The Mets Switch Teams

Fifteen months ago, Irving Picard, the trustee managing the Madoff bankruptcy, and Preet Bharara, the United States attorney for the Southern District of New York, reached an astonishing settlement with the widow of one of Bernard Madoff’s wealthiest investors.
Barbara Picower’s late husband, Jeffry, had been a Madoff investor since the late 1970s. During that time, he had pulled out a staggering $7.2 billion in profits, far more than any other investor in the Madoff Ponzi scheme.

Under New York law, a bankruptcy trustee trying to reclaim money from the “net winners” in a Ponzi scheme — that is, investors who took out more in profits than they put in — can “claw back” only the last six years’ worth of profits. In Picower’s case, that amounted to $2.4 billion. The law also says, however, that if the investor was either in on the scheme, or was “willfully blind” to it, he is liable for every penny he ever took out, no matter how far back. Although Barbara Picower insisted that her husband had been unaware of Madoff’s crimes, she nonetheless decided to give back everything; she was starting a foundation, she told people, and she didn’t want it tainted by Madoff. (It certainly helped that Picower’s other investments had been so profitable that she could afford to give back $7.2 billion.)

Today, that money sits, frozen, in the bank. Although it represents the lion’s share of the $9 billion Picard has recovered so far, he has been unable to distribute it to the Madoff “net losers,” many of whom are elderly and broke and desperately need it.

The reason is that a lawyer named Helen Davis Chaitman, who says she represents some 800 Madoff victims, has sued to void the settlement, claiming it would prevent her clients from bringing their own lawsuits against Picower. (Chaitman did not respond to an e-mail or a phone call for this column; she and I have spoken in the past, however.) In truth, her suit is ludicrous, and has no chance of succeeding. Her motive, so far as I can tell, is anger. A Madoff victim herself, she has become so consumed with rage at the trustee’s hardball tactics against the net winners that she sues Picard pretty much at the drop of a hat. But that rage is harming some of the very people she claims to represent.

Up until Monday, Fred Wilpon and Saul Katz, the beleaguered owners of the New York Mets, were every bit as angry at Picard as Helen Chaitman. They were furious when the trustee went public with his accusation that they had been willfully blind to the Ponzi scheme. They were livid that Picard was demanding $1 billion. They were convinced the trustee was filing inflammatory legal briefs, intended to make them look bad in the media. They even joined Chaitman in suing Picard over the question of whether he had the right to claw back profits from the net winners, even though that is standard operating procedure in a Ponzi scheme bankruptcy.

And then, just as they were about to bring their war to court, the two sides settled. It is easy to understand why. Jed Rakoff, the federal judge who was presiding over the case, has been openly skeptical of the trustee’s claim that Katz and Wilpon had been willfully blind. As for the Mets’ owners, the prospect of daily headlines airing their financial problems and their ties to Madoff is exactly what they don’t need as they desperately try to find minority investors to shore up their debt-ridden team.

So, in effect, Katz and Wilpon switched sides. They agreed to settle the suit for $162 million. At first glance, it is a very good deal for the Mets’ owners. But look again: it still adds up to six years’ worth of Madoff profits — exactly what the trustee has been demanding of all the other Madoff net winners. Katz and Wilpon also agreed to end their role in the litigation over whether Picard can claw back from the net winners. (That litigation is doomed anyway.) In other words, instead of letting their anger carry the day, the owners of the Mets did what they had to do, which included, essentially, agreeing with the trustee’s legal view of the Madoff bankruptcy. Unlike Chaitman’s lawsuit over the Picower settlement, they acted rationally.

Here’s one final, complicated wrinkle. Under the terms of the settlement, Katz and Wilpon won’t have to pay the $162 million for three years, giving them time to shore up the Mets’ finances. Indeed, because many of the Katz and Wilpon accounts were also net losers — and the trustee has agreed to accept those claims as legitimate — they might actually wind up paying much less than that out of pocket, depending on how much the trustee can raise in those three years from other sources. If they do have to pay, they have personally guaranteed $29 million.

Thus, the two men who fought so hard to prevent Irving Picard from collecting from the net winners are now in the position of rooting for him to do so. They might start by having a little talk with their former ally, Helen Chaitman.