Background

Context for the Mets' 2011 financial crisis: Picard filed the original Sterling Defendants clawback action in late 2010, originally seeking to recover approximately $1 billion in 'fictitious profits' and principal withdrawals from BLMIS. The Sterling Defendants had been BLMIS customers since the mid-1980s; the Mets' day-to-day cash management ran through Madoff accounts. Picard alleged the Sterling Defendants were on notice that Madoff was running a Ponzi scheme; the Sterling Defendants denied this. Concurrently, David Einhorn (Greenlight Capital) had publicly offered $200M for a minority stake in the Mets in early 2011 and MLB had placed the Mets on financial monitoring. The case settled in March 2012 for $162 million. The Einhorn deal collapsed; the Wilpons brought in a series of additional minority investors over the next decade; in 2020 the Wilpons sold the team to Steve Cohen for $2.4 billion (then the record MLB franchise sale price and the predicate for the 'Cohen tax' surcharge tier added to the CBT in the 2022-2026 CBA). The 14 'False Allegations' format is unusual for a motion to dismiss — typically such motions argue legal sufficiency, not factual rebuttal — and reflects the Sterling Defendants' decision to combine reputational defense with their procedural defense. Davis Polk & Wardwell filed; partner Karen Wagner led the Sterling defense.

Key provisions

• Court / case: U.S. Bankruptcy Court, S.D.N.Y. Adv. Pro. No. 10-05287 (BRL), the Picard v. Katz clawback action, consolidated under the main BLMIS SIPA liquidation No. 08-01789 (BRL). Judge Burton R. Lifland (BRL) presiding.
• Procedural posture: Sterling Defendants' Motion to Dismiss the Amended Complaint, or in the Alternative, for Summary Judgment.
• 14 'False Allegations' enumerated in the brief's Table of Contents (pp. 6-47), each refuted in turn: (1) Sterling Stamos told Sterling Partners that Madoff was a 'scam' or fraud; (2) Sterling Stamos advised Sterling Partners not to invest with Madoff; (3) Sterling Partners were sophisticated stock market experts who should have detected Madoff's fraud; (4) Sterling Partners should have recognized Madoff's fraud because Saul and David Katz became expert in the brokerage business; (5) All Sterling Partners were familiar with Sterling Stamos' due diligence; (6) BLMIS's failure to pass Sterling Stamos' and Merrill Lynch's due diligence was an indication of fraud; (7) BLMIS's proprietary 'Black Box' strategy was a red flag; (8) Sterling Stamos was restructured to evade SEC scrutiny of Madoff; (9) Sterling Stamos and Sterling Partners should have been concerned that Madoff was front running; (10) Sterling Partners knew Madoff's custody of securities was a red flag; (11) Sterling Partners knew about the Bayou fraud and should have recognized Madoff's; (12) Sterling Defendants never conducted any diligence on Madoff; (13) Sterling Defendants received 'staggering' profits; (14) Together the allegations prove that Sterling Defendants were complicit.
• Background (pp. 48-55): The brief recounts the founding of Sterling Equities, the Sterling Partners' use of Madoff as their broker dating to the mid-1980s, the increasing investment over time, and the trauma of the December 2008 Madoff arrest.
• Argument I (p. 56-58): The Complaint should be dismissed and summary judgment entered for Sterling Defendants.
• Argument II (p. 58+): The Complaint states no cause of action for avoidance of transfers by BLMIS as fraudulent conveyances (covering A. None of the Transfers from BLMIS Was a Fraudulent Conveyance; B. Each Transfer Was on Account of Antecedent Debt; C. Intent Is Irrelevant Where a Transfer Discharges Antecedent Debt; D. The Ponzi Scheme Presumption Is Inapplicable).

Notable provisions

[Full body of 107-page motion not yet transcribed; key passages on each of the 14 'False Allegations' and the fraudulent-conveyance arguments to be added in future detailed-review pass.]— Sterling Defendants' MTD, March 20, 2011

Further context

Sterling Defendants' Motion to Dismiss (Picard v. Katz, March 20, 2011)

The Wilpon-Katz-Sterling Equities (Mets ownership) motion to dismiss the Madoff trustee's $1B clawback action. Central document for the Mets' 2011 financial crisis.

The case in one paragraph

Irving Picard, trustee for the BLMIS SIPA liquidation, sued the Sterling Defendants in late 2010 seeking to claw back ~$1B in fictitious profits and principal withdrawals on the theory that the Mets owners were on notice of Madoff's Ponzi scheme. The Sterling Defendants (Wilpon, Katz, Sterling Equities) moved to dismiss with the 107-page brief in this archive, enumerating 14 "False Allegations" they contend the Trustee's complaint relied on. The case settled in March 2012 for $162 million — well below the $1B claimed but still a substantial liability. The crisis ran in parallel with the David Einhorn minority-stake offer (which collapsed), MLB's financial monitoring of the Mets, a sequence of minority-investor additions, and ultimately the 2020 sale to Steve Cohen for $2.4 billion — the predicate for the "Cohen tax" CBT tier in the 2022-26 CBA.

Verification status

needs_review. Single source (BoB via Wayback). PACER cross-check (Adv. Pro. 10-05287 BRL) would confirm.

Related documents

Related documents

Dodgers Chapter 11 Filing

Source provenance

• Primary source
• Wayback Machine archive