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“I made an accusation of front-running, which is profitable and non-correlated, but also illegal,” she testified. “And I said, if it wasn't that, I believed it was fiction. And to that he said, what do you mean by fiction? And I said, I don't believe the numbers are worth the paper they're printed on.”
According to Harrington, Katz grew angry in response, and ultimately rejected her arguments. She asked for a meeting with Madoff to address her concerns, but never received one. Once Peter Stamos informed her that Sterling Stamos would make the investment with Merkin, Harrington resigned. She did so, she says, directly in response to this decision: “If we forego the process, then we have lied to our investors and we haven't done the work we were hired to do and I will not do that,” she testified.
This is the heart of it.
Based on the section quoted by Shooty, Katz and the Wilpons cannot claim plausibly that they were unaware of possible fraud. According to Megdal, the defenses of Katz, the Wilpons, and the execs from Sterling are all of the "I don't recall at this time, Senator" variety. I guess that can be an effective legal defense, depending on the level of proof required in the case, but I'm convinced that by far the most likely narrative of events is that the Mets owners were aware that fraud was ongoing and turned a blind eye.
(This also explains why they stuck with him - they thought, as Harrington suggested, that Madoff was front-running, not providing wholly fraudulent returns.)
Jesus, even when they were "earning" returns on Madoff's investments, they were still strapped for cash? How do you not make money hand-over-fist in the New York market?
They sell a huge chunk of their tickets months in advance, they negotiate television rights years in advance. I would have thought MLB would have a more predictable revenue stream than most businesses.
My god.
Jose Bautista, Brett Lawrie, and Ricky Romero. They'll keep you entertained.
That's horrifying.
Speaking as a Jays fan, switching to the Jays because you're mad at a team's ownership is probably not the best of plans. There hasn't been any pyramid schemes that I know of, but I'd look into other teams before I threw my support behind a Rogers owned team.
Oh HELL no. When we make the playoffs out of pure surreality and weirdness you best not be crawling back around here with your tails between your legs. NOT ACCEPTABLE.
OK, that was more confrontational than I meant it. Really, I think it will be fun to root for a lost franchise. I mean, it's not like this is new. I'm simply looking forward to the season to start, even now.
Yup, I've been saying this from the beginning. The word among a lot of smart finance people has been this was the heart of the fraud. The big Madoff investors and funnelers thought they were in on the scam, as opposed to being its victims. That's why they were so eager to get their friends a piece of the action.
Rooting for a lost franchise is one thing.
Losing with a looted franchise is quite another.
I am rooting for the only victory that counts: the one by Irving Picard, against Fred Wilpon. He's got to overcome the nonsense that Judge Rakoff has put in his way, and once he's done that he's got to go up to the Second Circuit and win again to multiply the damages, and force the end of this.
That's the season to me. Game on.
Agreed and well stated... the very best scams are the ones where the victim thinks he's the guy pulling a fast one.
Go, Cubs, go
Go, Cubs, go
Hey, Chicago, what do you say
The Cubs are gonna win today
Sam, for your sake and that of the rest of the Mets' fans, I hope so too. Then Bud will have no choice but to strip them of the franchise.
I don't think they've been draining the team -- money comes back the other way when it's convenient -- but Rogers is very much the focus of the overall entity.
Oh, I'm always a Mets fan. And I still like most of the players we have.
Every year I emotionally give up on the team at some point, but I keep watching, and what that mostly means is that I get to immediately shrug off losses. Sometimes that doesn't happen until elimination. Sometimes it happens after Luis Castillo drops a pop up. And sometimes, like this year, it happens before opening day. But I still watch and have a pleasurable time doing so.
How I loved that show, at least for the first few seasons.
I'm signing this petition!
This needs to be a band name.
IOW, you can't con an honest man.
IIRC the returns were not ridiculously high; that there were never losses was the superdupersilly part.
No, they knew it was ########. But they also felt that these kinds of setups were their right as super rich people. They get to play the funnest games.
He ran one of the largest NASDAQ market makers out there, and they thought he was front running his clients. That means, you see a lot of but orders coming in, you buy for yourself in front of them, you see a lot of sells, you sell in front.
