Btw, if you were ever wondering how Bonilla's 30 year annuity worked, this is how.

When you start referring to part of your company's strategic plan as "the vig", you might just be involved in a fraud.

#2 is hilarious.

Finally, instead of paying disability insurance premiums for key players on the team, the trustee says, Katz and Wilpon put the money into an account — called “Saul’s cookie jar” — to pay injured players. That, as well, was the vig.

Wait, what? When you don't pay insurance premiums, insurance companies do things like "cancel" your policies, so it sounds like Katz and Wilpon in effect self-insured against injuries to players. That might not be wise, but how is it fraudulent?

Oh my GOD, just sell the effing thing already!

Wait, what? When you don't pay insurance premiums, insurance companies do things like "cancel" your policies, so it sounds like Katz and Wilpon in effect self-insured against injuries to players. That might not be wise, but how is it fraudulent?

It's an indication that they had a crazy amount of confidence in Madoff's returns. Picard will work to show that the unusual amount of confidence they had in Madoff--and make no mistake, this shows an unusual amount of confidence--is indicative that they knew or suspected what was up with how Madoff was doing so well. They were basically spending the returns before Madoff even made them and using them in lieu of taking out insurance. The lawyers can, of course, correct me if I'm mistaken in how Picard will use this. Picard will have no trouble finding respectable business practitioners who will testify running your business this way is kind of nutty.

Wait, what? When you don't pay insurance premiums, insurance companies do things like "cancel" your policies, so it sounds like Katz and Wilpon in effect self-insured against injuries to players. That might not be wise, but how is it fraudulent?

They self-insured. To a large extent, I agree with #5, but insurance is generally a scam. Most teams would be better off if they never purchased insurance on any player in the first place, so I may have a lower threshold on the level of safety reasonable for a vehicle used to invest funds that would otherwise be used to pay insurance premiums.

It's an indication that they had a crazy amount of confidence in Madoff's returns.

Crazy, or just a strong amount of confidence? I want the Wilpons gone, badly, but I'm not seeing yet how this gives Picard a smoking gun. From TFA:

The trustee, Irving H. Picard, asserts that Katz and Wilpon took out bank loans just to invest the borrowed money with Madoff, confident that their returns would be better than the interest on the loan. That was the vig at work.

To me, that's not implicitly evil. If I could go to the bank tomorrow and get a personal loan for, say, $10m, at a point above prime, in order to make a five year investment in a fund run personally by Warren Buffett, it's a gamble I'd certainly consider making.

Katz and Wilpon, according to the trustee, structured player contracts to draw out the timing of their payments.

Drawing out payments, if you're not giving anything in return, is always a good thing.

They would then invest the money they owed the players with Madoff and make a profit across the many years of the contract payments. That, too, was the vig.

Seems reasonable, no? The 'graf seems bent on making this sound underhanded, but in the sense of the above wrt my mortgage I owe the bank 'many years of contract(ed for) payments'. Surely I'm allowed to invest money I will eventually pay to the bank?

The men, real estate moguls, also invested the excess proceeds from mortgages they refinanced with Madoff’s brokerage operation on the belief that his returns would be greater than their mortgage payments. That was the vig.

If I believe that a sage investment guru can get me strong returns over the years, why wouldn't I refinance to increase the money I put into that guru's fund? It may well be dangerous to put all your eggs in one investment basket, but I'm still not seeing evidence of complicity in this.

Finally, instead of paying disability insurance premiums for key players on the team, the trustee says, Katz and Wilpon put the money into an account — called “Saul’s cookie jar” — to pay injured players. That, as well, was the vig.

Same principle as the above, no? Unless the Wilpons were somehow contractually obliged to buy disability insurance for key players, how is this fraudulent? I can see, if the Wilpons came to my bank in 2007 looking for a $300m loan, that I'd think about requiring them to insure some key players as a condition of that loan, just so that Beltran, Reyes, Wright, and Santana didn't all go down in the same season and wreck the revenue stream repaying the loan depends on. But, there's no mention in the article of any condition or requirement like that.

If I believe that a sage investment guru can get me strong returns over the years, why wouldn't I refinance to increase the money I put into that guru's fund? It may well be dangerous to put all your eggs in one investment basket, but I'm still not seeing evidence of complicity.

His investment strategy was completely incompatible with having such confidence in the returns.

If you believed Madoff was investing the way he claimed, there should have been significant volatility. The fact that they believed in the consistency of the returns so much, that they actually structured business decisions around it, is a strong indication that they he had some un-natural edge in his trading, i.e. the "front-running" hypothesis.

It's an indication that they had a crazy amount of confidence in Madoff's returns.Crazy, or just a strong amount of confidence? I want the Wilpons gone, badly, but I'm not seeing yet how this gives Picard a smoking gun. From TFA:

The trustee, Irving H. Picard, asserts that Katz and Wilpon took out bank loans just to invest the borrowed money with Madoff, confident that their returns would be better than the interest on the loan. That was the vig at work.To me, that's not implicitly evil. If I could go to the bank tomorrow and get a personal loan for, say, $10m, at a point above prime, in order to make a five year investment in a fund run personally by Warren Buffett, it's a gamble I'd certainly consider making.

Katz and Wilpon, according to the trustee, structured player contracts to draw out the timing of their payments. Drawing out payments, if you're not giving anything in return, is always a good thing.

They would then invest the money they owed the players with Madoff and make a profit across the many years of the contract payments. That, too, was the vig.Seems reasonable, no? The 'graf seems bent on making this sound underhanded, but in the sense of the above wrt my mortgage I owe the bank 'many years of contract(ed for) payments'. Surely I'm allowed to invest money I will eventually pay to the bank?

The men, real estate moguls, also invested the excess proceeds from mortgages they refinanced with Madoff’s brokerage operation on the belief that his returns would be greater than their mortgage payments. That was the vig.If I believe that a sage investment guru can get me strong returns over the years, why wouldn't I refinance to increase the money I put into that guru's fund? It may well be dangerous to put all your eggs in one investment basket, but I'm still not seeing evidence of complicity in this.

Finally, instead of paying disability insurance premiums for key players on the team, the trustee says, Katz and Wilpon put the money into an account — called “Saul’s cookie jar” — to pay injured players. That, as well, was the vig. Same principle as the above, no?

Picard's point is that Katz/Wilpon never would have put all of their eggs into the Madoff basket unless they "knew" that Madoff was going to provide the same returns that he had in the past -- and that those returns were only consistent with securities fraud. The problem with Picard's position is that no one would knowingly invest in a Ponzi scheme and leave their money in year after year, because they would know that a Ponzi scheme, by definition, must grow to prevent collapse and must collapse when it has grown too big to attract sufficient new investors. Picard's true position -- I believe -- is that Katz/Madoff believed that Madoff was involved in other securities fraud (i.e. front running), which could continue indefinitely, and if the SEC shut it down, would lead to the return of principal.

A lot of the evidence that has been highlighted in the press is double-edged. For example, Katz/Wilpon hired serious investment professionals to evaluate their portfolio for risk, which is inconsistent with the idea that they knew that Madoff was a fraud. On the other hand, when those professionals recommended that Katz/Wilpon diversify out of Madoff (at least according to the deposition testimony), that advice was ignored.

Picard's true position -- I believe -- is that Katz/Madoff believed that Madoff was involved in other securities fraud (i.e. front running), which could continue indefinitely, and if the SEC shut it down, would lead to the return of principal.

Exactly. They thought they were in on the fraud, but a fraud that, if discovered, could not cost them their principal.

@8: We've been here before on a recent thread, though. I think smart guys should know the things you mentioned, but the counter is, it's not automatic that even real estate guys would be aware that regular 12% returns are unusual. Anyway, I'm not going to defend the Wilpons. My only point was that the article doesn't tell us anything new, anything that suggests new, actionable material have been uncovered. The Wilpons and Katz had their personal slang, "vig", for a strategy we already knew about. So what?

