather than sounding "repeated" warnings to Katz, as Picard's suit charges. ..... < snip >

Pretty much what was expected from Picard. The heat is on...

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