AMERICA AT LARGE:ALTHOUGH HE periodically dabbled in more wholesome diversions like promoting rock bands and managing boxers, my late friend Jack McClain spent most of his adult life in earnest pursuit of his chosen profession of white collar crime.
This occasionally brought him into direct conflict with the authorities, as it did in the late 1970s when he was packed away for an involuntary vacation spent at a correctional facility following his apprehension and subsequent conviction involving activities that the US government deemed to have constituted securities fraud.
Once inside, Jack soon carved out his own niche. Utilising the same basic skills – a facility for numbers, coupled with an innate understanding of human nature – that had gotten him locked up in the first place, he became the commissioner, record-keeper, and statistician for the inmate softball league, a position which made him as universally respected and possibly indispensable as any prisoner in the entire federal system.
Whether Bernie Madoff, whose talents seem to have mirrored Jack McClain’s, has involved himself with the intramural sports programme at his current place of residence, a medium security prison in Butner, North Carolina, remains unlearned.
But six months into a 150-year stretch for fraud, perjury, and money-laundering in connection with an elaborate Ponzi scheme that represented the largest swindle in Wall Street history, Madoff continues to cast a long shadow over the fortunes of at least one major league baseball team, namely the New York Mets, who, just as baseball’s Winter Meetings were getting underway in Orlando two days ago, were hit with a Madoff-related lawsuit that could lighten their coffers by almost $50 million.
Madoff’s house of cards collapsed with blinding alacrity almost exactly two years ago, and it shortly became known that Mets’ owner Fred Wilpon had been among the prominent investors in a get-rich-quick scam that seemed to symbolise everyone’s worst thoughts about Wall Street greed.
Wilpon was reported to have lost as much as $500 million in his dealings with Madoff – an alarming figure, considering that the Mets franchise was at the time valued at $824 million, placing it second to only the Yankees among MLB clubs.
Within days, commissioner Bud Selig and MLB president Bob DuPuy conferred with Wilpon and issued a public vote of confidence that the operation of the baseball team would not be imperilled by L’Affaire Madoff.
“Any fraud that has been committed against Fred is something of deep distress to all of us and we feel very badly about the entire matter, but we all believe that this will not affect the team,” DuPuy told the New York Times in December of 2008.
Wilpon was only one of many prominent figures on Madoff’s client list, which included celebrity victims ranging from Nobel laureate Elie Weisel and Lady Victoria de Rothschild to Baseball Hall of Famer Sandy Koufax, Steven Spielberg, and the estate of the late John Denver. (Kevin Bacon – Kevin Bacon! – even made the list.)
Jewish foundations in New York, Los Angeles, Washington, and Minneapolis had also heavily invested in the scam, which also threatened the endowments of several major New York museums, but more significantly, literally hundreds of individuals who had placed their entire life savings in Madoff’s hands had been wiped out.
At least two of Madoff’s victims committed suicide in the wake of the collapse, and the Mets’ ability to compete in baseball’s free-agent market seemed a matter of scant consequence in the face of the wholesale devastation that faced many.
When Irving H Picard, who had been appointed trustee for the liquidation of Bernard Madoff Investment Securities, LLC, convened a meeting of the financier’s creditors last year, it quickly became apparent that there were two distinct classes of victims, and before the day was out they were already at one another’s throats. There were those who had lost everything, and those who had lost, well, maybe not as much.
Much of the $65 million price tag the government had originally placed on the value of Madoff’s empire reflected paper transactions. That’s how a Ponzi scheme works. Say you invested $5 million with Bernie, and over five years the value doubled to $10 million, you withdrew $5 million. You’d have $5 million left on the books. The guy sitting next to you had invested $5 million six months ago and lost it all. In any reasonable distribution of assets, should your five million be considered the equivalent of his?
Even though their money was multiplying at a dizzying rate, some Madoff investors had prudently withdrawn portions of their investment along the way, and much as it must have aggrieved him to do so, Madoff had unflinchingly paid up. After all, whether it’s a crooked dice game on the corner or a zillion-dollar Wall Street scam, you have to let the citizens win once in a while; otherwise nobody would play.
After the conclusion of the Mets’ second consecutive fourth-place season this fall, the team completed an overall housekeeping by hiring the respected Sandy Alderson away from the commissioner’s office. Shortly after he had been named the Mets’ new general manager, Alderson raised a few eyebrows when he made it clear that the club had “no plans” to spend large sums of money on the offseason free agent market. While the affirmation of this policy may have been disappointing to Mets’ fans, it now appears Alderson may merely have known something the rest of us did not.
In the course of exhuming the detritus of Madoff’s failed empire, it came to light that while Wilpon and a family-held firm called Sterling Equities, through an account called Mets Limited Partnership, had indeed invested a total of $522.7 million in Madoff’s scheme, he had also withdrawn $570.5 million along the way, and while the balance sheet might have shown on paper that Sterling and Mets Limited Partnership incurred a $500 million loss when Madoff Investments went down in flames, in actuality Wilpon had realised a $47.8 million profit on his original investment.
In recent weeks Picard, in his capacity as trustee, had already filed multi-billion dollar lawsuits against several firms, including JP Morgan Chase, UBS, and HSBC bank, charging that they had, if only by disregarding the obvious, been complicit in keeping the Ponzi scheme afloat for as long as it lasted. The trustee’s suits hope to recover as much as $32 billion, which would then be equitably distributed among the defrauded investors.
And this past Tuesday the trustee added to his “clawback” list by filing suit against Wilpon and Sterling, seeking to add the $47.8 million windfall profit to the kitty for redistribution to the collective Madoff victims.
If only from a public relations standpoint, the timing of the suit could hardly have been worse for the Mets, coming as it did just as the crosstown rival Yankees took their most prominent potential free agents off the market by re-signing pitcher Mariano Rivera ($30 million for two years) and shortstop Derek Jeter ($51 million for three).
For the record, Wilpon continues to insist that he is a victim, not a beneficiary, of Madoff’s scheme, and while the Mets issued a face-saving statement assuring their fans that the team “will have all the necessary financial and operational resources to fully compete and win”, it’s hard to see how.