@9-11: that's fine, and I've agreed in previous threads that it's likely that the Wilpons thought Madoff was at least front running. I still don't see how anything contained in the article is new in the sense that it yields new, improved evidence of the Wilpons' guilty knowledge.

We knew before TFA that the Wilpons were basing their entire financial well-being on continued impressive returns from Madoff.

We've been here before on a recent thread, though. I think smart guys should know the things you mentioned, but the counter is, it's not automatic that even real estate guys would be aware that regular 12% returns are unusual. Anyway, I'm not going to defend the Wilpons. My only point was that the article doesn't tell us anything new, anything that suggests new, actionable material have been uncovered. The Wilpons and Katz had their personal slang, "vig", for a strategy we already knew about. So what?

Because "vig" is the shorthand that bookies use to describe their locked-in, risk-free profit. So long as the bookie collects from everyone, he knows that he is going to win no matter what happens on the field. If you took all the diversification out of your portfolio, self-insured against major business risks, and called your expected profits "vig", that is some evidence that you thought you were betting on a game that had no risk to you.

@12: it's extremely slim, at best. Not everyone means exactly the same thing by "vig". If I was confident in my advisor I might refer to his investments as "risk-free", and "sure things", even though they're nothing of the sort. This is the kind of thing that at trial a judge waves away. "Yeah, yeah, counselor. Either show me some evidence that Fred Wilpon meant "vig" in a knowingly fraudulent sense, or show me what else you got."

What's truly remarkable about all this is that through 2008 the Wilpons owned real estate, and the Mets, and even so apparently weren't without difficulties. Why would you need Madoff? You had two huge, cash cows.

Because "vig" is the shorthand that bookies use to describe their locked-in, risk-free profit. So long as the bookie collects from everyone, he knows that he is going to win no matter what happens on the field. If you took all the diversification out of your portfolio, self-insured against major business risks, and called your expected profits "vig", that is some evidence that you thought you were betting on a game that had no risk to you.

"Vig" is also the term for the 2% a week loan-sharks charge their customers. It has illegal conotations, such that its use to describe their investment returns suggests they weren't on the up and up.

What's truly remarkable about all this is that through 2008 the Wilpons owned real estate, and the Mets, and even so apparently weren't without difficulties. Why would you need Madoff? You had two huge, cash cows.

Most real estate investors habitually releverage themselves to buy more real estate. As soon as a property has equity in excess of that required by the lender, the mortgage is refinanced, and that equity is used to buy more real estate.

That's why real estate empires come apart so fast when they hit trouble.

Understood. It just strikes me as a wonderful story of greed run amok. "We own a huge real estate empire, and the New York Base Ball Metropolitans! That's not nearly enough!"

Understood. It just strikes me as a wonderful story of greed run amok. "We own a huge real estate empire, and the New York Base Ball Metropolitans! That's not nearly enough!"

Oh sure. But from my personal experience, I've worked in the industry, people in commercial real estate are among the greediest, most cut-throat, unethical people you ever (don't) want to meet.

They make investment bankers look like the Little Sisters of the Poor. I've often joked an I-banker will screw his mother over for $5M; commercial real estate investors will do it for $5.

I agree that "vig" is a slim reed to show willful blindness. Given that Judge Rakoff's decision dismissing most of Picard's claims stated that it seemed "extremely unlikely" that Katz/Wilpon would have intentionally invested in a fraud, I do not think that this would be enough -- on its own -- to tip the balance. Rakoff's prior decision also did not address the possibility that Katz/Wilpon thought they were investing in one fraud, when they were actually being swindled by a different fraud.

When there is this much uncertainty, and this much at stake, the usual outcome is a settlement.

Oh sure. But from my personal experience, I've worked in the industry, people in commercial real estate are among the greediest, most cut-throat, unethical people you ever (don't) want to meet.

Any thoughts on why that is? Most small business owners I know scam and cheat, but it's primarily to keep their heads above water--bribing inspectors to keep the restaurant kitchen inspection "friendly" even though there are no gross violations of the kind putting anyone's health at risk; that sort of thing. Are the character traits necessary to succeeding at commercial real estate somehow worse than those required to succeed at other kinds of business?

When there is this much uncertainty, and this much at stake, the usual outcome is a settlement.

What's your (clearly educated) guess as to the amount--and do you think it'll be enough to compel the Wilpons to sell the team?

What's your (clearly educated) guess as to the amount--and do you think it'll be enough to compel the Wilpons to sell the team?

I would not hazzard a guess on the amount of a settlement, because I have not been involved in the litigation. With regard to the Wilpons selling the team, I strongly suspect that Bud has asked the Wilpon's to put the sale on ice until the Dodgers sale is completed, to avoid a glut on the market. The big Wall Street money that is bidding on the Dodgers (like Steven A. Cohen) would likely be diverted to bidding on the Mets if they were on the market. After the Dodgers are sold, I expect that Selig will reverse course, call in MLB's loan, and force the team to be sold.

Given the price that the Dodgers are fetching (well more than $1.2 billion) and the recovery in the economy, Bud's loan to the Wilpons likely will increase the sale price of the Mets by hundreds of millions of dollars.

Any thoughts on why that is? Most small business owners I know scam and cheat, but it's primarily to keep their heads above water--bribing inspectors to keep the restaurant kitchen inspection "friendly" even though there are no gross violations of the kind putting anyone's health at risk; that sort of thing. Are the character traits necessary to succeeding at commercial real estate somehow worse than those required to succeed at other kinds of business?

No idea. It's just the behavior I saw.

@20: good point, about avoiding putting the Mets on the block at the same time as the Dodgers. Even so, I believe the Wilpons are trying desperately to hold onto the team for the long term; I don't think what we're seeing is simply designed to help them hang on until the Dodgers are sold, though there are clear benefits to doing so.

the possibility that Katz/Wilpon thought they were investing in one fraud, when they were actually being swindled by a different fraud.

you can't cheat an honest man

@22. I am sure that the Wilpons want to hold on to the team, but they do not have the cash flow to service their debt. They had to sell additional equity to their bank lenders to get past opening day. If MLB calls their loan (which I believe is $75 million), they will not have the cash.

The irony is that the Wilpons may be daring MLB to call the loan, because a bankruptcy sale may be much more lucrative. Ordinarily, MLB limits the bidders and selects the winner. But, as the Rangers and now the Dodgers have shown, if the Bankruptcy Court gets involved, it can force MLB to pre-approve bidders and then require that the highest bid wins. Before the Dodgers' process started, the published expectations were that the team would be sold for ~$750 million. The bidding is already north of $1.2 billion.

Any thoughts on why that is?

i'm no expert, but i will say this: the paper i work for (a business weekly) just put out an advertising supplement about commercial real estate, touting an event the paper held to give out awards to the top brokers in commercial real estate in L.A. (full disclosure, this is an event that is advertising driven, it has no relation to the editing and reporting side of the operation and we label it 'advertising') ... the awards are given out to the cre brokers who made the biggest deals, highest number of deals, largest transactions by square footage etc. ... the money involved is really high, and i assume the brokers work by commission. The top brokerage had 133 transactions with a total value of $3.8 billion. not million, billion.
its highly competitive, there's a ton of money involved and the better a salesman you are the more you make, so its not hard to imagine the things these men and women get up to.

Picard is doing his best to convince the world that Katz/Wilpon didn't know it was a fraud. They put as much money as they could with Madoff, and didn't hedge the risk of discovery a single bit.

