Mets Letter Confirmed Madoff’s $54M ‘Investment’

The parent company of the New York Mets, Sterling Partners, is currently subject to a lawsuit filed in federal court by the court-appointed trustee representing the countless victims of Bernie Madoff’s Ponzi scheme.

(Wilpon, Mets never spoke to Ruth Madoff about “investment”)

The managing partner of the Mets, Fred Wilpon, is one of the first two defendants named in the “clawback” lawsuit, which seeks $386 million in restitution amid allegations that Wilpon used what he knew was unclean money from Madoff to fund - and leverage - the day-to-day operation of the Mets and other Sterling entities.

Monday a federal court judge ruled that Wilpon and his Sterling Partners must pay $83,309,162 to the victims - via the court-appointed trustee - of Madoff’s Ponzi scheme. The judge also reaffirmed a March 19, 2012 trial date to determine the rest of the $303 million the trustee of Madoff’s victims continues to seek.

As noted in previous sworn depositions relating to the case, Wilpon and son Jeff, who is also heavily involved with the operation of the Mets, both said they never vetted Madoff’s background or investments because of their longtime family friendship.

Though the exhaustive 383-page complaint filed by the trustee of Madoff’s victims last March asserts that the Wilpons willfully ignored red flags that would’ve led any reasonable person - investor or not - to suspect what turned out to be the largest Ponzi in history.

Red flags that included an internal Sterling company audit of Madoff that all but concluded he was engaged in some manner of financial fraud. Though when the Madoff court-appointed trustee requested the documents from that Sterling-commissioned audit of Madoff, the Madoff trustee was told by Wilpon’s company that it was “missing.”

Another example cited in federal court by the Madoff trustee as evidence Fred Wilpon knew Madoff’s business was not legitimate was the seemingly bizarre though brief nature of a $54 million transaction between the Madoffs and the Mets.

Below is the Madoff trustee’s federal court description of how Ruth Madoff’s $54 million “investment” in the Mets helped leverage Wilpon & Co. sufficiently to facilitate starting its own sports television network. 

The New York Mets parent company, Sterling Partners, Knew That Madoff Was Dishonest In His Investment Advisory Business. Madoff and Sterling falsely documented a $54 million bridge loan.

The Sterling Partners had such a close relationship with Madoff that they were willing – together with Madoff – to create a fraudulent letter agreement that falsely described an interest- and cost- free $54 million loan from Madoff as an “investment” by his wife, Ruth.

In May 2004, Sterling sought to buy-out the broadcast rights of the New York Mets from Cablevision to launch the television network SNY. To finance the buy-out, Sterling applied to two banks for loans totaling $54 million.

However, as the deadline for closing the buy-out approached, the Sterling Partners grew concerned that the bank loans would not provide funding in time, so they turned to Madoff.

On or about May 25, 2004, the Sterling Partners inquired with Madoff about making a large redemption from their BLMIS accounts. In response, Madoff told Saul Katz, Fred Wilpon, and Marvin Tepper, in particular, that Sterling’s BLMIS accounts were “in the market” and, as a result, redeeming funds at that time would lower their returns.

As an alternative to such a large redemption from Sterling’s BLMIS accounts, Madoff offered to send Sterling the $54 million needed to finance the buy-out of the broadcast rights.

On or about May 26, 2004, Madoff wired to Sterling $54 million, which was comprised of other people’s money. Shortly thereafter, the bank loans totaling $54 million closed.

On or about May 27, 2004, Sterling repaid the $54 million it had borrowed from Madoff and instead used the bank loan proceeds to finance the buy-out of the broadcast rights.

Although Madoff and Sterling agreed that the $54 million transfer from Madoff was a loan, Sterling prepared on Mets letterhead a letter agreement dated May 25, 2004 from Fred Wilpon and Saul Katz to Ruth Madoff that falsely described the transaction as an investment by Ruth Madoff in the company that would later become SNY.

Sterling Partner Marvin Tepper was involved in the drafting of the May 25, 2004 letter agreement.