A limited amt. of front running is allowed for market makers to maintain an orderly market. But, if you do a lot of it, you can make a mint.
With that "strategy" you'll always make money. You're not investing at all. It would be no surprise that your returns are consistent.
Well, I think Justin is right in [35]. Rich and powerful people are entitled SOBs. The ancient Greeks nailed this syndrome; pure hubris.
You're welcome. No biggy.
I think you're being a little hard on the other victims. Part of the genius of Madoff was, for most of his "investors," the returns were relatively modest -- unrealistically consistent, especially in turbulent markets, but 10-11 percent, not Charles Ponzi double your money in 6 weeks. I can see how victims may have viewed themselves as taking a prudent, conservative investment -- especially in times like the dot com and real estate bubbles. Others are getting rich quick, but they are just plodding along making 11 percent a year.
The Wilpons, on the other hand, seem to have had more information.
This argument seems a bit self-serving, given that it's made by people who stand to benefit from it. Front running seems to be unethical.
That's how capitalism operates.
The idea that the Wilpons thought Madoff was front-running other clients is plausible, but there is another explanation that is equally so. Bias.
When Bernie "made" clients money for years, it's a natural human response for those clients to admire him, and support him, even to the point of getting angry when he is attacked. After all, what did she ever do for them, while Bernie Madoff had done so much?
Clearly the Wilpons didn't believe Madoff was a fraud, or their money would have been withdrawn. I find it hard to believe they would leave that much money with him if they thought it was illegal. I doubt they really thought he was front-running, I think they just thought he was a wonderful genius. It seems idiotic, but we are all susceptible to the same biases, we tend to trust those who do well by us, and have difficulty separating out luck from skill and often lose the skepticism needed to sniff out frauds when they are producing extraordinary results for us.
Choosing not to know isn't the same as not knowing. If my next door neighbor, a good friend, starts making unusual BBQ at the point that large numbers of neighborhood cats start disappearing, and refuses to tell me his recipe or even what kind of meat he's using, I have no complaint when I start coughing up hairballs.
Because everyone in that industry is a terrible person, lacking even a vestigial ability to feel shame?
jesus, you really are the worst
Of course you do. It isn't that hard to properly skin a cat. And I hear there are lots of different ways to do it.
I have not been actively employed in the industry for a few years, but in my former life I was involved in implementing compliance systems for brokerage, both as a vendor and in house.
Front running is not allowed. On the NY exchange it is strictly enforced and has been for years. NASDAQ is decentralized, and lacks the enforcement tools, so it's easy for an market maker to disguise front running since they are expected to take a "haircut" on the trade anyway (rather than charge a commission).
Personally, I wouldn't allow that defense in any case. Giving someone a defense because he had a "natural" desire to believe something is OK just because it's been so good for him undermines the law in pernicious ways. Red flags that create a "should have known" situation are supposed to count in the prosecution's favor, and suspiciously consistent, unrealistic profits are such a red flag. You would turn them into a basis on which the client would have reason to think the "broker" is a genius rather than a crook. And the client especially doesn't get to cling to the stars-in-my-eyes defense when somebody told him it's a scam.
As for whether the Wilpons would have taken their money out if they thought he was a crook, that's a nice theory, as to which there's a pretty obvious answer: they were too deeply enmeshed to exit. They had steered friends and employees to Madoff. They were utterly dependent on those reliable returns, essentially to keep the team running. In short, it's just an example of how hard it is for a co-conspirator to withdraw.
Exactly.
And, if you only think he is front-running, there is no need to. The profits may stop if he is found out, but the principal won't be lost.
I think what you're really saying is that the standard should be recklessness, not intent. Because if it's intent, they're entitled to that defense, no matter how stupid that makes them.
Not exactly. You can have the stupidity defense all you want, but in making it, you can't use as evidence the very things (e.g., ridiculously and impossibly consistent profits without a single month of losses over years) that were going on, which actually constitute the red flags that should have alerted the investor that something was up, and that is actually evidence they were willfully blind (the legal standard) to what was going on.