And, they clearly knew Madoffs returns were unusual, that's why they invested with him. the idea they knew what amount of volatility signaled fraud is silly. investment academics couldn't explain Buffett, can't explain Renaissance Tech, and showing the Wlpons a bunch of Greek symbols and statistics isn't likely to convince them their dear friend is a fraud. Bernie could always be trusted, year after year, for two decades like clockwork, until the day they found out he couldn't.

its highly competitive, there's a ton of money involved and the better a salesman you are the more you make, so its not hard to imagine the things these men and women get up to.

Pretty much this. You can make a ton of money in commercial real estate and it's a conversational, relationship-based business. It's ripe for fast talkers and get-rich-quick types. You have any idea what a building in Manhattan, or any major city, is worth? Just one?

Crazy, or just a strong amount of confidence? I want the Wilpons gone, badly, but I'm not seeing yet how this gives Picard a smoking gun.

As an outsider who isn't invested one way or the other with the Mets, I too don't see at this point showing the Wilpon's were anything beyond really stupid (yet). People make dumb investment decisions all the time, they don't learn from their mistakes, and they count their eggs before they hatch. Repeatedly. People constantly think they've found the new investment or the new guru who has beat the market and can't lose, tulip bulbs, internet stocks, leveraged debt, it happens all the time. "Smart" people with a ton of money seem to be even more prone to it than regular investors, because most people with a ton of money have so by hitting multiple home runs and think they can't lose.

And, they clearly knew Madoffs returns were unusual, that's why they invested with him. the idea they knew what amount of volatility signaled fraud is silly. investment academics couldn't explain Buffett, can't explain Renaissance Tech, and showing the Wlpons a bunch of Greek symbols and statistics isn't likely to convince them their dear friend is a fraud. Bernie could always be trusted, year after year, for two decades like clockwork, until the day they found out he couldn't.


I call BS.

His return stability was completely incompatible with his expressed strategy. No one investing in equities in any form has +1-1.5% returns every month.

Even Buffet has bad months and years. The only way to generate consistent month-to-month returns of 12+% annually, without ever having a losing year, or even month, is to steal from somebody. That should be blatantly obvious to anyone who has ever even owned a mutual fund.

If someone came to me offering 12% returns with zero risk, my first question would be what laws we were breaking.

Throw in that his auditor was a one-man shop in a Rockland County strip mall, and his statements were on a dot matrix printers, and not from a real clearing firm, and this had more red flags than the Chinese Army.

[11] I think smart guys should know the things you mentioned, but the counter is, it's not automatic that even real estate guys would be aware that regular 12% returns are unusual.

IMO long-term NY real estate guys who have seen the booms and busts in that market should know that investments--whether stocks or real estate, two ever more connected industries in NY--usually produce varying and cyclical returns. (The NY State motto isn't to be taken literally.)

people in commercial real estate are among the greediest, most cut-throat, unethical people you ever (don't) want to meet.
Any thoughts on why that is? ... Are the character traits necessary to succeeding at commercial real estate somehow worse than those required to succeed at other kinds of business?

Developers don't go broke; they start broke. It's the high leverage and constant refinancing and boom-and-bust nature of most real estate markets that selects for people with those character traits IMO.

It's like the old joke.

Q: How do you make a million dollars in real estate?
A: Start with a billion dollars in real estate.

(which I'm sure has been applied to other industries as well)

To address something from earlier:

Katz and Wilpon, according to the trustee, structured player contracts to draw out the timing of their payments.

Drawing out payments, if you're not giving anything in return, is always a good thing.

But they were giving something in return - more money. Look at the Bonilla deal, they agreed to pay him $29 million instead of $6 million because they thought they'd earn more than that on the cash.

I do think it's unlikely that Katz/Wilpon knew Madoff was a Ponzi scheme, for the reasons that others have stated above. I have no idea whether they thought he was front-running, but why would you assume that you couldn't lose your principal in that case? You wouldn't keep reinvesting all your gains if you thought that were true.

By the way, I live in a Sterling-managed apartment building and, based on my limited experience, the people at the management company are a bunch of dicks.

On the other hand, my brother works in real estate and is a pretty great guy.

The top brokerage had 133 transactions with a total value of $3.8 billion. not million, billion.

Which works out to about 300 million in commissions generated.....pretty damn nice.

It sounds like when you're drawing on a limited pool, where a fortune can be made from selling a single property (what's the commission on the Empire State building, for instance), the situation is ripe for all kinds of backstabbing. Are most commercial real estate transactions handled by a single broker, or is it common to use a multiple listing service?

Drawing out payments, if you're not giving anything in return, is always a good thing.

But they were giving something in return - more money. Look at the Bonilla deal, they agreed to pay him $29 million instead of $6 million because they thought they'd earn more than that on the cash.

Sure, but I was dealing with what TFA had to say, and how that related to the question of whether what it had to say indicated the Wilpons were guilty. If you're not giving anything in return, drawing out payments is still always a good thing (well, unless you're living in times of negative inflation, I guess).

The top brokerage had 133 transactions with a total value of $3.8 billion. not million, billion.

Which works out to about 300 million in commissions generated.....pretty damn nice.

Can that be right? There's no way, if I owned a $3.8b/133 = $28m building, I'd want to pay full freight. I don't see how I wouldn't get the commission down to a lot less than 5-6%, or $1.4 to 1.68m. Doesn't there have to be some sliding scale involved?

I do think it's unlikely that Katz/Wilpon knew Madoff was a Ponzi scheme, for the reasons that others have stated above.

I think it is quite possible they knew it was a Ponzi scheme -- and the explanation for why they didn't pull out (to answer Ephus' question in # 9) is simple: they were stuck. A co-conspirator with as big a stake, and as closely tied to the central figure, and who has shuffled a bunch of investors into pyramid below him (as Wilpon and Katz allegedly did) to keep the thing building can't pull out without having the whole thing collapse and implicating himself. His only option is to keep riding it -- and doing what they basically did: pull out money as they needed it in (relatively) modest amounts to finance the team's operations (we all know they pulled out, over time, literally hundreds of millions of dollars, but never in a quantity that would raise questions about their core commitment to Madoff). In general, they stay involved. Perhaps that is some evidence they didn't think it was a Ponzi scheme. To me, it is just as likely that it was almost as impossible for them to get out as it was for Madoff to do so.

As for the "vig" thing, I agree it's not the strongest piece of evidence, but it helps Picard's case. A prosecutor doesn't build his case on any one piece of evidence, and the jury will be told not to look at each piece of evidence in isolation, or to discard it if it's not a "smoking gun" all by itself. If Picard and his team are smart (and I assume they will be), they won't oversell this, but simply use it as part of a broader picture, together with the actions of Wilpon and Katz that showed their unusual certainty in the profits, their disregard of Noreen Harrington, the investment advisor at Sterling Stamos, and more. Anyone around here, or at the Daily News, who tries to pick at this or that piece of evidence in isolation is vastly understating the strength of the Picard case as a whole. The pieces fit together to build a case of what Wilpon and Katz knew about the nature of the Madoff fund. And it looks solid enough to win to me, even if it's not open-and-shut by any means.

@35--yeah, that's the way to handle the "vig" business. If you have ten things like that a jury pays attention. If you that's all you've got, and try to make too big a deal out of it, it doesn't wash. Juries aren't smart, but they aren't stupid, if that makes sense. In my limited experience they can smell an attorney hyping something that doesn't warrant it.

I believe this is a trial by judge, not jury?

not sure

Sam mentioned a jury in 34 so I was going with that. Would the Wilpons not have the option of a jury trial? I haven't been following this closely so I really don't know.

Nope, jury trial. Judge has already ruled on this. Tellingly (of how both sides view how a jury would view this), Wilpon lawyers tried to keep a jury out of this, Picard wanted the jury trial.