The May 25, 2004 letter agreement characterized Madoff’s loan to Sterling as an “investment” by Madoff’s wife, Ruth.

The May 25, 2004 letter agreement provided, in relevant part:

‘This will confirm the conversations with respect to an investment by you [Ruth Madoff] in the Network. Over the years you have invested with us in, among other things, real estate funds; and we contemplate extending this relationship to the Network. . . . You are simultaneously wiring to Sterling Equities Associates the sum of $54 million which is expected to be the approximate amount of your proposed investment with the Network.’

The May 25, 2004 letter agreement also provided for the payment of a premium of some undetermined amount to Ruth Madoff in the event she, Fred Wilpon, or Saul Katz terminated the agreement:

‘If at any time you [Ruth Madoff] or the undersigned [Fred Wilpon and Saul Katz] elect to terminate this arrangement in the sole discretion of the terminating party, the terminating party shall give written notice to the other party and in either of such events, the undersigned shall pay to you the sum of $54 million. In addition, the undersigned shall pay to you a premium to be mutually agreed, having due regard to all the circumstances including, but not limited to, our long and beneficial business and personal relationships.’

The May 25, 2004 letter agreement was signed by Fred Wilpon, Saul Katz, and Ruth Madoff.

Fred Wilpon and Saul Katz, and, upon information and belief, Marvin Tepper knew that the letter falsely described the transaction as an “investment” by Ruth Madoff when in fact it was a no interest, no cost loan from Madoff.

Furthermore, although the letter agreement stated that Fred Wilpon and Saul Katz had conversations with Ruth Madoff regarding the “investment,” neither Fred Wilpon nor Saul Katz ever actually spoke to Ruth Madoff about any investment related to SNY or the predecessor company.

Fred Wilpon, Saul Katz, and Marvin Tepper knew or should have known that it was highly unusual for such a sizable transaction to be supported by only minimal documentation, such as the May 25, 2004 letter agreement.

Fred Wilpon, Saul Katz, and Marvin Tepper knew or should have known that it was even more suspect for the only documentation of such a substantial transaction to not even accurately reflect the true nature of the deal.

The $54 million loan transaction between Sterling and Madoff and the accompanying letter agreement between Saul Katz, Fred Wilpon and Ruth Madoff demonstrate that Saul Katz, Fred Wilpon, and Marvin Tepper were on notice that Madoff would work with them to knowingly falsify a significant business transaction.

The impromptu bridge loan from Madoff allowed Wilpon to ensure, even if they were unable to secure a legitimate bank loan, that the Mets would be able to start a television network from which the Major League Baseball franchise has since financially benefited.

During a July 10, 2010, sworn deposition in New York Fred Wilpon was asked about the documented $54 million transaction involving Ruth Madoff.

Q. Was Ruth Madoff involved in any of these discussions or this discussion, period?
A. No. Not to my knowledge.
Q. I can turn now to the letter that’s in front of you, Exhibit 17. That is your signature at the bottom of the letter, right?
A. I’ve told you that.
Q. So at some point in time you reviewed this letter and you signed it, right?
A. Correct.
Q. So, when you signed this agreement, were there any other signatures on the document when you signed it?
A. I don’t recall.
Q. Don’t remember. When you signed the agreement was there anyone else in the room?
A. I don’t recall that.
Q. How long after the phone call you had with Mr. Madoff where he agreed to wire you $54 million, what was the lag time between that phone call and when you signed this agreement?
A. I have no idea.
Q. Do you remember if you signed this agreement at or around May 25th, 2004?
A. I don’t know.

With the untold, documented leverage and direct funding provided by his financial relationship with Madoff - and the accompanying equity of the Mets - the Wilpons took a modest, family-run company and transformed it into a sophisticated, multi-billion dollar real estate, private equity and hedge fund empire with professional baseball as its centerpiece.

Though when asked during the same, 2010 sworn deposition what he thought of Madoff, Wilpon responded: “There is no person you will talk to, none, that is more betrayed than I am.

Follow Brooks on Twitter or join him on Facebook for real-time updates.