If Wilpon and Katz are able to cite obviously suspicious profits as a reason to believe they could and did trust and stick with Madoff, it would be like allowing someone who is charged with complicity to arson say they trusted the arsonist because she smelled of kerosene every time they met. Au contraire. That's a reason the prosecution gets to argue the conspirator should have known she was an arsonist, and if she didn't, was instead willfully blind to what was going on.
John Gutfreund was a smart guy, knew what Paul Mozer was doing was wrong, but lost his job and his career because he couldn't take the obvious actions, I think locked in by psychological bias created by the fact that Paul Mozer had made the firm a lot of money.
There is no one smarter than John Meriwether, yet he's blown up 3 huge funds in his career chasing unobtainable returns and using unrecognized levels of risk. And smart investors threw money at him because of how smart he was, and how good his returns were, until the inevitable implosion.
Why would you think a good friend would do something so horrible? Of course you wouldn't, you would prefer to remain happy, enjoying the BBQ and your friends company guilt free, until the evidence is overwhelming. That in a nutshell, is a standard type of psychological bias.
Oh, her credibility is the foundation of my "theory". It's her testimony that Saul Katz reacted in anger that shows the strong psychological bias that was influencing his actions. She was working for them to reduce their risk, why would you ever get angry at any of her conclusions? You either believe them or don't, and you make a decision based on the balance of facts you've been presented. You only get angry if you've developed an emotional attachment to the firm/person she is criticizing. And a natural one if Madoff's "returns" were so stellar.
Few people, no matter how smart or how much money they've made in other businesses, have any ability or even idea on how to judge the skill of an investor or the reasonableness of his returns. To them, before Bernie was unmasked, there was no difference between him and Warren Buffett. Academics confidently judged Buffett's returns to be nothing but a statistical aberration for decades before his ongoing performance finally (mostly) muted them. The doctors and lawyers who invested with Warren in the 1950s and 60s had nothing to judge him by other than his character, and his claimed returns. If you read interviews with Bernie's investors on how they regarded his character, it's stunningly, and queasily, familiar to how Buffett's long time investors regarded him.
It's pretty easy for people to say, Buffett was good and those pointy headed academics were wrong, what do they know? Just as it would be easy for the Wilpons and Katz to say, what does this woman know about Bernie? Bernie is a genius who can do what Wall Streeters can't, and they are deeply jealous of him! How much money has she ever made? They would probably heed her excellent advice with most investments because they could admit she knew better than them, but with Bernie, they would be too committed to this "wonderful and brilliant guy" to ever accept negative opinions without a mountain of evidence. If she wasn't so honest, and just wanted to cash their paychecks, she'd do what every smart underling does, and do her job on the other investments, and never say a bad word to her bosses about the golden investment they were emotionally in love with.
And note, I'm not presenting this theory as a legal defense. I don't think being under the sway of a fraud just because you were biased to like him is any kind of legal defense. I'm just explaining how natural their behavior actually is in many respects, and how you don't need an assumption of front-running to support it.
And so everyone understands the Buffett point, I'm not criticizing him either. The key difference between Warren Buffett and Bernie Madoff was that Warren always disclosed his methods, and philosophy, and his actually reported investments matched up with those. The only dissonance was whether you believed in the Strong theory of efficient markets, which would preclude his approach from generating those results other than by luck. I think Warren realized that given how outsized his returns were, and the naiveté of most investors, even his, that constantly writing about and discussing his approach would give them confidence and tools to measure him by. Which is why his investor letters, dating back to 1977 on the Berkshire site, are probably the greatest treasure trove of free investment education in history. I personally credit reading those letters with adding significantly to my returns.
And in them, Buffett constantly talks about psychological bias. Value investing is simple really, in concept and execution. The hard part, and what separates the best from the rest, is the ability to deal with psychological bias, such anchoring to bad decisions. His partner Charley Munger has always recommended the book "Influence" by CIaldini as one of the greatest investment books ever written, and it doesn't discuss investing at all. It's an exploration of the emotional reasons we make bad decisions, I see it every day in mine and others decisions, and I think very clearly it can provide a reasonable framework for explaining how Katz/Wilpons did not react to important negative information about Madoff in the way they logically should.