I don't read much into the Bonilla situation other than that it was a night and day different interest rate environment then than now. In 2000 we were in the middle of a massive, massive bull market - the S&P had been returning 20-35% A YEAR and that was just the freaking index without a certified Genius like Madoff running the show. It's hard to remember now but people were saying without laughing that we had solved the business cycle and it was only going to be clear sailing from here on out. The overnight rate was at 6.00% (upped to 6.5% in May that year), if anything it was going higher, Alan Greenspan was God, and if you'd told people that in eight years the rate would be ZERO they wouldn't have believed you.

His return stability was completely incompatible with his expressed strategy.

Did Fred Wilpon even go to college? How is he supposed to know that?

Did Fred Wilpon even go to college? How is he supposed to know that?

He's running an investment company with hundred of millions of dollars in assets. If he doesn't know personally, ask somebody.

The point is every investor knows you don't earn a 700-800 bps spread to treasuries w/o risk and volatility. Especially one as successful as Wilpon.

Oh sure. But from my personal experience, I've worked in the industry, people in commercial real estate are among the greediest, most cut-throat, unethical people you ever (don't) want to meet.

Great line, Snapper!

Throw in that his auditor was a one-man shop in a Rockland County strip mall, and his statements were on a dot matrix printers, and not from a real clearing firm, and this had more red flags than the Chinese Army.

Another great one!
Wouldn't one want to look at the Wilpon investing pattern before Madoff to see if they changed their behavior significantly when Madoff came on the scene before determining their guilt? Did they diversify in a customary fashion before meeting Bernie, or were they always one stop shoppers?

The point is every investor knows you don't earn a 700-800 bps spread to treasuries w/o risk and volatility. Especially one as successful as Wilpon.

The more you hammer this "just should have known" line, the more it sounds doomed as a prosecutorial strategy somehow.

The more you hammer this "just should have known" line, the more it sounds doomed as a prosecutorial strategy somehow.

As Sam M ably described above, it's not any one element. The strategy is to show a dozen red flags, any one or two of which should have warned allegedly sophisticated investors with entire staffs of lawyers/advisors/accountants at their disposal.

Each item alone can be dismissed, but when taken together, give you two choices: 1) Two men who built a company worth hundreds of millions of dollars are the stupidest, most gullible people ever, or 2) they're crooks. I bet the jury picks 2).

The other issue, with the jury trial, is that Katz and the Wilpons have been going with the "I cannot recall at this time, senator" strategy in response to the most damning accusations. Pretending to have forgotten the multiple times that people told you Madoff's returns stunk of fraud makes you look more crooked than dumb.

The other issue, with the jury trial, is that Katz and the Wilpons have been going with the "I cannot recall at this time, senator" strategy in response to the most damning accusations. Pretending to have forgotten the multiple times that people told you Madoff's returns stunk of fraud makes you look more crooked than dumb.

Yup. They'd have a much better chance with a judge. Twelve ordinary people are going to hate that act.

[44] Each item alone can be dismissed, but when taken together, give you two choices: 1) Two men who built a company worth hundreds of millions of dollars are the stupidest, most gullible people ever, or 2) they're crooks. I bet the jury picks 2).

There are overt actions here, not just issues of gullibility, that will reinforce Picard's story, such as the SNY cable loan/investment.

[T]o create [SNY TV], Wilpon first had to buy out the remaining six years of the team’s contract with Cablevision, which then broadcast Mets games on two of its networks. To do that, he needed cash, and had negotiated $54 million in loans with two banks, according to Picard’s lawsuit.

But in May 2004, and needing to close the deal with Cablevision, Wilpon was uncertain the bank loans would materialize in time, according to the lawsuit. First, according to the lawsuit, Wilpon and Katz sought to cash out $54 million from their vast array of longstanding accounts with Madoff.

Madoff, though, told the men he could not do that, that their accounts were “in the market,” and instead offered to wire them, and their partners in Sterling Equities, Wilpon’s investment firm, a $54 million interest-free, cost-free loan, according to the lawsuit.

“Although Madoff and Sterling agreed that the $54 million transfer from Madoff was a loan, Sterling prepared on Mets letterhead a letter agreement dated May 25, 2004 from Fred Wilpon and Saul Katz to Ruth Madoff that falsely described the transaction as an investment by Ruth Madoff in the company that would later become SNY.”

The letter, the lawsuit said, was signed by Wilpon, Katz and Ruth Madoff.

In the end, the money from the banks came through, and Wilpon and Katz returned the $54 million to Madoff a day after receiving it. Ruth Madoff does not appear to have ever truly become an investor in SNY. And, at no time, Picard charged, did Wilpon or Katz ever speak to Ruth Madoff about the investment.

http://www.nytimes.com/2011/03/19/sports/baseball/19madoff.html?pagewanted=all

He's running an investment company with hundred of millions of dollars in assets. If he doesn't know personally, ask somebody.

I don't see how some real estate guy -- even a wildly successful one -- is supposed to have a feeling one way or another about the expected volatility of the split-strike conversion strategy. The SEC didn't figure it out.

[47] That looks like evidence that they defrauded the entities involved in the SNY/cablevision deals, not evidence that they knew their money was in a Ponzi.

Apparently I travel in the wrong circles, since I'll be turning 40 this year and this article is the first time I've ever come in contact with the term "vig".

I don't see how some real estate guy -- even a wildly successful one -- is supposed to have a feeling one way or another about the expected volatility of the split-strike conversion strategy. The SEC didn't figure it out.

Then freaking ask somebody. Goldman Sachs takes Fred Wilpon's phone calls.

Several independent people figured out it was a fraud decades ago, and tried to tell the SEC (who wouldn't listen).

All Wilpon and Katz had to do was call any of a dozen I-banks and ask, "Can this strategy really generate annual returns of 12%+ with no monthly volatility?".

Apparently I travel in the wrong circles, since I'll be turning 40 this year and this article is the first time I've ever come in contact with the term "vig".

Midwesterner?

It's a Yiddishism, so may not have penetrated everywhere. What does a loan shark or bookie call their spread?

If you don't gamble or talk about gambling or read about gambling, you'll never hear the term "vig". I don't think it's a regional thing - I know a lot of New Yorkers who've never heard of a "vig".

If you don't gamble or talk about gambling or read about gambling, you'll never hear the term "vig". I don't think it's a regional thing - I know a lot of New Yorkers who've never heard of a "vig".

I learned about it from movies and TV.

If you don't gamble or talk about gambling or read about gambling, you'll never hear the term "vig". I don't think it's a regional thing - I know a lot of New Yorkers who've never heard of a "vig".

They never watched the Sopranos?

1) Two men who built a company worth hundreds of millions of dollars are the stupidest, most gullible people ever

Over in the footy thread, we refer to this as the Redknapp Defense.

[49] That looks like evidence that they defrauded the entities involved in the SNY/cablevision deals, not evidence that they knew their money was in a Ponzi.

First, IMO it's evidence that Wilpon and Katz and Madoff were accomplices in at least one financial fraud.

Second, IMO it's evidence that Wilpon and Katz personally knew that Madoff would and did commit and conspire to commit a financial fraud, beyond the rumors of Madoff's "front running."

Third, the "story" about Madoff's supposed "illiquidity" is IMO evidence that Wilpon knew or should have known specifically about the Ponzi. The illiquidity is a red flag for a Ponzi scheme. Was Madoff was willing to commit financial fraud to placate all his "customers" or only the feeders? Did Wilpon ever conspire with any other financial institution?

They never watched the Sopranos?

I never have, not even a single minute... OTOH I do know what vig is, mostly because I am a degenerate gambler.

BTW, this from #12 is wrong:
Because "vig" is the shorthand that bookies use to describe their locked-in, risk-free profit. So long as the bookie collects from everyone, he knows that he is going to win no matter what happens on the field.

The bookie only wins no matter what, if he gets balanced money on each side of the bet, and never moves the line. That is far from guaranteed.

