White Collar Defense and Compliance : New Jersey White Collar Defense Lawyer & Attorney : Fox Rothschild Law Firm : Criminal Defense, Insider Trading, RICO, Consumer Fraud : New Jersey, New York City

This is the fifty-fourth in a series of Installments on this blog that are discussing issues arising in the aftermath of the global Ponzi scheme perpetrated by Bernard L. Madoff (“Madoff”). A number of recent Installments in this series, such as Installment 52 and, earlier, Installment 17 have used public filings and media publications to highlight the apparently inconsistent and peremptory approach that Irving Picard, the Trustee in the Madoff bankruptcy (“Picard”) has taken with respect to the Wilpon/Katz families, the owners of the New York Mets, and their Section 501(c)(3) private foundations (collectively, “Wilpon/Katz”), in contrast to other charitable organizations.

Now, however, there will be a new playing field and environment to be confronted by Mr. Picard and his army of attorneys in his crusade against the Wilpon/Katz families. In contrast to the friendly home field advantage for Mr. Picard in the bankruptcy court, Judge Jed S. Rakoff, a Federal District Court judge in Manhattan, has taken jurisdiction of the Wilpon/Katz matter. A July 6, 2011 article by Richard Sandomir in The New York Times characterized Judge Rakoff as

a former federal prosecutor and defense lawyer with an independent streak and a flair for phrase-making. He has been called an activist judge. He has been called a maverick. He has been called other things, a number of them probably unprintable. But few observers of the federal bench would dispute that he is capable of the unexpected.

The article by Mr. Sandomir goes on to say that “lawyers familiar with Rakoff and his appetite for novel rulings said this week that they would not be shocked if he tried try to say something larger about the law.” Indeed Judge Rakoff indicated some skepticism as to “a question that is critical to Katz and Wilpon’s case. How, he wondered, can investors like them not be judged by the securities laws that governed their 25 years of investing with Madoff, but by the bankruptcy laws that came into play after Madoff’s collapse.”

It is clear that Judge Rakoff may bring a bold new and perhaps refreshing and enlightening direction to the Wilpon/Katz matter. He does not appear to be willing to limit his review to the scope that has been so far carefully defined by Mr. Picard and the bankruptcy court. His involvement may have significant impact on the entire Madoff case. It is hoped that an enlarged field of inquiry by Judge Rakoff will address some of the peremptory and perplexing decisions of Mr. Picard in the Madoff bankruptcy that appear to be inconsistent and perhaps even unfair.

[To be continued in Installment 55].

(Michael J. Kline, 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.)

• Print
• Comments
• Trackbacks
• Share Link

This is the fifty-third in a series of Installments on this blog that are discussing issues arising in the aftermath of the global Ponzi scheme perpetrated by Bernard L. Madoff (“Madoff”). Installments 51 and 52  and earlier Installments of this series have discussed the apparently inconsistent and peremptory approach that Irving Picard, the Trustee in the Madoff bankruptcy (“Picard”) has taken with respect to the Wilpon/Katz families, the owners of the New York Mets, and their Section 501(c)(3) private foundations (collectively, the “Wilpon/Katz Families”), in contrast to the Lautenberg Foundation, a Section 501(c)(3) private foundation (“Lautenberg”) formed by Senator Frank R. Lautenberg.

As early as Installment 17 this series raised the question as to whether the Wilpons would be treated differently from Hadassah and other charities by Picard. There has been continuing publicity regarding the spectacle of the Wilpon/Katz Families v. Picard.

In Installment 52, this series observed the following:

Thus it would appear that Picard has made peremptory and perplexing decisions not only as to the Madoff investors that he has chosen to pursue but also the extent of recoveries that he is seeking. While the Wilpon/Katz families, including the Wilpon/Katz Foundations, will spend millions of dollars in legal fees and most likely hundreds of millions in settlement or satisfaction of judgments, other Madoff investors like Hadassah and the Lautenberg Foundation will keep millions in fictitious profits or even recover payments in the Madoff bankruptcy proceeding.

