Picard Chases Madoff "Winners" in Inconsistent Fashion - Contrasting Treatment of the Wilpon Family versus Hadassah - Installment 45
Several Installments in this blog series about the long-running, global Ponzi scheme of Bernard L. Madoff (“Madoff”) 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. Installment 27 was the most recent to discuss the involvement of the Wilpon Family with Madoff. These Installments revolved around potential “clawback” exposure and the investments of the Judy and Fred Wilpon Family Foundation with Madoff.
Similarly, numerous other Installments, the most recent of which was Installment 44,
have discussed Hadassah and its unfortunate involvements with Madoff. The matters covered include Hadassah’s potential “clawback” exposure, the questionable approach that Hadassah has used to disclose its investments with Madoff in Forms 990 filed with the Internal Revenue Service, its proposed settlement with the Madoff Trustee and other matters.
Installment 17 of this series, published on October 26, 2009, was entitled “The Madoff Profit Game: Will the Mets End up Losers Off the Field While Charity Stakeholders Become Winners?” In Installment 17, Diana B. Henriques was quoted as having written on May 28, 2009 in The New York Times, “There is the widespread fear among some — unfounded, [Irving] Picard [the trustee in the Madoff bankruptcy proceeding] says — that he will sue struggling charities or people of limited means for money they withdrew in the past but no longer have.”
I stated the following in Installment 17:
Will Picard choose to pursue the Mets and the Wilpon family while passing on Hadassah? All charities, especially those providing social services like Hadassah, are “struggling” with materially reduced contributions because of the economy, increased demands by individuals who are unemployed and suffering financially, losses in endowment funds from the substantial market declines and increased regulatory activity.
While the position earlier stated by Picard as to charities may be humanitarian and emotionally appealing, there is little basis in the law for the disparity in treatment between charities and for-profit entities. This inequality of approach will more likely than not lead to protracted litigation and uncertainty in the Madoff matter.
Picard has now fulfilled my concerns beyond my expectations. Both the Wilpons and Hadassah have made news recently relating to how Picard is dealing with their status as “winners” under his formula for determining “Fictitious Profits” from Madoff that were subject to clawback. Most recently, on February 4, 2011, the Madoff bankruptcy court unsealed a 796-page Complaint, including Exhibits, against dozens of Defendants comprised of members of the Wilpon Family, their business associates and their respective families, business investments including the New York Mets, numerous real estate ventures and others (collectively, the “Wilpons” or the “Defendants”).
The Complaint revealed Picard’s determination to seek recovery from the Wilpons of not only $300,000,000 of identified transfers of Fictitious Profits but also additional hundreds of millions in principal transfers from the named Defendants. The Complaint describes the alleged existence of many “red flags” from which the Defendants knew or should have known over decades that Madoff was operating a Ponzi scheme as the basis for recovery beyond Fictitious Profits.
Contrast this dramatic Complaint of Picard with the disclosure in early December 2010 from Nancy Falchuk, National President of Hadassah in a letter respecting the Madoff scandal. The letter stated that Hadassah was voluntarily paying $45,000,000 to settle, subject to approval of the bankruptcy court, a potential clawback claim for Fictitious Profits by Picard of as much as $97,000,000. Installment 42 of this series reported on the Falchuk letter and the fact that Hadassah had been investing with Madoff for a period of 20 years. Moreover, Hadassah had sophisticated investment advisers over the period of their Madoff investments.
It is difficult to rationalize the stark disparity in approach to these cases by Picard, other than the fact that Hadassah is a charity. In the case of the Wilpons, Picard is seeking hundreds of millions of dollars beyond the alleged Fictitious Profits. In the case of Hadassah he has agreed to let Hadassah retain $55,000,000 of Fictitious Profits at the expense of other Madoff victims. Both the Wilpons and Hadassah had been investing with Madoff for decades. This perplexing matter warrants further monitoring.
[To be continued in Installment 46]
(Michael J. Kline, Esq., the author of this entry and author of an on-going analysis of the concerns of Madoff stakeholders, 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)