“Although Madoff and Sterling agreed that the $54 million transfer from Madoff was a loan, Sterling prepared on Mets letterhead a letter agreement dated May 25, 2004 from Fred Wilpon and Saul Katz to Ruth Madoff that falsely described the transaction as an investment by Ruth Madoff in the company that would later become SNY.”

I get that this is fradulent, but I don't see what the gain is. Why can't Madoff "loan" him $54M? Why say falsely that it's an investment by Mrs. Madoff?

I get that this is fradulent, but I don't see what the gain is. Why can't Madoff "loan" him $54M? Why say falsely that it's an investment by Mrs. Madoff?

I assume it has to do with loan agreements with other lenders, and priority on debt repayment, etc. The holders of existing loans wouldn't appreciate the newest loan being paid back before they are.

First, IMO it's evidence that Wilpon and Katz and Madoff were accomplices in at least one financial fraud.

Second, IMO it's evidence that Wilpon and Katz personally knew that Madoff would and did commit and conspire to commit a financial fraud, beyond the rumors of Madoff's "front running."

Third, the "story" about Madoff's supposed "illiquidity" is IMO evidence that Wilpon knew or should have known specifically about the Ponzi. The illiquidity is a red flag for a Ponzi scheme. Was Madoff was willing to commit financial fraud to placate all his "customers" or only the feeders? Did Wilpon ever conspire with any other financial institution?

That's a pretty loose definition of evidence for number three. There are all sorts of reasons why money is illiquid in investments. You don't automatically jump to the conclusion you're in a Ponzi scheme if you can't get a big chunk out at a moment's notice.

re: #1 and #2, I agree it's evidence that Wilpon/Katz/Madoff were willing to do some shady stuff to move money around. But that stops way short of being co-conspirators in a Ponzi scheme.

[61]That's a pretty loose definition of evidence for number three. There are all sorts of reasons why money is illiquid in investments. You don't automatically jump to the conclusion you're in a Ponzi scheme if you can't get a big chunk out at a moment's notice.

That would be true, except IIRC each Madoff investor had individual accounts for his or her explicit holdings in publicly traded stocks and options, for which they received monthly (falsified) paper statements. They didn't own shares in the Madoff Fund (TM). An investor should expect to be able to sell such instruments on demand at the market clearing price. So, the illiquidity excuse should have been a big red flag here.

re: #1 and #2, I agree it's evidence that Wilpon/Katz/Madoff were willing to do some shady stuff to move money around. But that stops way short of being co-conspirators in a Ponzi scheme.

But as I understand it, Wilpon's and Katz's defense, effectively, is in part, "Yes, people warned us about Madoff being a Ponzi scheme, but we had no objective reason not to trust him". Here is evidence that they should have taken such warnings about Madoff more seriously than their actions indicate they did, but only if they were truly victims as opposed to being (or intending to be) co-conspirators, whether in front-running or otherwise.

Nope, jury trial. Judge has already ruled on this. Tellingly (of how both sides view how a jury would view this), Wilpon lawyers tried to keep a jury out of this, Picard wanted the jury trial.

Yep, in a civil case either side can request a jury. In fact in Federal Court many times either plaintiff or the deft will ask at the beginning for a jury even if they'd prefer a judge- they want to keep the option open, you can always decide right up to sitting the jury that you want a judge deciding, but nit vice versa. You lose the right to get a jury if you ask too late, or if you ask for equitable relief instead of just $.

Plus, asking for a jury is a no brainer from Picard's POV, Rakoff no longer even tries to hide his hostility towards Picard who he sees as overreaching. Plus Rakoff obviously disagrees with using net in/out as a way of determining profit/loss in these cases, he likely sees many of Picard's disgorgement defendants as being victimized twice- 1st by Madoff and later by Picard- Madoff can do nothing about that though, the 2nd circuit already sided with Picard- but he's been ruling against Picard on virtually every other issue- Rakoff's standing ruling in particular - that Picard lacks standing to bring certain claims- is almost certainly DOA with the 2nd circuit, it flies directly in the face of established bankruptcy precedent.

Basically Rakoff tried to force settlement discussions in one direction- and failed- Picard called his bluff, ceased negotiating settlements at all, and is gearing up for multiple trials, Rakoff really should have let him file his interlocutory appeals.

That would be true, except IIRC each Madoff investor had individual accounts for his or her explicit holdings in publicly traded stocks and options, for which they received monthly (falsified) paper statements. They didn't own shares in the Madoff Fund (TM). An investor should expect to be able to sell such instruments on demand at the market clearing price. So, the illiquidity excuse should have been a big red flag here.

If that's true then yes, that's more of a red flag. But again $54 million is a big chunk of change to any account, especially when it represents 1/6 or whatever of the assets they had invested there. That's a lot to get out quickly. I think the larger point and addressing your second paragraph as well, to quote the statement made up thread, "should have known" is great but a long way from evidence. I agree with you - it's possible the Wilpons knew this was a Ponzi scheme (though if so and they still left their money in they're fantastically stupid). It's also possible that they didn't know it was a Ponzi scheme and were taken in by Market Genius/Tulip Bulbs v6000, which makes them a different kind of stupid. Either way they were stupid - we can settle the argument over whether or not people who build multi-hundred million dollar empires are stupid. One way or another, these guys were stupid. Which kind of stupid they were hasn't been proven yet.

Third, the "story" about Madoff's supposed "illiquidity" is IMO evidence that Wilpon knew or should have known specifically about the Ponzi. The illiquidity is a red flag for a Ponzi scheme. Was Madoff was willing to commit financial fraud to placate all his "customers" or only the feeders? Did Wilpon ever conspire with any other financial institution?

That's a pretty loose definition of evidence for number three. There are all sorts of reasons why money is illiquid in investments. You don't automatically jump to the conclusion you're in a Ponzi scheme if you can't get a big chunk out at a moment's notice.

Actually, it is not evidence that Madoff was illiquid atteh time- he did in fact wire transfer the $ to the Wilpons- what he didn't want was for Wilpon to cash out $54m all at once, what if Wilpon didn't re-invest? Sure Wilpon pulled out 25-50 every year, but not all at once.

If that's true then yes, that's more of a red flag. But again $54 million is a big chunk of change to any account, especially when it represents 1/6 or whatever of the assets they had invested there. That's a lot to get out quickly.

But, if it's in a securities account, and you're wiiling to sell regardless of market conditions, it should be liquidatable within the day.

If Bill Gates has $1B in securities in his JP Morgan account, and calls at 9 AM saying "Sell it all immediately and wire me the money", he'll have it all (less losses caused by moving the market in less liquid securities) by end-of-day.

re: #1 and #2, I agree it's evidence that Wilpon/Katz/Madoff were willing to do some shady stuff to move money around. But that stops way short of being co-conspirators in a Ponzi scheme.

One of Picard's goals is going to be to get the jury to DISLIKE Fred and Saul, because if push comes to shove and it's 50/50 the jury is going to go against the side they like least.

Fed and Saul are going to portray themselves as victims, and Picard's job is to say:

"no, they were not victims, over the years they gave Madoff P0 million dollars, and Madoff gave them back $650 million dollars, they are not and were not victims."

"no they were not victims, that $500 million "on the books" that disappeared, money that never existed because 1)Madoff gave them $600 million back and 2)Madoff never invested a penny ever;- that $500 million that didn't exist, the Wilpons used that as "collateral" to get hundreds of millions of real dollars from others

"no, they were not financial innocents who were duped by someone they trusted, these were sophisticated, look what they say about themselves in Sterling's Website, in the prospectuses they gave to banks and other financial institutions when they borrowed money"

"no they were not victims, they were more than willing to go along with Madoff's lies, like when they duped creditors into believing that Ruth Madoff had invested in them"

"no they were not innocent victims, they hired a CFO who told them she thought Madoff was a fraud, so they fired HER
rather than Madoff"

"No they were not innocent victims, do you know what a loan shark calls his profit margin, the usurious interest he charges and collects? The 'Vig.' Do you know what the Wilpons called their Madoff returns? The vig, and do you know what was fueling that 'vig?' New investments, some coming from the business associates of the Wilpons who had been convinced to invest in Madoff by the Wilpons."

and so on.