Recently, I had the privilege and pleasure of hearing Jeffrey Toobin, a senior analyst for CNN Worldwide since 2003 and a staff writer at The New Yorker since 1993, who is one of the country’s most esteemed experts and authors on politics, media and the law, especially the U.S. Supreme Court. His book “The Nine: Inside the Secret World of the Supreme Court (2007),” was highly acclaimed. Mr. Toobin’s forthcoming book, “The Oath: The Secret Struggle for the Supreme Court,” will be published in 2012. He was the featured speaker on the subject of the U.S. Supreme Court at a luncheon during the partners’ retreat of my law firm earlier this month. Because I knew of Mr. Toobin’s interest and fan support of the New York Mets, I asked him a question about Picard and the Wilpon/Katz Families.

I inquired whether he thought that the aggressive and somewhat incongruous approach taken by Picard against the Wilpon/Katz Families in seeking not only fictitious profits but also principal was part of a larger strategy of Picard to use a success in recovering more than fictitious profits from these highly visible and vulnerable victims as a segue and steppingstone to his attacks on JPMorgan Chase, HSBC and other institutions.

Mr. Toobin responded that he believed that Picard is treating the Wilpon/Katz Families quite unfairly and manifestly different from other individual investors with Madoff. He added that it is possible that Picard is using the case of the Wilpon/Katz Families to set a precedent of a recovery in excess of fictitious profits to use in cases of banks that have much more financial ability to oppose Picard for an extended period of time. Mr. Toobin added that, based on published information, it appeared that the banks should have known that Madoff was operating a Ponzi scheme.

I extend my thanks to Mr. Toobin for his response.

[To be continued in Installment 54]
 

(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.)

• Print
• Comments
• Trackbacks
• Share Link

This is the fifty-second in a series of installments on this blog that are discussing issues arising in the aftermath of the global Ponzi scheme perpetrated by Bernard L. Madoff (“Madoff”). Installment 51 of this series presented a tabular comparison of financial information derived from the 2007, 2008 and 2009 Forms 990-PF filed with the Internal Revenue Service by (i) The Lautenberg Foundation, a Section 501(c)(3) private foundation (“Lautenberg”) formed by Senator Frank R. Lautenberg, and (ii) the Section 501(c)(3) private foundations formed by the owners of the New York Mets: the Judy & Fred Wilpon Family Foundation, Inc., and the Iris & Saul Katz Family Foundation, Inc. (collectively, the “Wilpon/Katz Foundations”). (The Lautenberg Foundation and the Wilpon/Katz Foundations are sometimes collectively referred to herein as the “Foundations.”)

The table in Installment 51 shows that the Lautenberg Foundation and the Wilpon/Katz Foundations suffered crushing losses in fair market value of assets from the end of 2007 to the end of 2009. During that two year period each of the Foundations lost at least 80% of its fair market value of assets as a result of write-offs attributable to the revelations regarding Madoff. In addition, each of the Foundations saw disastrous losses or declines in investment income during 2008 and 2009 from the level achieved in 2007 as a result of the losses recognized from investments with Madoff.

The Form 990-PF filed by each of the Foundations for 2007 (the last full fiscal year for the Foundations before the Madoff scandal erupted in December 2008) indicated that an appreciable portion of income and contributions reflected for that year were attributable to the fictitious profits from investments with Madoff and distributions from such “profits” to the Foundation. The largest amount of Madoff "profits" so reflected for 2007 was $947,565 that was reported by the Lautenberg Foundation.

While Picard continues his relentless pursuit of the Wilpon/Katz families, including the Wilpon/Katz Foundations for not only “clawback” of $300 million of fictitious profits but also return of principal of $700 million, there is no such pursuit of the Lautenberg Foundation, even for clawback. Moreover, there is even evidence (while not conclusive because of a lack of an explanatory note) in the 2009 Form 990-PF filed by the Lautenberg Foundation that it received a cash recovery of $500,000 in the Madoff proceeding. See Installment 50 of this series for further discussion.