If you have hundreds of millions invested getting amazing returns that you are pretty sure are illegal in nature, you can't assume your principle is safe. First, by definition you have to be willing to leave all those funds with a guy who is cheating others, it's natural to wonder if and when he'll start cheating you. Secondly, when Elliot Spitzer or whoever is the current NY DA running for higher office) waltzes Bernie Madoff out of the building, he's not going allow you to slink in behind him and withdraw your principle. There will be "victims"! The DA is going to lock up your monies for a long time, and may need a big chunk for the "victims", and in a front running case will certainly contemplate pursuing the same legal strategies against participating investors as Picard is in the fraud case. Of course, the same sorts of bias that I'm talking about could easily lead the Wilpons and Katz to incorrectly lower their assessment of this risk. But I would believe this bias would be far less strong.
If they believe Bernie is a genius, they can love and defend the guy unconditionally. If they believed Bernie was a cheater, they would always have their guard up, and when bad news came over the transom they would be much less likely to discard it. Katz's reaction simply doesn't ring as true to me if he sincerely though Bernie was front-running (at the time of that meeting). If he knows Bernie is a cheater, he's not emotionally committed to him, so why should he get angry? Instead he should get concerned, if Noreen can so quickly and confidently deduce Bernie is front running, how soon will others know, and what risk does that put their funds at? It's possible he was angry because he realized they'd soon be losing the profits from Bernies front-running, but again, what steps did they take to mitigate that risk? My general understanding is that they kept their principle there for years upon years afterwards without taking out any significant amounts. So again, I'm skeptical they really believed it was likely Bernie front-running, though I'm sure they thought it was possible.
Well, the deal was to pay 8% on what they owed Bonilla, so you have to be thinking that you can get more than that for it to really make sense. OTOH, the prime rate was 8.5% in January of 2000. So it really isn't that much of a stretch to think that you could beat that.
Still a big stretch. Why did Bonilla accept the buyout?
You'd only be angry if it was emotional attachment? Really? You wouldn't react in anger because this consultant they've brought in is threatening to blow up the whole thing in your face? I think if you know you have a scam going on (either fictitious profits or being the beneficiary of front-running), the last thing you want is to be in this meeting, in which your whole plausible deniability defense is being blown to bits. After the meeting, in the car on the way back to wherever, Saul Katz says, "What the hell are you people thinking??? I can't be told that stuff! The point of this was to create the illusion of diversification -- back-door Madoff, through Merkin. Who brought in Elliott F'ing Ness???" I think Scamming Saul is at least as angry as Saint Saul.
First of all, she didn't yet have a reputation as a whistle-blower. That came later. Second, it's no coincidence that it was Katz who recommended Merkin who turned out to be just a front for Madoff, after a decision had supposedly been made to "diversify" Sterling holdings away from Madoff. There were some voices within Sterling who wanted to diversify away from Madoff, and Katz took steps to undermine that. So those same voices (presumably, the ones who set up Sterling Stamos in the first place), insisted on due diligence on Merkin -- bringing in Harrington. How does Katz react? He goes crazy. Because he doesn't want to diversify; he has a responsibility to Madoff (even if it has to be through this Merkin front) to keep funneling money into the pyramid and no "consultant" revealing the truth is going to get in his way.
Frankly, it doesn't matter whether I'm right that Katz -- and probably Wilpon, too, given their partnership -- knew very well what was going on before Harrington laid it out. Even if this came as a complete shock to Saul Katz, naif in the manger, once she raised the red flags, Katz couldn't any longer cling to his, "Oh, but I thought he was just a miracle worker!" nonsense. Having had warnings like that, he could only thereafter be willfully blind to what he'd been warned of. Unless she is totally destroyed on the witness stand, this goose is thoroughly roasted.
'Cause he knew he'd have just spent the $6M on hookers and blow?
You really missed your calling Sam. You should have been a screenwriter.
The prime rate is a short term rate, you can't use that to make a multi-decade commitment. I think 30 year treasuries were about 6.5% at that time, and that's the type of "risk free" rate you should use for decisions like this, since the risk free method to pay for it would be by investing in T Bills. Obviously Bobby wasn't going to settle for the "risk free" rate, and my guess is he (or his advisors) settled for something slightly higher than the long term AAA rates of the day.