But, if it's in a securities account, and you're wiiling to sell regardless of market conditions, it should be liquidatable within the day.

Yes. But either way, it isn't evidence. You don't go from "I can't get my money out today" to "It's a Ponzi scheme!!!" either legally or personally. Anyway, Madoff wasn't a (complete) fool - what's the idea here, that he was paying out (to himself or "investors") every single cent of the $18 billion or whatever it was that he took in, so that he had absolutely no money whatsoever in the company accounts if someone wanted to withdraw money some random Tuesday? What if he didn't get any new investors for a couple of months? Well then he's completely screwed when the time for the next payouts arises and the whole thing crashes down on him tomorrow. I would be very, very surprised if that was so. The far more likely thing is he had money in company accounts, but just didn't want to give it to them - didn't want to give it to anyone out of the payout schedules, and since these were his pals decided to arrange this other way of getting them the $54 million, keeping them happy, and moving on.

To add, none of what I'm saying precludes the idea that the Wilpons knew they were the beneficiaries of a Ponzi scheme. They may have. I'm just saying none of this is proof (yet) of even the fact that they knew it was a Ponzi scheme, let alone that they were willing conspirators.

Howard has an interesting new article up, dated February 24, 2012.

"Apparently I travel in the wrong circles, since I'll be turning 40 this year and this article is the first time I've ever come in contact with the term "vig"."

A Jersey politician once described to me a program where local towns were encouraged to make sure to collect a tax on new businesses by being offered a small part of the revenue as a reward.

Yep, he called it "the vig." lol

But it's been a standard term for many years for bookies and those who love (and hate) them.

I'm just saying none of this is proof (yet) of even the fact that they knew it was a Ponzi scheme, let alone that they were willing conspirators.

Yes it is. You are not accurately conveying concept of "proof" the way the court will apply it. You seem to be asking for some sort of smoking gun letter or memo in which Madoff characterized things to Katz and Wilpon, or one of the two of them affirmatively wrote to someone that theyn were involved in a fraud.

That is simply not what is necessary for something to constitute "proof." Any piece of evidence tending -- even slightly -- to show that it is somewhat more likely that they knew, or ignored red flags pointing in the direction, that the Madoff fund was a fraud, is admissible proof supporting Picard's case. Departures from normal practices that a prudent investor would follow are not alone sufficient to meet Picard's burden of proof, but they are evidence that support his case. They are some proof the jury can use, from which it can draw inferences about what Wilpon and Katz knew, what explained their actions, etc. The fact that Madoff couldn't give Wilpon $50M+ when he asked for it -- if Picard can convince the jury that this was unusual and shouldn't have been true for an investment fund being run on the up-and-up. Red flag? That'll be up to the jury to decide -- especially if Picard can show there was a whole pattern of such signs. By itself? Almost certainly not enough. But saying it isn't enough to win the case by itself is very different from saying it's not proof. It most certainly IS proof.

If you don't gamble or talk about gambling or read about gambling, you'll never hear the term "vig". I don't think it's a regional thing - I know a lot of New Yorkers who've never heard of a "vig".

They never watched the Sopranos?

From New Jersey actually, and know my fair share of Yiddishisms, but never picked that one up. Didn't watch the Sopranos... (though I have been in the place they used as the exterior for the Bada-Bing... oddly enough, before they used it)... don't gamble (except for very casually on a few trips to Vegas) and don't read about it, so that explains it I guess. Having never actually dealt with a bookie, don't really know what they call things. I've just led a sheltered life, I guess.

Yes it is. You are not accurately conveying concept of "proof" the way the court will apply it. You seem to be asking for some sort of smoking gun letter or memo in which Madoff characterized things to Katz and Wilpon, or one of the two of them affirmatively wrote to someone that theyn were involved in a fraud.

What's the standard of evidence here--Is it "clear and compelling evidence"? or merely "a preponderance of evidence", or something else entirely?

His return stability was completely incompatible with his expressed strategy. No one investing in equities in any form has +1-1.5% returns every month.

Even Buffet has bad months and years. The only way to generate consistent month-to-month returns of 12+% annually, without ever having a losing year, or even month, is to steal from somebody. That should be blatantly obvious to anyone who has ever even owned a mutual fund.

This is silly, I think Buffett went almost 40 years before he had his second down year. His consistency has been godlike. Maybe you are confused by BRK's stock price, which is a very indirect measure of his results (few fund managers have publicly traded proxies, they are always measured by marking the portfolio assets to market). Renaissance Tech has supposedly averaged 40%+ for two decades on a massive investment base, no one believes they are a fraud. Investment isn't a science, you can't rule any approach entirely out or know its ultimate possible performance. Buffett doesn't tell people charting is brain dead and worthless, he just says he's skeptical cause it never worked fr him.

And there are option based strategies that equity like returns with little variance, if they don't blowup, so generating less than half of Buffetts returns with much lower volatility shouldn't appear impossible. The fact that over 20 years only a couple unbiased independent accountants thought Bernie was a fraud is very telling to how hard it was to catch ( or more precisely believe).Many more professors than that have judged Buffett a lucky coin flipper.

It's far easier for an independent analyst to find and believe the fraud. As I said on the other thread, it's much harder when your judgement is clouded by the naturally great feelings they had for this guy who appeared to have made them so much money. Its clear that they allowed their emotions to bias their decisions, they loved Bernie, and had decades of proof that Bernie was right and that the pocket protector crew was wrong. I'm pretty sure the Wilpons were simply not intellectually or emotionally equipped to question Bernie's abilities, and their bias blinded them whenever someone tried to warn them.

And trying to convince anyone, including a jury that the Wilpons were in on it is absurdly difficult. You have to believe they knew it was a Ponzi, but kept a massive amounts tied up in it, knowing eventually they'd lose the vast majority of their personal fortunes, and likely be in court fighting over the scraps that were left (even if they didn't realize they'd be sued too). The fact that they kept so much money with Bernie without ever trying to draw down and ensured that any discovery of the fraud would put their ownership of the Mets in huge jeopardy... I mean there can't be any clearer proof than that that Katz and the Wilpons were not aware of the fraud.

It's far easier for an independent analyst to find and believe the fraud. ... And trying to convince anyone, including a jury that the Wilpons were in on it is absurdly difficult.

Do we here count as "anyone"?

Wilpon and Katz were a feeder to Madoff, not just an "investor". Did Madoff arrange fraudulent loans, eg SNY 2004, for all his customers rather than cashing them out? I doubt Buffett participated in financial frauds to retain investors. That "loan" either a red flag willfully missed or evidence of accomplices conspiring to defraud the lenders to Sterling.

The irrationality of conspiring in a Ponzi scheme that eventually must go bust is hardly "proof"--clear or otherwise--of the innocence of the conspirators. (Wilpon and Katz were not alone as feeders to Madoff.) Maybe they were just narcissistic sociopaths. Maybe they figured that the truth would come out after their deaths; maybe they were okay leaving their sons to deal with the mess.

Then freaking ask somebody. Goldman Sachs takes Fred Wilpon's phone calls.

Several independent people figured out it was a fraud decades ago, and tried to tell the SEC (who wouldn't listen).

All Wilpon and Katz had to do was call any of a dozen I-banks and ask, "Can this strategy really generate annual returns of 12%+ with no monthly volatility?".

Everyone's a genius in hindsight -- even snapper.

It's a Yiddishism

Vigorish is about as Yiddish as "spatula" or "tumult."

Yep, in a civil case either side can request a jury.

Not every civil case - has to be the type of case for which there would have been a jury right in 1789.