Thus it would appear that Picard has made peremptory and perplexing decisions not only as to the Madoff investors that he has chosen to pursue but also the extent of recoveries that he is seeking. While the Wilpon/Katz families, including the Wilpon/Katz Foundations, will spend millions of dollars in legal fees and most likely hundreds of millions in settlement or satisfaction of judgments, other Madoff investors like Hadassah and the Lautenberg Foundation will keep millions in fictitious profits or even recover payments in the Madoff bankruptcy proceeding.

[To be continued in Installment 53]
 

(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.)

• Print
• Comments
• Trackbacks
• Share Link

This is the fifty-first in a series of installments on this blog that are discussing issues arising in the aftermath of the Ponzi scheme perpetrated by Bernard L. Madoff (“Madoff”).  Installments 49 and Installment 50 of this series and several prior Installments have discussed The Lautenberg Foundation, a private foundation (“Lautenberg”) formed by Senator Frank R. Lautenberg, and its investment with Madoff.  

• Print
• Comments
• Trackbacks
• Share Link

This is the fiftieth in a series of installments on this blog that are discussing issues arising in the aftermath of the Ponzi scheme perpetrated by Bernard L. Madoff (“Madoff”). Installment 49,  Installment 41 and several prior Installments in this series have discussed The Lautenberg Foundation, a private charitable foundation (the “Foundation”) formed by Senator Frank R. Lautenberg, and its investment with Madoff. The 2008 Form 990-PF (the “2008 Form 990-PF”) and the 2009 Form 990-PF (the “2009 Form 990-PF” and, collectively with the 2008 Form 990-PF, the “Foundation Forms 990-PF”) filed by the Foundation with the Internal Revenue Service (the “IRS”) are the vehicles for the analysis on this blog of the financial impact on the Foundation of its relationship with Madoff . The Foundation Forms 990-PF are available to the public on the charity information Web site GuideStar.

Comparing the 2009 Form 990-PF to the 2008 Form 990-PF, which was filed with the IRS 15 days earlier, reveals some interesting new financial information, as follows:

The 2009 Form 990-PF reflects a fair market value of assets for the Foundation as of
December 31, 2009, of $967,302, almost the same amount as the fair market value of assets for the Foundation as of December 31, 2008 of $1,001,517. Yet the Foundation reported an excess of expenses over revenues of ($365,087) (the “Loss”) for 2009. The major source of the Loss was explained in Statement 3 to the 2009 Form 990-PF as a charge for “Madoff Theft Loss Balance Remaining” of ($296,072) to “Revenue per Books” and “Net Investment Income.”

Statement 6 to the 2009 Form 990-PF reflected Corporate Stock holdings of the Foundation in Bernard L. Madoff Investment Securities LLC with zero book and market values as of December 31, 2009. As observed in Installment 41 of this series, Statement 9 to the 2008 Form 990-PF, which was filed with the IRS 15 days earlier than the 2009 Form 990-PF, reflected Corporate Stock holdings of the Foundation in Bernard L. Madoff Investment Securities LLC with a book value of $696,072 and a fair market value of $400,000 as of December 31, 2008. No statement was given in either of the Foundation Forms 990-PF as to the basis for the valuations.

No contributions, gifts, grants, etc. were reported in the 2009 Form 990-PF by the Foundation as having been received during 2009, and the only positive income was interest and dividends aggregating $13,909.

Notwithstanding the foregoing items, the 2009 Form 990-PF discloses a new asset on line 2 of its Balance Sheet of $500,239 in “Savings and temporary cash investments.” Statement 2 to the 2009 Form 990-PF reflects $239 in “Interest on Savings and Temporary Cash Investments” from Bank of America. Nowhere, however, in the 2009 Form 990-PF is there any explanation or statement about the $500,000 cash item on the Balance Sheet.

Installment 41 raised the following question: In light of the filing of the 2008 Form 990-PF in November 2010, almost two years after the Madoff arrest, with a wealth of information available about the Madoff bankruptcy/liquidation proceeding (the “Madoff Proceeding”), was the $400,000 in fair market value reflective of an anticipated amount recoverable or already recovered in the Madoff Proceeding by the Foundation?