This is supportive of their belief in Madoff, given they could have made a withdrawal from Bernie to pay off Bonilla, but chose this lengthy buyout instead. Bobby Bo was 2 years before Noreen warned them, and it took 6 years from her warning before his fraud was uncovered. If they really thought Madoff was doing anything risky they had a lot of time to gradually draw back on their principle, but as far as I understand didn't. This lends itself to the idea they believed Bernie was simply better and smarter than his critics could understand, and that they were smart guys for having found such a genius to invest for them.
Because he knew $26 million was more than $6 million? Even if you think inflation would be that much higher over the next ten years, that deal still smells of arrogance from the Mets.
She wasn't a consultant. She was their Chief investment Officer at the firm they created to help diversify their investments. You don't hire someone like that to carefully vet an investment that you are pretty sure is performing illegal acts. You don't form Sterling Stamos at all if you feel you have something to hide. You don't involve outside investors, or hire professional managers if you are involved in a scam.
And according to this article they had multiple warnings from multiple investment officers, yet kept 95% of their portfolio with Bernie. It's really hard to imagine they actively believed Bernie was a fraud or was front-running, yet invited sophisticated investment analysts to review what he was doing, and risk exposing the fraud earlier. It's also very hard to imagine they would keep 95% of their liquid assets under his control if he could be raided at any moment and those assets frozen for years, stolen, or lost in fines/penalties from civil lawsuits.
It is believable that they felt genius Bernie was just misunderstood by lessor mortals, and would get angry when those idiots didn't understand or appreciate how wonderful he was.
I don't think anyone is saying to give the Wilpons and Katz a pass in court. Clearly they had multiple warnings and the courts will rule according to the law, what they knew and their responsibilities based on what they knew. That's not my point at all, at least. The courts won't and shouldn't care how much the Wilpons and Katz loved Bernie and how it screwed up their judgment.
But you are missing how strong a role emotions play in decisions, and how someone like the Wilpons and Katz could easily want to believe in Bernie, and how it could easily have lead them to make these horribly dumb misjudgments.
But VA, why do you credit the stated motivation in creating Sterling Stamos that it was "trying to diversify their investments" when what they actually did was simply funnel money back to Madoff, just as they were doing with their other companies? As I see it, there are only two explanations. One is that it was simply part of the scam -- helpful to their interests by giving them the ability to say they weren't all-in with Madoff if anyone asked ("See? Like any other responsible, prudent investor, we have a diverse portfolio. Just look at what Sterling Stamos is doing."), so long as they didn't look too closely at what Merkin was doing. But still actually serving the overall conspiracy by making sure every penny was poured into the Madoff pyramid.
The second possibility is that some voices inside Sterling genuinely wanted to diversify, either because that's just a good idea, or because they suspected the Madoff fraud and wanted to get out from under it. So that would make the creation of Sterling Stamos legit from the outset, but something that Saul Katz was in no position to allow to actually happen. Because his job was to make sure every dollar invested by Sterling went to Madoff, one way or another. That's why he was so determined that Merkin get the money, and so angry when Harrington checked it out and said, "No way. This doesn't pass the smell test."
So in the end, Sterling Stamos (even if some folks within Sterling wanted it to be something legit) just ended up becoming another prop in the scam. Katz saw to that, leading to Harrington's resignation. I hardly think it is evidence they had nothing to hide. What actually went on there is part of what they hid, and part of the scam.
Maybe I'm misunderstanding you, but this sounds to me like quintessentially the kind of thing you have to give to the jury to decide -- whose interpretation of the facts make the most sense. On what legal basis would you deny a defendant the right to argue for his (rather unbelievable, but not nonsensical) version of the facts?
I won't disagree about the existence and influence of mental fallacies and denial as a defense against acknowledging unpleasant facts, but as real estate investors, Wilpon and Katz were not exactly naive about the management and performance investment assets. It's not as if they had a ton of earned income like a rock star, dentist or baseball player, and no idea how to invest it.
Regardless of other investors having large gains over long spans of time, there were many other red flags about Madoff, most notably IMO the absence of volatility. Madoff's returns were reported as unusually consistent: 10-12% paid to investors annually (with some additional percentage paid to feeder fund managers). By way of contrast, Buffett's returns were nowhere near as consistent over the time period we have "data" about Madoff's "returns."