What's the standard of evidence here--Is it "clear and compelling evidence"? or merely "a preponderance of evidence", or something else entirely?

Preponderance.

Vigorish is about as Yiddish as "spatula" or "tumult."

perhaps from Ukrainian vygrash or Russian vyigrysh winnings, profit
First Known Use: 1912

This is what Webster's has. Given that origin, almost certainly came to the US through Yiddish.

This is silly, I think Buffett went almost 40 years before he had his second down year. His consistency has been godlike. Maybe you are confused by BRK's stock price, which is a very indirect measure of his results (few fund managers have publicly traded proxies, they are always measured by marking the portfolio assets to market). Renaissance Tech has supposedly averaged 40%+ for two decades on a massive investment base, no one believes they are a fraud. Investment isn't a science, you can't rule any approach entirely out or know its ultimate possible performance. Buffett doesn't tell people charting is brain dead and worthless, he just says he's skeptical cause it never worked fr him.

If you take 1000 people who promise you market beating returns with little volatility, you'll find 1 Buffet, 900 survivors of selection bias who can't repeat it, and 99 frauds.

they are always measured by marking the portfolio assets to market.

And if they deal in anything but liquid securities, this allows them to massage their returns to produce artificial consistency.

For Buffet, why shouldn't we look at BRK? That's the only way for anyone else to invest in him?

This is what Webster's has. Given that origin, almost certainly came to the US through Yiddish.

Webster must have forgotten to get your opinion on this one.

No, Webster's didn't forget. They're just raging anti-Semites.

In contrast, Oxford has this to say:

Origin:

early 20th century: probably from Yiddish, from Russian vyigrysh 'gain, winnings'

Several independent people figured out it was a fraud decades ago, and tried to tell the SEC (who wouldn't listen).

All Wilpon and Katz had to do was call any of a dozen I-banks and ask, "Can this strategy really generate annual returns of 12%+ with no monthly volatility?".

Everyone's a genius in hindsight -- even snapper.

In fact Snapper is correct on this one, multiple individuals and quite a few institutions either figured out that Madoff was running some type of fraud or were worried enough about it to either not invest, or to pull their investments. Some did go to the SEC, but most kept such concerns to themselves for fear of being sued by Madoff.

The SEC's scrutiny was largely ineffective, but was increasing, especially in the early 2000s, Madoff began reorganizing his relationship with the various feeder funds in an attempt to deflect inquiries. He also, for a few years stopped taking certain types of investments pension funds and the like because the level of scrutiny was worrisome, but at the end he was too desperate to care anymore.

This is silly, I think Buffett went almost 40 years before he had his second down year. His consistency has been godlike.

No, this is silly, Buffet's "consistency" was nothing like Madoff's, the only funds that matched (or exceeded) Madoff's consistency have all turned out themselves to have been frauds (like Westgate/Nicholson)

What's the standard of evidence here--Is it "clear and compelling evidence"? or merely "a preponderance of evidence", or something else entirely?

Preponderance.

standard of proof for fraud claims is generally clear and convincing. The standard of proof for Picard on the claw back claims (return of profits) is merely preponderance

The SEC's scrutiny was largely ineffective, but was increasing, especially in the early 2000s,

So, where's the part where Fred Wilpon should have realized the split-strike conversion strategy should yield more volatility?

standard of proof for fraud claims is generally clear and convincing.

Maybe, but not in the United States.

For Buffet, why shouldn't we look at BRK? That's the only way for anyone else to invest in him?

Because BRKs price is the markets opinion of his results, while Berkshires book value is Buffets actual result.

When you invest in a mutual or hedge fund, your shares are priced at book value (NAV). You cash out at book value. Performance is measured by book value. Now in the long run, it can work out close to the same on performance, if you buy BRK at 1.4x book and sell it 20 years later at 1.4x book your results are the same as Buffetts performance. If you buy it at 1.2x book and sell at 1.6x book, your results are better than Buffetts.

But while the difference usually it makes only a small difference over the very long term with BRK, it makes a huge difference in volatility. Imagine a closed end mutual fund that is up 20% on the year , but investors are so excited the bid it up another 20% over NAV (to 44%). The next year the manager has a bad year and loses 10%, but investors are so disappointed they dump the shares in a rush to get out and move to the next hot manager, driving the arjet price all the way dwn to a 20% discount to NAV (--28%). Would you say look at how volatile that managers results are, up and down over 25% a year? That is essentially what the market price of BRK does to Buffetts results, makes them look better when Buffett mania is in full swing, and worse when the world thinks he's lost it. If he turned BRK into a hedge fund tomorrow your perception of his volatility plummets.

Looking at BRKs book value, he never had a single down year until his 50th year of investing. Every year etween 5 and 50%, with the exception of a few early Buffett partnership years over 50%. In the equity markets that's unbelievable. And to someone like the Wilpons, it's easy to believe they wouldn't see much difference between that and Bernie's results. They certainly wouldn't think it was harder to produce extremely consistent 12% returns than it was to produce consistently positive returns over twice as high, especially when market makers clearly have legal, protected profits to help smooth trading results (rumored to be behind RenTechs amazingly consistent multidecade 40% annualized returns).

Someone needs to explain Renaissance Tech before they can assert Madeoffs results are clear proof of fraud, otherwise you are just blowing smoke.

Wilpon and Katz were a feeder to Madoff, not just an "investor". Did Madoff arrange fraudulent loans, eg SNY 2004, for all his customers rather than cashing them out? I doubt Buffett participated in financial frauds to retain investors. That "loan" either a red flag willfully missed or evidence of accomplices conspiring to defraud the lenders to Sterling.

That loan is something virtually any investment bank or hedge fund would do for a large client.

The irrationality of conspiring in a Ponzi scheme that eventually must go bust is hardly "proof"--clear or otherwise--of the innocence of the conspirators. (Wilpon and Katz were not alone as feeders to Madoff.) Maybe they were just narcissistic sociopaths. Maybe they figured that the truth would come out after their deaths; maybe they were okay leaving their sons to deal with the mess.

They could easily have earned 8% in the market over time, with merely mediocre investment management. But your contention that men who were already enormously wealthy, risked most of their fortunes with someone they were fairly sure was defrauding them, all for another 4% per year in hopes that they would die soon enough to leave the shambles to their sons. And hey loved the guy stealing from them so much they willingly brought him additional victims, so they could ensure they would be forced to fight for their remaining assets and freedoms in court.

I'm arguing they werent very smart, no where near sophisticated enough to understand sophisticated arguments on the limits to investment returns, and to heavily subconsciously biased to be open minded about accusations against Bernie.

You are arguing they simply didn't care about remaining wealthy for much longer, or staying out of court or jail, as long as they could conspire with Bernie to make him rich by allowing him to steal their money, they were fulfilled.

Off Topic: But who should I direct my ire to on the current high prices of gas? Oil speculators, or the gas companies?

Iran.

Because BRKs price is the markets opinion of his results, while Berkshires book value is Buffets actual result.

When you invest in a mutual or hedge fund, your shares are priced at book value (NAV). You cash out at book value. Performance is measured by book value. Now in the long run, it can work out close to the same on performance, if you buy BRK at 1.4x book and sell it 20 years later at 1.4x book your results are the same as Buffetts performance. If you buy it at 1

Of course, unless the underlying portfolio is 100% highly liquid securities (listed stocks, Tsys., Agencies, and large co. inv. grade bonds) than book value is largely a fictional number.

On illiquid assets it's whatever the manager wants it be (within a reasonable margin).

If Buffet's portfolio is 50% illiquid, he can make a -5% year +5% anytime he wants to. Even "mark-to-market" valuations can easily vary 10 pts. on relatively illiquid securities.

Off Topic: But who should I direct my ire to on the current high prices of gas? Oil speculators, or the gas companies?

