In great detail, based in part on over 700,000 documents delivered directly by the fine folks at Sterling, Picard has determined that Sterling’s top management has purposely and willfully chosen to look the other way and abandon any semblance of common sense.
Going all the way back to 1985, when Wilpon and Katz opened their initial accounts with Bernie Madoff, Picard has calculated that Sterling Equities, through a mixture of over 200 different accounts under different corporate or personal names, (with over 300 different accounts, Sterling etc, owns the distinction of having the greatest number of accounts of any discrete group of Madoff investors) withdrew $300 million dollars in “false profits” over the years. His suit starts there….with a demand that Sterling return those monies to the pool of money he has so far received, to be disbursed on a pro-rated basis to all those involved in this fiasco. There is real precedent here as he has already clawed-back billions of dollars…. $7.0 billion from one entity alone.
But that’s just the appetizer.
Picard also seeks an additional $600 to $700 million in penalties and to me, this is where things get really cool.
According to the New York Times, Sterling Equities “used the profits from their years of investing with Mr. Madoff to … financially fuel their array of business — all in the face of repeated warnings that Mr. Madoff’s investment firm might have been a fraud”. The suit itself states that Sterling, et al, “made so much easy money for so long, (they) chose to simply look the other way” despite the many warnings from within their own inner circle and by investors and financial institutions.
And that essential statement…. “they chose to look the other way” … is the heart of this dispute.
In a document hundreds of pages long, Picard lays out his evidence that the partners “consciously disregarded” suspicions about Mr. Madoff’s operation…. and the list of evidence is pretty impressive, in my opinion.
Among his evidence:
– The chief investment officer at Sterling Stamos, a hedge fund independent of Mr. Madoff in which Mr. Wilpon and Mr. Katz invested, said he repeatedly warned the men and their families that Mr. Madoff’s returns were “too good to be true.” Other senior officers at the Stamos fund expressed similar concerns about Mr. Madoff.
– Merrill Lynch, the investment bank that acquired 50 percent of Sterling Stamos in 2007, had a prohibition on investing with Mr. Madoff and told Mr. Katz that Mr. Madoff’s operations would not meet its standards.
– Ivy Asset Management, which was approached in 2002 to advise Sterling Stamos, told Mr. Katz and two of his partners of its suspicions about Mr. Madoff’s investment business.
– A consultant to Sterling Stamos told Mr. Katz in 2003 that the consultant “couldn’t make Bernie’s math work.”
It has been reported that Sterling management considered purchasing what another investor has called “fraud insurance” to protect the money under Madoff’s care….but the amount they needed to cover their Madoff investment “dwarfed what was available in the market”.
Sterling, of course, has their own carefully, and strongly, worded response. “The complaint appears to contend that, because the Sterling partners are wealthy and successful individuals, they should have known Madoff was not trading any securities and was engaging in a Ponzi scheme. Yet the Sterling partners had over $500 million in their Madoff accounts at the time of his failure — some put in only days before — and all of it lost. As a matter of elementary common sense, no rational person who thinks his broker might be a fraud would leave such a substantial sum with him.”
Sterling also contends that they are being held to a ridiculously high standard. How could they have known that Madoff was a fraud, they say….when the government’s own security blanket, the Securities and Exchange Commission (SEC) was unable to detect it?
And to me, that’s the rub…..while many were obviously taken in over the years by Madoff, I have to believe that far more, especially those whose professional lives depend on basic due diligence when it comes to investing other people’s money….smart and savvy and successful people just like Katz and Wilpon…..avoided Bernie Madoff and his outsized “results”.
I have spoken with several friends over the last few days to get their take on all of this and their comments have been eye-opening.
A CFO at a major hedge fund told me that he first heard the name Madoff back in 2003 during meetings with investors, who were bragging about the returns he consistently delivered and the amount of money he managed. “If the guy was so big, and so talented, how come I never heard about him”, my friend said. “So I did some very basic research…like checking out a list of his positions in the market….and I couldn’t find his name anywhere. I couldn’t understand how a guy that big didn’t own anything. It made no sense”.
A second friend….a very successful hedge fund manager…when showing his investor’s their 2007 returns…. which he proudly stated was his “best year ever, by a country mile…a career year”, asked them “has anyone turned in a better performance to you?” and the response, from a Swiss investor, was “Bernie Madoff”. Once again, my friend had never heard of Madoff so he did some homework and found, very simply that Madoff was utilizing systems and safeguards that did not meet his most basic guidelines and he clearly avoided the vehicle for his clients.
That’s two smart guys in my grandmother-like research from my inner circle…..with just a simple amount of effort to uncover very basic information…..who excersized similar caution based on their findings.
For me, “We never knew” and hiding behind the under-staffed and under-whelming SEC is a real stretch and sounds like a smart attorney’s grasp at something he might be able to sell to a jury, but not to me. These guys were warned, numerous time, by professionals about the path they had taken.
Which begs the question…….How, indeed, could the two exceedingly smart, savvy and sophisticated leaders at Sterling have just gone blindly into this thing with such a huge amount of their money? $500 million says their response to the suit.
My thought……as I said in a previous post, plain and simple greed is all I can answer. Just like Madoff himself, they were in so deep, for so long, they were trapped. And just like Madoff, they are gonna pay. Maybe not with their freedom, but certainly with their reputations and their bank accounts.
As Bart Scott famously said after the Jets thumped the Pats three weeks ago….when it comes to the seeing more details…..”Can’t Wait!”
THE LAST BITE
My numbers in the Big Box pool for today’s game…..Steelers 4, Packers 1….yesterday I predicted a Steelers 24-20 victory. Today I say 24-21!!!!!!
- Driven By Greed, Right into a Ditch (balleehoo.wordpress.com)