Using Yahoo data, here are the annual returns--including dividends--for Berkshire Hathaway Inc. Common (BRK-A) from 1990-2007:
Impressive returns by Buffett, but highly volatile nonetheless. The monthly volatility is also pronounced. IMO it's hard, if not impossible, to say one could plausibly rationalize Madoff's performance using Buffett's performance. That boils down to greed, plain and simple, bolstered by the notion mentioned above that Madoff's investors thought they were his accomplices when in fact they were his victims. That's what con men take advantage of.
More on Madoff red flags, from wikipedia:
(emphasis added)
From the 2001 MARHedge report:
From 1990 through February 2001, I figure Buffett had losses in 48 of 134 months, all but one greater than 55 basis points. For Buffett over that period, the longest streak of consecutive gaining months was 13, far smaller than Madoff's claimed 72.
Continuing from the 2001 MARHedge report:
(emphasis added)
I am going to start recording every conversation I have with everyone.
This doesn't necessarily follow. It is also possible that those involved did not believe it was fraudulent, despite the evidence. This is a very common psychological phenomenon among those who have been duped...their brains simply won't allow them to believe that they have been fooled, so they form cognitive dissonance around it. We see this time and time again where, even long after the con artist has been caught and locked up, the people who he victimized refuse to believe that they have been conned. It's essentially "If he's scamming us, then I've fallen for a con. I am too smart to fall for a con, therefore he's not scamming us."
It's not necessary for these individuals to be complicit, they may have just been stupid.
Stamos, who is generally regarded as a clean player in this, also disputes that Harrington warned Katz that Madoff was a scam. Based on what I can discern from the reporting on the matter, the only other two people at the meeting in question deny that Harrington said what she claims she said. I think that places her testimony in serious question.
Well, one of them (Katz) simply says he doesn't remember the meeting at all. His testimony doesn't refute anything, and you could even argue that his credibility is harmed by the claim not to recall. As for Stamos, also has a pretty good incentive to minimize the strength, clarity, and specificity of the warnings Harrington gave -- since he basically ignored them (much to the detriment of everyone concerned).
I will be very curious to hear Stamos' explanation of how and why a fund that was supposedly set up to diversify Sterling's holdings away from Maddoff ended up investing its assets . . . in Madoff. Did Katz dictate that? Will Stamos say he didn't know it was really a Madoff front? If he says that, it creates real problems for his credibility. If he says he knew, it undermines the claim the whole point of Sterling Stamos was diversification. And if that wasn't the reason for its creation, what was the real reason -- to create the (false) impression that Sterling was invested more widely than it was? In whose eyes? For what reason? Why would they want the impression of a diverse investment strategy, but not actually pursue it?
We know Harrington did resign, in the wake of the decision to invest with Merkin. That is certainly consistent with her story. If I had to bet on who is going to get battered on the stand, it's going to be the guy who can't even remember, and the guy whose story about the reason for the existence of the fund when it was created simply makes no sense in light of what actually happened.
the most interesting news to me is that the partners sought to increase their exposure to madoff by using their balances with him as collateral for loans and investing the proceeds of those loans with him. there's no way they would have done that if they believed his fund to be a ponzi scheme. so either they thought he was crooked and wanted in, or they thought he was magic and wanted in. either way, they were wrong.
edit: well, i suppose he was crooked, just not in the way (front-running) they might have thought.
[hastily scribbles new business plan on cocktail napkin]
edit: coke to Kyle
Note - I don't think this is an adequate defense. But I do believe it could have happened that way.
But isn't this a case where, legally, either both have to be true or neither? I thought the latest rulings in the case revolved around the idea that Picard could only recover the bigger damages if he could prove Wilpon & Co. knew it was a fraud, not merely that they should have known.
I have absolutely no idea. I was simply commenting on the likelihood of someone being delusional about what someone who isn't them would consider obvious.
No, all that needs to be shown is that they should have known for Picard to get a greater judgement.
Interesting. I thought the Wilpons scored a victory last year by having the standard raised to "knew" instead of "should have known."
[37]
The relevant fallacy is "appeal to authority."