Speculators.

Off Topic: But who should I direct my ire to on the current high prices of gas? Oil speculators, or the gas companies?

Nicolas Cage.

[87]

That loan is something virtually any investment bank or hedge fund would do for a large client.

Are you saying "virtually any investment bank or hedge fund" would refuse to cash out a large client and then have the wife of a principal "invest" in the large client and thereby participate in a fraud scheme to avoid the large client's restrictive loan covenants? Really? I call bullsh!t on that.

They could easily have earned 8% in the market over time, with merely mediocre investment management. But your contention that men who were already enormously wealthy, risked most of their fortunes with someone they were fairly sure was defrauding them, all for another 4% per year in hopes that they would die soon enough to leave the shambles to their sons. And hey loved the guy stealing from them so much they willingly brought him additional victims, so they could ensure they would be forced to fight for their remaining assets and freedoms in court.

Those "mediocre" investment managers wouldn't have arranged extra liquidity by ginning up fraudulent loans on demand. :) For all their wealth was built on leverage and the liquidity was enormously valuable, as illustrated by the SNY deal. Further, they got more than the 4% over 8% that a Madoff investor got. All the feeders probably got paid by Madoff for being feeders and collected a % of AUM from their "investors"; they did not do it out of mere love for Bernie.

The feeders did not seem to think or care they would be caught. Several are recently dead including Chais and Picower. Their names and families are ruined and Picower's widow is returning $7 billion rather than be a pariah. The feeders did not care that they were roping marks for con man Bernie.

Looking at BRKs book value, he never had a single down year until his 50th year of investing. Every year etween 5 and 50%, with the exception of a few early Buffett partnership years over 50%. In the equity markets that's unbelievable. And to someone like the Wilpons, it's easy to believe they wouldn't see much difference between that and Bernie's results. They certainly wouldn't think it was harder to produce extremely consistent 12% returns than it was to produce consistently positive returns over twice as high, especially when market makers clearly have legal, protected profits to help smooth trading results (rumored to be behind RenTechs amazingly consistent multidecade 40% annualized returns).

If you have one investment that has positive returns between 5 and 50% and one that has a consistant 8-12% you are looking at 2 completely different things that should not be compared. Using Buffet as a way to justify Madoff not being found out is a weak arguement.

How about the fact that on his statements Madoff would show transactions taking place on a date and at a price that never happened? I believe he also listed a trade in a Fidelity mutual fund on a date after which it had been renamed or closed. I agree that saying the Wilpon's knew it was a fraud is a stretch but saying they (and a lot of other people) should have known is completely fair.

Those "mediocre" investment managers wouldn't have arranged extra liquidity by ginning up fraudulent loans on demand. :) For all their wealth was built on leverage and the liquidity was enormously valuable, as illustrated by the SNY deal. Further, they got more than the 4% over 8% that a Madoff investor got. All the feeders probably got paid by Madoff for being feeders and collected a % of AUM from their "investors"; they did not do it out of mere love for Bernie.


No, I assume they did it to help their friends and show off how well-connected they were. They didn't do it for Bernie, they did it for his investors who they thought they were getting in on a secret 12% guaranteed annual return. Unless you think they are just unspeakably evil people, which I suppose is possible but you think it would manifest itself in other ways, too. Whereas as far as I know, nobody has accused them of fraud in their fund management business, nobody has accused them of being slumlords in their real estate investments, etc.

Maybe, but not in the United States.

In the state I live in,, New York (which is in the United States) it is.
Lets see: California- clear and convincing
Texas- clear and convincing
ok that's the 3 most populace states
Delaware (official motto: Corporations R Us): Clear and convincing

Hey, found one, Wyoming uses a preponderance standard for fraud

I'm not going to do a whole 50 state rundown, but in the fair majority of states the burden is clear and convincing

Of course, unless the underlying portfolio is 100% highly liquid securities (listed stocks, Tsys., Agencies, and large co. inv. grade bonds) than book value is largely a fictional number.

On illiquid assets it's whatever the manager wants it be (within a reasonable margin).

If Buffet's portfolio is 50% illiquid, he can make a -5% year +5% anytime he wants to. Even "mark-to-market" valuations can easily vary 10 pts. on relatively illiquid securities.

This is true, although most of Berkshire's balance sheet is either liquid investments with quoted prices, or consolidated subsidiaries that are accounted for under GAAP. Those financials can be manipulated but it's not just a fund marking something at whatever price they want to (and unlike Madoff, Berkshire is audited by a real accounting firm).

If you have one investment that has positive returns between 5 and 50% and one that has a consistant 8-12% you are looking at 2 completely different things that should not be compared. Using Buffet as a way to justify Madoff not being found out is a weak arguement.

plus you see what Buffet is doing, what companies he was investing in, Madoff was trading inside a black box.

They could easily have earned 8% in the market over time, with merely mediocre investment management. But your contention that men who were already enormously wealthy, risked most of their fortunes with someone they were fairly sure was defrauding them, all for another 4% per year in hopes that they would die soon enough to leave the shambles to their sons.

You are arguing they simply didn't care about remaining wealthy for much longer, or staying out of court or jail, as long as they could conspire with Bernie to make him rich by allowing him to steal their money, they were fulfilled.

No one is arguing that, if you actually read some of the Picard stuff, it is clear that many of the marks running feeder funds or otherwise funneling other marks to Madoff thought that Madoff was stealing FOR then not from them.

No, I assume they did it to help their friends and show off how well-connected they were. They didn't do it for Bernie, they did it for his investors who they thought they were getting in on a secret 12% guaranteed annual return. Unless you think they are just unspeakably evil people, which I suppose is possible but you think it would manifest itself in other ways, too. Whereas as far as I know, nobody has accused them of fraud in their fund management business, nobody has accused them of being slumlords in their real estate investments, etc.

I agree with this many times over. I think a few people may misunderstand the way people in this strata work. Once you get up into the hundreds of millions or billions, it's a club. They're all in a million deals. Some of them are "secret". They do each other favors and compete with each other at the same time. Being able to tell someone "I can get you into Madoff" would be a big feather in your hat. Just having money isn't enough to get into these deals, you need to be vouched for as well. Being known as the guy who can get you into the biggest and best private fund in the world is a big deal. These things matter socially in that strata. And humans have a long-recognized tendency to believe in magic bullets, even when in retrospect it's so obvious. The Wilpons may have known or suspected or whatever there was something going on, but it's also just as possible they were heavily invested financially and emotionally and convinced themselves it was nothing as people are wont to do. Similarly in the way that a lot of people's hatred for what Wilpon's mess has done to a baseball team colors their perception of what level of criminal Wilpon "must" be.

And if these guys knew it was a Ponzi scheme, what were they doing asking Madoff to officially withdraw $50 million from their account? Our Ponzi-scheme co-conspirators know it doesn't work that way. Our co-conspirators go directly to Madoff personally and say they need something to tide them over. Or if they should have known from that point, although that's still a leap, there are still major emotional obstacles to "knowing" that. Access to Madoff is what made them special and unique - now it's all a fraud? No one wants to believe that. "It is difficult to get a man to understand something when his salary depends upon his not understanding it." Insert whatever you want for salary there - social status, emotional well-being, etc. People do it all the time.

How about the fact that on his statements Madoff would show transactions taking place on a date and at a price that never happened? I believe he also listed a trade in a Fidelity mutual fund on a date after which it had been renamed or closed. I agree that saying the Wilpon's knew it was a fraud is a stretch but saying they (and a lot of other people) should have known is completely fair.

We also should have known that thousands of Internet companies with no revenue were eventually going to bust out, or that millions of people buying houses with no money down and a resetting interest rate would lose their homes, or whatever the next crisis in five years is six months after it's been reduced to rubble. People should know things all the time but don't because they want to believe they're into something special and it's in their best short-term interests not to.