One can reasonably speculate that $500,000 of the cash reflected on line 2 of the Balance Sheet in the 2009 Form 990-PF may be a distribution to the Foundation in the Madoff Proceeding of the $500,000 maximum amount payable to a securities customer by the Securities Investor Protection Corporation.

In contrast to a potential payment to the Foundation in the Madoff Proceeding, Installment 41 observed that the 2008 Form 990-PF reflected charitable contributions aggregating $330,445 during 2008. It is unclear whether such contributions were made in whole or in part from cash distributions received by the Foundation from Madoff during 2008 before his arrest in December 2008. Installment 41 asked whether any or all of such amounts could be subject to “clawback” by Irving Picard, the Trustee in the Madoff Proceeding (the “Trustee”). (Similar questions could be raised about the charitable contributions reported in the Foundation’s Forms 990-PF for 2005, 2006 and 2007 in light of the fact that, in each of those years, 70% or more of the investment income and fair market value of assets were reported by the Foundation as attributable to Bernard L. Madoff Investment Securities LLC.)

Finally, a principal theme of this series on Madoff is that Irving Picard has been treating charitable organizations inconsistently in the Madoff Proceeding. Installment 48, for example, highlighted the difference in treatment by the Trustee of Hadassah and the Wilpon/Katz private charitable foundations. It would have been helpful to this analysis if an explanation had been provided by the Foundation for the $500,000 cash item that appeared on its Balance Sheet as of December 31, 2009 without a corresponding item in the Analysis of Revenue and Expenses in Part I of the 2009 Form 990-PF.
 

[To be continued in Installment 51]

(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.)

• Print
• Comments
• Trackbacks
• Share Link

This is the forty-ninth in a series of installments on this blog  that are discussing issues arising in the aftermath of the Ponzi scheme perpetrated by Bernard L. Madoff (“Madoff”). Many of the Installments in this series have focused on specific problems and concerns respecting public charities and private foundations that were victims of this and similar schemes.

Installment 40 and Installment 41, among others, of this series have discussed the fact that The Lautenberg Foundation, a private charitable foundation (the “Foundation”), which was formed by Senator Frank R. Lautenberg and had invested with Madoff, was one year past due in filing its 2008 Form 990-PF (the “2008 Form 990-PF”) with the Internal Revenue Service (the “IRS”).

Apparently the 2009 Form 990-PF (the “2009 Form 990-PF” and, collectively with the 2008 Form 990-PF, the “Foundation Forms 990-PF”) was also filed past due with the IRS, albeit 15 days after the final IRS due date of November 15, 2010 (after all available extensions). Both the 2008 Form 990-PF and the 2009 Form 990-PF are now available to the public on the charity information Web site GuideStar.

The availability of the 2009 Form 990-PF on GuideStar was surprising to me. As reported in the earlier Installments, I had been requesting by email from the Lautenberg Foundation a copy of the 2009 Form 990-PF virtually every time that I had requested the 2008 Form 990-PF, including a November 16, 2010 email thanking the Foundation for supplying me with the 2008 Form 990-PF. This thank-you email request of November 16, 2010 preceded the filing by the Foundation of its 2009 Form 990-PF by 14 days.

General Instruction Q entitled “Public Inspection Requirements” of the IRS instructions for completion of Form 990-PF (the “IRS Instructions”) requires a private foundation to mail a Form 990-PF within 30 days to a person who makes a request for such Form by electronic mail. General Instruction Q also refers to IRS Rules that provide for potential penalties for failure of a foundation to file timely or to comply with the public inspection rules. Obviously, since I never received the Foundation’s 2009 Form 990-PF in response to my numerous email requests, the Foundation did not comply in my case with the 30-day response requirement of General Instruction Q. Yet, perplexingly, in both the 2008 Form 990-PF and the 2009 Form 990-PF filed in November 2010, the Foundation answered “Yes” to the following question on line 13 in Part VII-A: “Did the foundation comply with the public inspection requirements for its annual returns and exemption application?”

It is my belief that in one or both years the Foundation’s answer should have been “No” for failure to deliver the Foundation Forms 990-PF on a timely basis in response to my requests.

