Madoff Trustee Says Sterling Equities Turned 'Blind Eye' To Fraud

Feb 4 2011 | 1:12pm ET

Among the victims of Bernard Madoff’s massive Ponzi scheme, you won’t find the names of Sterling Equities co-founders Saul Katz and Fred Wilpon if the bankruptcy trustee for Bernard L. Madoff Investment Securities has anything to do with it.

Trustee Irving Picard has requested his lawsuit against the Sterling defendants, including Katz and Wilpon, be unsealed to address what a lawyer with the firm representing the trustee called the “high level of misinformation” currently circulating about the case.

David J. Sheehan, counsel to the trustee and a partner at Baker & Hostetler, said attempts to negotiate with the Sterling defendants had “not resulted in a resolution of the amount owed to the Madoff Customer Fund.”

“We believe that the Sterling defendants received substantial funds—in the hundreds of millions of dollars—illegally through their BLMIS accounts and we seek these recoveries for ultimate distribution to BLMIS customers with valid claims.

The trustee claims that Katz, Wilpon, other Sterling partners, their families, related trusts and their various privately held entities “were collectively one of the largest beneficiaries of Madoff’s fraud” over the course of the company’s 25-year relationship with Madoff. The complaint states the Sterling defendants together had about 300 BLMIS accounts, and steered about 180 clients to Madoff’s firm.

In a statement released on Friday, Katz and Wilpon denied any prior knowledge of the Madoff fraud and characterized Picard’s lawsuit as “an outrageous ‘strong arm’ effort to try to force a settlement by threatening to ruin our reputations and businesses which we have built for over 50 years.”

“The plain truth is that not one of the Sterling partners ever knew or suspected that Madoff ran a Ponzi scheme. Because the Trustee has no evidence to support his claims even after a year-and-a-half review of over 700,000 pages of documents and many, many hours of depositions, he has created a claim that we ‘knew or should have known’ that Madoff was a fraud,” said the statement.

According to Baker & Hostetler Partner Fernando A. Bohorquez, Madoff money “flowed through every aspect of Sterling’s business; whether real estate, baseball or private equity, virtually every Sterling business held investments with BLMIS.

Bohorquez accused the Sterling defendants of “turning a blind eye” to the red flags because of this “dependency” on Madoff, a charge Katz and Wilpon hotly deny:
 
“That is complete nonsense. We have good, sound businesses that were successful years before we invested with Madoff, including both real estate and the New York Mets. Those businesses never depended on returns from Madoff.

“We thought that Madoff was a friend for 25 years. That is why his betrayal was so painful. Each of the Sterling partners and their families invested with Madoff in good faith right up to the day his crime was exposed. We were as shocked as the rest of the world when the money in our accounts vanished along with the billions he swindled from thousands of other innocent people.”

Katz and Wilpon say they are confident they will win in court.


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