One of the stranger twists in the aftermath of the collapse of the Madoff Ponzi Scheme involved the efforts of the Madoff trustee, Irving Picard, to recover over $300 million from the New York Mets owners. As a result of this lawsuit, Major League Baseball had to lend the New York Mets money to cover the team’s expenses. Well, it looks like the MLB can stop cutting checks to the New York Mets. The Mets finally settled the lawsuit with Picard just as the two parties were about to select a jury for the trial scheduled to take place in the U.S. District Court, Southern District of New York, Judge Rakoff presiding.
At the crux of the lawsuit was Picard’s contention that the Mets owners willingly turned a blind eye to clear-cut warning signs that Madoff was operating a multi-billion dollar Ponzi scheme. Pursuant to the terms of the settlement agreement, the defendants have to pay Picard $162 million. The settlement amount consists of six years’ worth of fictitious profits some of the Mets defendants received from Madoff’s investment scheme.
That is not the end of the story, however. Most if not all of the $162 million settlement could be offset by claims of some of the Mets defendants for separate payments they made to Madoff in good faith. These separate “good faith” claims total more than the aforementioned settlement amount—to the tune of $178 million.
Pursuant to the settlement terms, the Mets defendants do not have to pay any portion of the $162 million amount for the first three years. If after three years there is still some amount due after the “good faith” claims are satisfied, then the Mets defendants will have to pay that amount. The payments would then have to be completed within five years.
Thanks to the structure of the settlement, the Mets owners can now concentrate on the upcoming season opener. Thanks to the lawsuit by Picard, the Mets have been under increasing financial pressure, and they have even tried to lure outside investors to finance the team. Mets co-owner, Mr. Wilpon, not surprisingly, denied this, claiming the team was in sound financial condition.
There were several compelling motivations for the settlement. One was the limitation on the amount the Mets owners could afford to pay. Judge Rakoff had previously refused to dismiss the suit and indicated that Picard could collect up to $83.3 million from the Mets defendants in fictitious profits. However, Rakoff then added that he did not believe that Picard could prove that the Mets defendants acted in bad faith during the two-year period preceding the 2008 bankruptcy of Madoff’s firm. Hence, there was a real risk that Picard would walk away from the trial without anything to show for it.
In a separate ruling, Rakoff concluded that the Mets owners bore the burden of proof that they acted in good faith in connection with the Madoff scheme. The Mets also faced the danger that certain witnesses would provide damaging testimony, including testimony that the Mets defendants were warned that the Madoff profits were fictitious.
If the case had gone to trial, there might have been some high profile defense witnesses, including famous former pitcher Sandy Koufax and former Manhattan D.A. Robert Morgenthau. Mr. Koufax, who has known Mr. Wilpon since childhood would have testified that he relied on Mr. Wilpon’s advice to invest with the Madoff fund. Mr. Morgenthau, who was chairman of the New York Police Athletic League six years ago when Mr. Wilpon donated $500,000 to the organization, was expected to testify that Mr. Wilpon suggested that most of the money be invested with Madoff’s fund. According to the defendants, Mr. Wilpon would not have given this investment advice if he thought that Madoff’s firm was engaged in a scam.