In a related matter, Installment 41 discussed Statement 8 to the 2008 Form 990-PF provided to me by the accountant for the Foundation. Statement 8 stated the following as to the reason for the late filing and the potential for penalties for late filings:

This return is being filed late due to the uncertainty caused by the majority of the Foundations [sic] assets being loss [sic] to Bernard L. Maddoff [sic] in December 2008. We respectfully request that all late filing penalties be abated.

While the 2008 Form 990-PF supplied to me contained Statement 8 on page 16, for whatever reason, Statement 8 and page 16 of the 2008 Form 990-PF available to the public on GuideStar are missing, with page 17 immediately following page 15.

For the above reasons, the Foundation should consider filing amendments to the Foundation Forms 990-PF in order that the apparent deficiencies can be remedied. This blog series will provide a Part 2 that will discuss further the Foundation Forms 990-PF.
 

[To be continued in Installment 50]

(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.)

• Print
• Comments
• Trackbacks
• Share Link

This is the forty-first in a series of installments on this blog that are discussing some of the issues arising in the aftermath of the Ponzi scheme perpetrated by Bernard L. Madoff (“Madoff”). Many of the Installments in this series have focused on specific problems and concerns respecting public charities and private foundations that were victims of this and similar schemes.

Installment 40 of this series discussed the fact that The Lautenberg Foundation, a private charitable foundation (the “Foundation”) formed by Senator Frank R. Lautenberg was almost one year past due in filing its 2008 Form 990-PF (the “2008 Form 990-PF”) with the Internal Revenue Service (the “IRS”). Apparently the 2008 Form 990-PF has now been filed with the IRS as of November 10, 2010, as the Foundation’s accountant provided a copy on the following day. The due date after, all available extensions, for the Foundation’s 2009 Form 990-PF (the “2009 Form 990-PF”) is November 15, 2010.

The 2008 Form 990-PF reveals some interesting information as follows:

The 2008 Form 990-PF reflects a fair market value of assets for the Foundation as of December 31, 2008, of $1,001,517, as compared to a fair market value of assets for the Foundation as of December 31, 2007 of $15,000,792, as reported in the Foundation’s 2007 Form 990-PF, a decline of $13,999,275, or 93.3%.

Statement 3 to the 2008 Form 990-PF states that the Foundation recognized a “Madoff Theft Loss 95%” of $13,225,367 in “Revenue per Books” and “Net Investment Income.”

Statement 8 to the 2008 Form 990-PF reflects the following as to the reason for the late filing and the potential for penalties for late filings as raised in Installment 40 of this series:

This return is being filed late due to the uncertainty caused by the majority of the Foundations [sic] assets being loss [sic] to Bernard L. Maddoff [sic] in December 2008. We respectfully request that all late filing penalties be abated.

Statement 9 reflects the following Corporate Stock holdings of the Foundation, among others, as follows:

Bernard L. Madoff Investment Securities LLC
Book Value: 696,072
Fair Market Value 400,000

The Foundation was continuing to carry on its books as of December 31, 2008 a value of $400,000 for the Madoff-affiliated securities firm. Query: in light of the fact that the filing of the 2008 Form 990-PF was made in November 2010 almost two years after the Madoff arrest and the wealth of information available about the Madoff bankruptcy/liquidation proceeding (the “Madoff Proceeding”), was the value reflected an anticipated amount recoverable or already recovered in the Madoff Proceeding by the Foundation?

The 2008 Form 990-PF reflected that the Foundation made charitable contributions aggregating $330,445 during 2008. It is unclear whether such contributions were made in whole or in part from cash distributions received by the Foundation from Madoff during 2008 before his arrest in December. Query: could any or all of such amounts be subject to “clawback” by Irving Picard, the Trustee in the Madoff Proceeding, as pointed out in Installment 40?

When the 2009 Form 990-PF for the Foundation is available, some of these issues may be further clarified.

(With appreciation to Michael J. Kline, Esq., the author of this entry and author of an on-going analysis of the concerns of Madoff stakeholders. Mr. Kline 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 42]  

• Print
• Comments
• Trackbacks
• Share Link