Around the Mets, Saul Katz played the role of the little-known partner — occasionally seen, almost never heard from.
Fred Wilpon, Katz’s brother-in-law and the principal owner of the team, was its public face. Katz was supposed to be the brains behind the real estate and investment businesses that had first made ownership of the Mets possible. One former executive with the Mets nicknamed him Rain Man for his business brilliance.
“Katz stays in the background, but he has vision and foresight,” said Jerry Reisman, a lawyer who has met both Katz and Wilpon and has learned much about them from others. “He is the financial guy of the two. He puts one and one together and gets three.”
Now, Katz, is no longer in the background. He is, in fact, at the center of the lawsuit brought against the owners of the Mets by the trustee for the victims of Bernard L. Madoff’s giant investment fraud. Katz is accused of having willfully ignored repeated warnings and signs that Madoff’s firm — in which Katz, Wilpon and their businesses and families had invested for decades — was suspect. All the while, the suit says, Katz and Wilpon leveraged their dependable profits from their Madoff investments to support and expand their wealth and holdings.
In a sense, then, the lawsuit suggests that Katz’s ability over the years to make one and one add up to three was not evidence of his skill, but evidence instead of his opportunism.
Katz, the lawsuit makes clear, had the greatest responsibility for the finances of his and Wilpon’s empire, an array of assets grouped under the corporate name Sterling Equities. A certified public accountant, Katz oversees all aspects of Sterling’s businesses, directs Sterling’s day-to-day real estate operations and oversees those company businesses that are not involved in real estate, the Madoff trustee said in court papers.
As chief strategist at Sterling, Katz was also primarily responsible for Sterling’s investments, including those in real estate, in private equity and, until Dec. 11, 2008, in Madoff’s firm, the trustee says. Katz, it appears from the lawsuit, was also Sterling’s point of contact with Madoff. The men talked regularly, the suit says, and during certain periods they did so on a daily basis. Madoff’s former secretary said Katz was a much more frequent visitor to Madoff’s offices than Wilpon. With few exceptions, the suit asserts, when Katz called Madoff’s firm, “he did not speak to anyone other than Madoff.”
Katz, who was born in 1939, opened many accounts with Madoff over the years, for himself, his relatives, their charitable foundation and his family trust. He opened other accounts for the variety of businesses he helped control, too.
But the lawsuit says Katz never performed any kind of meaningful due diligence on Madoff’s firm. “Although Saul Katz was well aware of the risks associated with” Madoff’s operation, the suit says, “he never once attempted to confirm through any third party that Madoff actually traded the securities identified on his or other Sterling-related monthly account statements.”
Katz failed to do that, the suit says, even though he “confessed to his friends that he could not figure out how Madoff generated such smooth positive returns.”
The allegation that Katz and Wilpon and some of their associates were willfully blind to years of concerns about Madoff’s operation is what empowers the trustee, Irving H. Picard, to seek the staggering sum of $1 billion, money that may be returned to what the trustee regards as legitimate victims of Madoff’s fraud.
Picard, armed with what he says is evidence that Katz and Wilpon knew or should have known that Madoff was a potential fraud, can seek not only what he defines as some $300 million in “fictitious profits” — the net gains in scores of Madoff accounts held by Katz and Wilpon and their businesses — but also some $700 million in Katz and Wilpon money that was invested with Madoff over the years.
Katz and Wilpon and their lawyers have angrily dismissed the trustee’s claims and accusations, calling them an abusive effort to force them to pay hundreds of millions to settle the suit when they did nothing wrong.
“Let us be clear, the trustee is attempting to seize money originally invested with Madoff, which was earned from the Sterling businesses,” Katz and Wilpon said in a statement Friday.
“The trustee also alleges that we were blinded to Madoff’s crimes because our businesses ‘depended’ on the returns,” the statement said. “That is complete nonsense.”
One person with knowledge of the situation said Katz and others lacked the acumen and specialized experience to have really scrutinized Madoff, who was a friend of many years and an investor whom many sophisticated investors swore by.
But Picard’s suit, across hundreds of pages of narrative and exhibits, suggests that financial brilliance was not required to have been alert to Madoff’s scheme. And it paints Katz as the person in the Sterling empire most regularly and explicitly apprised of worries about Madoff’s legitimacy.
Investment firms expressed concerns about Madoff to Katz, the suit says. Officers with the independent hedge fund that Katz helped start and oversee raised alarms. Katz’s son David told his father that the family and business had invested too heavily with Madoff.
Even a senior Sterling executive seemed to develop doubts. Arthur Friedman, an accountant who holds a law degree, is both a senior vice president of Sterling Equities and a member of the board of directors of the Mets. He was designated to be the chief intermediary between Sterling and Madoff. But once in the 1980s, and again in 2005, he tried to replicate Madoff’s returns. Both times he failed, and he told Katz and others of his analysis, the lawsuit says.
“The Sterling partners were simply in too deep — having substantially supported their businesses with Madoff money — to do anything but ignore the gathering clouds,” the suit said. “Despite being on notice and having every resource at their disposal to investigate the litany of legitimate questions surrounding Madoff, the Sterling partners chose to do nothing.”
