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White Collar Defense & Compliance Developments in Criminal Law, Federal Case Law and Statutory Developments

Picard v. Mets/Wilpon/Katz Madoff Settlement One Year Later – Part III: Was the Michael Katz Form 990-PF Worth the Wait? – Installment 91

Posted in Bernard Madoff

 

Michael Kline writes:

Even though the Michael Foundation, like the Saul Foundation, took ample time until February 1, 2013 to prepare its Katz Form 990-PF,  such Katz Form 990-PF suffers from a similar scarcity of information as to the Michael Foundation’s involvement with Madoff.  However, the Michael Foundation’s situation is very different from that of the Saul Foundation.  (Capitalized terms not otherwise defined herein shall have the meanings assigned to them in Installments 90 and 89.)  

What did the Michael  Foundation 2011 Form 990-PF (the “Michael Form 990-PF”) disclose about Madoff and the Settlement Agreement?

The Michael Foundation is the private family foundation of Michael Katz and his spouse Dayle.  Michael, the lesser known Katz brother in the Mets/Sterling consortium, is listed third in the hierarchy on the Sterling Web site and, as discussed in Installment 90, is the custodian of the books of the Katz Foundations and the Fred Foundation, among others.

The Michael Foundation was (i) unlike the Saul Foundation (and the Fred Foundation for that matter), not a defendant in the Wilpon Litigation, (ii) listed on Schedule 1(not Schedule 2) to the Settlement Agreement with an agreed allowed claim of $617,000 against Trustee Picard (the “Michael Foundation Claim”), (iii) a signatory to the Settlement Agreement by reason of being listed on Schedule 1 (a “Schedule 1 Signatory”), and (iv) an unconditional assignor to Picard of the Michael Foundation Claim. 

The Settlement Agreement evidences that Michael¸ individually and as a participant in other accounts, in contrast to the Michael Foundation, was a recipient of $1.1 million from Madoff in excess of principal.  As such, he was a defendant in the Wilpon Litigation and a Schedule 2 Signatory who will benefit directly and handsomely from the Settlement Agreement because Michael, like the Saul Foundation and the Fred Foundation and their respective presidents, will have a substantial portion of his monetary clawback exposure (up to $1.1 million) in the Madoff bankruptcy funded by the Schedule 1 Signatories, including the Michael Foundation.

A number of additional observations can be made as to the Michael Form 990-PF, which is available on GuideStar:

 

1.  The Michael Form 990-PF reflects, on line 15 of the Part II Balance Sheet as a substantial “other asset,” an item for $460,976 that is explained in Statement 7 as “ESTIMATED SIPC RECOVERY FROM MADOFF THEFT LOSS.” It is puzzling that the $460,976 amount appears in an IRS filing of the Michael Foundation made in February 2013, as it is the same amount as that which was included in the 2009 and 2010 Forms 990-PF of the Michael Foundation.  However, the $617,000 amount of the Michael Foundation Claim is the final court-approved amount to which the Michael Foundation has agreed.  It would appear that an explanation of the difference or substitution of the known agreed-upon figure would be materially superior disclosure than continuing the estimated amount that the Michael Foundation has carried in its Forms 990-PF for years.

 

2.  The Michael Form 990-PF does not reflect any offset, encumbrance or liability, either in the Part II Balance Sheet or in an explanatory statement, as to the unconditional and voluntary assignment in the Michael Foundation Claim to the Trustee pursuant to the Settlement Agreement.  Such assignment thereby subjected the Michael Foundation Claim to substantial offset.  Installment 85 of this series discussed the Trustee’s report on distributions through September 19, 2012.  Based on that report, which was published more than than four months before the date of the Michael Form 990-PF, we believe that the Michael Foundation’s share of the $67.3 million “contribution” for the benefit of the Schedule 2 Signatories, including Saul Katz and Fred Wilpon and many other individuals and business entities, had already reached approximately $233,000.  The effect of such contribution would be to reduce the Michael Foundation Claim to $384,000 as of September 19, 2012, already well below the estimated $460,976 reported on the Michael Foundation Form 990-PF. 

 

Installment 76 went into some detail as to the problematic aspects of the participation by a Schedule 1 Foundation in the Settlement Agreement process and the related question of potential prohibited “private benefit and inurement” to fiduciaries of the Michael Foundation under Internal Revenue Service rules.

3. As was stated in Installment 90, for the first time Michael executed the Michael Foundation Form 990-PF as a “Member” rather than as “President.”

4.  In light of considerations such as those in items 1 and 2 above, as stated in earlier Installments, an officer or trustee of a private foundation should be aware that he or she signs a Form 990-PF under penalties of perjury that to the best of his or her knowledge and belief, it is true, correct and complete.

 

(Michael J. Kline, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office, and is a past Chair of the firm’s Corporate Department. He concentrates his practice in the areas of corporate, securities, and health law, and frequently writes and speaks on topics such as corporate compliance, governance and business and nonprofit law and ethics.)

 

[To be continued in Installment 92.]