Mets Owners Facing Big, Big Lawsuit

by
February 7, 2011


Sad Mr. Met is sadly a useful graphic to have around.

The situation with the Mets is starting to look grim.

According to a lawsuit unsealed on Friday, the trustee representing the victims of Bernie Madoff’s ponzi scheme is suing Mets owners Saul Katz and Fred Wilpon for one billion dollars. Being sued for $1 billion is almost always a bad thing. Where does this big, bad, billion-dollar number come from?

Katz and Wilpon’s business empire contains hundreds of separate legal entities (many created to reduce tax liabilities, legally). These entities had hundreds of investment accounts with Bernie Madoff, and the trustee’s lawsuit alleges that over the years they withdrew $300 million dollars in what turned out to be “fictitious profits” from the Madoff accounts. The suit demands that Katz and Wilpon return that sum to the victim compensation fund.

Additionally, the lawsuit claims that the Mets owners were so heavily invested in Madoff, and were profiting so handsomely, that for years they ignored red flags regarding Madoff’s operations. The trustee argues that this willfull ignorance gave the Mets owners a degree of responsibility for Madoff’s continued defrauding of other investors, and therefore he is demanding an additional $700 million in damages from Katz and Wilpon.

Very possibly in response to this suit being filed, last week Fred Wilpon announced he was looking to sell 20-25% of the Mets, which could help pay a $300 million damages award to the Madoff compensation fund. However, a Forbes columnist notes that if the more speculative $700 million chunk of damages also came due, we could see the Mets sold outright.

For those not completely bored by this stuff (and if you’ve read this far I sure hope you aren’t), the New York Times has a great summary of the trustee’s lawsuit as it stands and has posted a PDF of the complaint.

However these business entanglements are resolved, Mets fans are probably just hoping the on-field product is affected as little as possible. A fire sale of the franchise could be seriously disruptive. If it’s any consolation, the Rangers went into bankruptcy last spring — right before winning the AL pennant.





 

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Mr. Met
13 years ago

Picard is just trying to get money out of the Wilpons because they still have money after this whole thing. Why should the Wilpons have known what Madoff was doing when the SEC and Madoffs own family were fooled

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gu03alum
13 years ago
Reply to  Mr. Met

The $300 million that the lawsuit claims they received in “profits” is not the Wilpon’s money. That was money that Madoff redistributed from the victims to the Wilpons. In other words it’s a fictional profit and the Wilpons have an obligation to return it to the victims.

In other words, if you receive stolen property you can’t keep it.

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Mr. Met
13 years ago
Reply to  gu03alum

Yes, but the $700 million he is seeking is because he believed the Wilpons knew and/or looked the other way. That money I don’t believe he should get.

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Leo Martin
13 years ago
Reply to  Mr. Met

For a pro-Wilpon take (from before the lawsuit was unsealed):
http://bleacherreport.com/articles/597082-new-york-mets-picard-lawsuit-against-the-wilpons-just-doesnt-add-up

The $700 “willful ignorance” (my words) component will be a tough case to make, and the $300 million “false profits” part isn’t a slam dunk either. Picard certainly wants to put pressure on Wilpon/Katz for settlement negotiation purposes, but right now it seems the parties are just not in the same ballpark on what the dollar outcome of litigation would be. With such big sums involved, and such a complex transactional background, and some issues of fact that would need deciding, you can see how two parties calculating expected values for this suit could come out with significantly different numbers.

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