Picard/Mets/Wilpons: Mets Score Some Runs in Early Innings on Judge Rakoff’s Playing Field but Will Picard Rally Later? – Installment 59

September 28, 2011Articles White Collar Defense & Compliance Blog

This Installment addresses some results that came out of yesterday’s opinion and order (the “Opinion”) by Judge Rakoff in the Wilpon Case that was discussed in recent blog entries in this blog series. The most recent discussions were in Installments 58 and 57. (Capitalized terms used herein that are not defined herein shall have the meanings assigned to them in Installment 58.)

This posting will focus on an apparent misunderstanding among the Wilpon Interests’ team as to the meaning of one aspect of the Opinion relating to the size of their potential exposure to fictitious profits, as reported by Adam Rubin for ESPN.com in an article yesterday entitled “Part of Case vs. Mets owners Tossed.” In that article Rubin stated as follows:

A statement released by Wilpon-owned Sterling Partners [the Wilpon Interests] disputed Kline's assertion that the statute of limitations is an open question. In Sterling Partners' view, Rakoff ruled that the two-year statute of limitations is the standard, leaving only $83 million at stake with respect to the potentially recoverable profits from the Ponzi scheme.

It is quite perplexing that the Wilpon Interests would have arrived at their conclusion regarding a limit of $83 million in their exposure for fictitious profits claimed by the Trustee to be $295 million in light of the following footnote on page 11 of the Opinion in which Judge Rakoff clearly says the opposite:

6. Although, given the difficulty defendants will have in establishing that they took their net profits for value, the Trustee might well prevail on summary judgment seeking recovery of the profits, how to determine which profits the Trustee can recover remains an open question. Specifically, the Court does not resolve on this motion whether the Trustee can avoid as profits only what defendants received in excess of their investment during the two year look back period specified by section 548 or instead the excess they received over the course of their [the Wilpon Interests] investment with Madoff. According to the Amended Complaint, defendants' profits amounted to $83,309,162 in the two years preceding the bankruptcy and $295,465,565 over the course of their investment. Amended Complaint. [pars.] 1105, 1108." [Emphasis supplied]

The Judge not only says that he did not rule in the Opinion on the amount of fictitious profits in play; he punctuated his statement by repeating the potential range of liability in his view: “. . . $83,309,162 in the two years preceding the bankruptcy and $295,465,565 over the course of their [the Wilpons Interests] investment.”

While the Wilpon Interests should be commended for their optimism, the favorable rulings in the Opinion by Judge Rakoff did not go as far as they would like to believe.

[To be continued in Installment 60]