Wednesday, 4 March 2015
Last updated 9 hours ago
Feb 14 2012 | 1:34pm ET
The chief investment officer of a hedge fund co-owned by the owners of the New York Mets warned one of them that Bernard Madoff was likely a fraud.
The revelation comes in court filings last week in advance of the trial in which the receiver in the Madoff case hopes to force Fred Wilpon and Saul Katz into ponying up almost $400 million they earned on their Madoff accounts. According to the filing, Noreen Harrington, a 20-year veteran of the hedge fund industry, resigned from Sterling Stamos after the firm rejected her advice that it steer clear of Madoff, but not before she made clear to Katz in 2003 that Madoff was up to no good.
Harrington's testimony at the trial expected to begin next month could be crucial. U.S. District Judge Jed Rakoff has ruled that Madoff receiver Irving Picard must show that Wilpon and Katz knew that Madoff was up to no good; the two men deny they had any inkling that Madoff was running a $65 billion Ponzi scheme.
Harrington, who joined Sterling Stamos in 2002 after a career that included stops at Barclays Capital and Goldman Sachs, said in a deposition that she told Katz that Madoff had to be doing something illegal to produce the returns he claimed.
Harrington said she was not assuaged by a meeting with J. Ezra Merkin, the Madoff feeder fund manager with whom Sterling Stamos was considering an investment.
"You don't get it, do you?" she said Merkin told her. "This is a privilege. You don't get to ask questions."
According to Harrington, Katz—who has said under oath that he does not remember any warnings from Harrington—asked, "What do you think Madoff does with the money?" Harrington said she responded that he was front-running, and, "if it wasn't that, I believed it was fiction."
"What do you mean, fiction?" a "visibly angry" Katz semanded. Harrington said she responded that the returns were too good to be true. "I don't believe the numbers are worth the paper they're written on."
"These were people he respected a great deal, and my responses, whether it be front-running or fiction, protrayed something illegal or bad," Harrington said. She added that Katz ignored her request to meet with Madoff to conduct due diligence.
Wilpon's and Katz's lawyers have called Harrington's concerns as "suspect and entirely unreliable." Harrington herself said that she admitted to Katz during the meeting that she "had been wrong before" and "could be wrong now."
In his own deposition, Katz said that Harrington was "one angry lady, disruptive in the office, and as I recall, when she left she was even some sort of whistleblower and didn't have good relationships wherever she was." The year she left Sterling Stamos, Harrington, who is now at M.D. Sass, was known as the whistleblower in then-New York State Attorney General Eliot Spitzer's probe of illegal trading at mutual funds. Harrington had worked at mutual fund firm Hartz Group.
Separately, Wilpon and Katz last week sought the Supreme Court's help in its battle with Picard. The two asked the high court to overturn a lower appeals court ruling that approved Picard's formula for determining who must return money withdrawn from Madoff accounts. Picard has said that Madoff clients are entitled to keep only amounts up to the total principle invested; the Mets owners want Madoff's final account statements to be binding.
Jan 23 2015 | 1:00pm ET
In our new section, FINtech Focus, we will profile one of these firms each week. While fintech is a broad category, we will be focusing on firms that specifically cater to the alternative investment industry. Read more…