As a Yankee fan, I do not generally follow the day-to-day minutiae involving their cross-town rivals. However, as a subject matter expert on money laundering and financial investigations, I have been following the Bernie Madoff scandal with great interest. Irving Picard, the court appointed attorney charged with recovering assets for Madoff’s fraud victims, recently filed a $1 billion lawsuit against Fred Wilpon and Saul Katz, which may end up having serious consequences for the Mets and their fans.
The New York media, Mike Lupica of the Daily News in particular, have portrayed the suit as nothing more than an attempt to publicly slander the Wilpon family. Lupica refers to a recent NY Times prison interview where Madoff states unequivocally that the Wilpons had no knowledge of his scheme. Lupica argues that Madoff has already been sentenced for his crimes and thus has no incentive to lie in order to protect the Wilpons. In theory that is correct, but the lawsuit cannot be dismissed so cavalierly.
Picard does not allege that the Wilpons knew the details of Madoff’s scheme; rather he is accusing them of “willful blindness” to the scheme. In both criminal and civil trials, courts have defined willful blindness as the “deliberate avoidance of knowledge of the facts” and consider it the direct equivalent of “actual knowledge.” That definition poses a big problem for the Wilpons. The Wilpons run their own hedge funds and are much more knowledgeable about the ways of the market than your average investor. The compliant filed by Picard claims that the Wilpons should have known from the circumstances around them that their earnings from investments they made with Madoff were too good to be true.
Further complications arise from the documented closeness of the Wilpons and the Madoffs. Madoff was a long time season ticket holder of the Mets and his wife, Ruth, holds a substantial interest in real estate funds managed by Sterling Equities of which Fred Wilpon is a partner. The Wilpons have also been documented as having recruited investors for Madoff for many years. Picard allegedly has lined up several witnesses, including financial auditors, who will testify at trial that they had warned Katz and the Wilpons about Madoff.
If this suit goes to trial, it will be a civil case, which has a drastically lower burden of proof than a criminal one. It will not be necessary to prove that the Wilpons and Katz had intimate knowledge of the fraud, only that they should have been suspicious with the early profits they had made. The fact that they later lost money to the fraud may not be enough to absolve them of guilt. Any jury pool will most likely be more sympathetic to the fraud victims then they are towards rich investors who might have been able to blow the whistle on Madoff but chose not to.
How does this affect the Mets and their fans? The fact that the Wilpons immediately began looking for a minority partner should be a huge red flag. The only explanation for this maneuver is that the Wilpons are looking to stockpile ready cash in order to settle the lawsuit. Whether or not they can find any interested takers remains to be seen. Most recent estimates pin the value of the Mets franchise at right around $850 million. Published reports indicate that the Wilpons are looking to sell a 25% stake in the team for $250-$300 million. That’s a substantial chunk of money to pony up considering the fact that you would have no say in how the organization is run. Plus you then run the risk of watching your investment value plummet if a judgment is made against the Wilpons and the trustees attack their share of the Mets.
In the short term I think that Met fans are facing an austerity budget in terms of payroll and player development. That’s not good news considering how the Phillies have been spending lavishly the last few seasons. In the long term, things are murkier. If an agreeable settlement can be reached, things should be back to normal within a year or two, especially if a suitable minority partner is found. If the worst case scenario comes to fruition and the Wilpons get hit with a billion dollar judgment, there may be no way for them to avoid selling a majority stake in the team. I’ll leave it to Met fans to debate whether or not that is a good or bad development.