It's a victory, but a very short term one. It'll be overturned on appeal. The Wilpons are trying to buy time in the hope that they can do something to save the Mets, but they'll probably fail to do so.
You mean their fortune? Because it seems to me that they don't really care about the Mets.
Somewhere in between. Picard doesn't have to show they knew, but he has to know more than that they were merely negligent in not knowing (which is what a "should have known" standard entails). He will have to show that the signs/indications/circumstances were such that they were willfully blind to the knowledge of what was going on -- essentially, that they endeavored NOT to know. When I teach that standard in criminal law, I use a case involving a drug courier, where the facts were that there was a big load of drugs in the trunk of the car he was driving back from Mexico into the U.S. -- but he didn't actually know what was in the trunk, or technically that there was anything in the trunk. They made sure that the drivers didn't actually know. So the issue in the case is what to the tell the jury about the required state of his "knowledge," and what the prosecution must show. It's not enough under a willful blindness test that he "should have known." For willful blindness, the prosecution has to show some consciousness on the part of the defendant that there was something amiss, which they were endeavoring to blind themselves to -- otherwise there would be nothing "willful" about the ignorance. It's not the same as knowledge of the actual fraud (or drug running), since if it were, that would pretty much destroy the "blindness" part. But it does require "knowledge" or awareness of something (that's what the red flags are for) that allows the jury to conclude there was a conscious effort to avoid acquiring the ultimate knowledge.
Is it kind of like the counterpart to "plausible deny-ability", or at least how it is used in pop culture? "Solve the Jimmy problem. No, I don't want to know the details, just make sure he doesn't talk to the Feds." Then Jimmy turns up in the east river.
IF anything, could it not be shown that hiring this woman as their CIO was their attempt to acquire the knowledge? They didn't listen to her of course, but they attempted to have a meeting with Madoff and their CIO continued to investigate until she resigned. That's at least something of a sign that they didn't just bury their heads in the sand.
Based on what I have read, I think you're off on Stamos. My impression of the reporting was that he had a small portion of his personal investments in a Madoff feeder fund, but I don't think his fund was invested. In any case, Sterling Stamos had very little, if not no, exposure to Madoff. The fund is still alive and thriving. They don't really have any explaining to do to anybody. The notion that the fund was some kind of front is just not accurate.
Who's the "they" in those sentences? If I'm Picard, what I try to prove is that the "they" who hired Harrington ended up not being the "they" who ended up being the important decision-makers responsible for investing in -- and continuing to invest with -- Madoff. In other words, that if Stamos wanted to do due diligence (let's say billyshears' take on this in # 97 is right) and keep Sterling Stamos (relatively) clean, minimizing even if not eliminating Madoff ties, that worked at cross-purposes with what Katz and Wilpon wanted for the rest of Sterling. That would be why Katz was so angry to hear not only that she had objections to Merkin (bad enough), but that they were Madoff-based (much worse), because that would have constituted a basis not only for the advice she was giving on Sterling Stamos, but a basis on which Katz could no longer either:
1) cling to his delusion that Madoff was a genius (for those of you who think this psychological denial mechanism was at play), or
2) have plausible deniability about the fraud that was being perpetrated.
Even if Sterling Stamos wasn't a front for Madoff (I'd certainly like to know what percentage of its investments, at least at the start, were with Merkin), that ultimately isn't important. What is important is what the jury believes about what Harrington said. If she is credible, it really won't matter whether, prior to that meeting, Katz and Wilpon were living in a dream world or not. (I happen to think that theory is ludicrous, but that's just me -- obviously several of you guys buy it, so it's quite possible a jury might, too, and Picard better realize that.) After that, if the jury believes Katz heard what Harrington said, he'll have had enough "knowledge" to trigger willful blindness if he kept living in that dream world in which he kept denying the truth. After all, you can live in a dream world by being willfully blind to the truth, you know.
(emphasis added)
Well, OK, but the allegation seems to be that they invested with Merkin, which is alleged to have been just a funnel for Madoff. Of course, both of those things have to be proved: how much (if any) did Sterling Stamos invest with Merkin, and was Merkin really just funnel everything (or nearly everything) to Madoff?
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