Picard Crusades Against the Wilpon/Katz Family Charitable Foundations While He Moves to Settle with Hadassah – Installment 46

February 21, 2011Articles White Collar Defense & Compliance Blog

Several Installments in this blog series about the long-running, global Ponzi scheme of Bernard L. Madoff (“Madoff”), the most recent of which was Installment 45, have discussed certain aspects of the scheme’s impact on the Wilpon Family, who are best known as the owners of the New York Mets. The Installments revolved primarily around potential “clawback” exposure from investments with Madoff of Judy & Fred Wilpon Family Foundation, Inc., a charitable Section 501(c)(3) private foundation (the “Wilpon Foundation”).

Installment 45 discussed the vigorous pursuit of the Wilpon Family by Irving Picard, the Bankruptcy Trustee for the Madoff Estate (“Picard”), in contrast to his proposed settlement with Hadassah (the “Hadassah Settlement”). On February 17, 2011, Picard moved for approval by the bankruptcy court of the Hadassah Settlement, under which Hadassah would pay $45,000,000 of its alleged $77,000,000 clawback exposure for the final six years of the reported 20 years that Hadassah invested with Madoff.

The Forms 990-PF filed with the Internal Revenue Service (the “IRS”) by the Wilpon Foundation in recent years provide helpful information on its distributions from the Madoff scheme and may be accessed on GuideStar. The Forms 990-PF filed with the IRS by Iris & Saul Katz Family Foundation, Inc. (the “Katz Foundation”), a charitable Section 501(c)(3) private foundation formed by members of the Katz Family, are also accessible on GuideStar.

Installment 45 of this series also discussed the Complaint filed by Picard against dozens of Defendants comprised of members of the Wilpon and Katz Families, their business associates and business investments, including the New York Mets, numerous real estate ventures and others (collectively, the “Defendants”). The Complaint revealed Picard’s determination to seek not only alleged “Fictitious Profits” relating to clawback but also additional hundreds of millions in principal transfers from Madoff to named Defendants. Two of the Defendants named in the Complaint are the Wilpon Foundation and the Katz Foundation (collectively, the “Foundations”).

The Complaint alleges on pages 264-265 that the Wilpon Foundation received not only $2,230,588 in Fictitious Profits from Madoff, but also “other direct transfers . . . of principal in an amount subject to discovery and proof at trial [‘Principal Transfers’].” The Katz Foundation numbers alleged in the Complaint are even higher. Pages 262-264 of the Complaint alleges that the Katz Foundation received $3,272,382 in Fictitious Profits from Madoff and other direct Principal Transfers. In addition, the Complaint seeks from the Katz Foundation alleged indirect Fictitious Profits and Principal Transfers as a subsequent transferee.

A review of the 2008 Forms 990-PF filed with the IRS by the Wilpon Foundation (the “Wilpon Form 990-PF”) and the Katz Foundation (the “Katz Form 990-PF” and, collectively with the Wilpon Form 990-PF, the “Forms 990-PF”) sheds some light on at least a portion of the Principal Transfers that Picard is seeking from the Foundations.

Each of the Foundations filed as Appendix A to its Form 990-PF an IRS “Statement by Taxpayer Using the Procedures in Rev. Proc. 2009-20 to Determine a Theft Loss Deduction Related to a Fraudulent Investment Arrangement.” It applies to information only as to tax years of the Foundations that were still open to tax audit.

Appendix A to the Wilpon Form 990-PF revealed for open tax years an initial investment of $114,227 with Madoff, subsequent additional investments of $1,963,189 and income reported in prior years of $1,312,617, for a total of $3,390,033. More significantly, the Wilpon Foundation Appendix A reports withdrawals of $3,296,500. The withdrawal figure of $3,296,500 presumably is the least that Picard would be seeking from the Wilpon Foundation in Fictitious Profits and Principal Transfers for the years covered by Appendix A to the Wilpon Form 990-PF.

Appendix A to the Katz Form 990-PF disclosed for open tax years an initial investment of $1,335,000 with Madoff, subsequent additional investments of $1,376,702 and income reported in prior years of $1,030,854, for a total of $3,742,556. More significantly, the Katz Foundation Appendix A reflected withdrawals of $3,742,122. The withdrawal figure of $3,742,566 would be presumably be the least that Picard is seeking from the Katz Foundation in Fictitious Profits and Principal Transfers for the years covered by Appendix A to the Katz Form 990-PF.

It would appear that Picard is seeking $7 million or more from the Foundations, which have given away millions of dollars each year to worthy charities according to their Forms 990-PF. The Wilpon Foundation reported charitable contributions, gifts and grants paid totaling $6,318,421 in the three years ended December 31, 2010, while the Katz Foundation reported charitable contributions, gifts and grants paid totaling $4,038,879 in the same period. Nevertheless, Picard is willing to settle for approximately 58% of the Fictitious Profits reported for Hadassah, presumably because they may be a worthier charitable vehicle in his eyes than the Foundations. This developing scenario warrants further monitoring.

[To be continued in Installment 47]