The string of allegations about the deep, intertwined connections between the New York Mets and Bernie Madoff’s $65 billion fraud revealed in last week’s lawsuit makes one shudder. The team and the individuals who own and run the baseball team, namely the Wilpon family, had hundreds of accounts with Madoff, allegedly pulling out $300 million in profits over 25 years from the Ponzi scheme.
The trustee, Irving Picard, wants that money back. Hence the lawsuit, which claims the Wilpons and their business partners, as sophisticated investors, should have known about the fraud; or they simply chose to look the other way when it came to Madoff’s implausible investment returns.
On top of paying back the $300 million, the Wilpons potentially face paying hundreds of millions in damages beyond those alleged profits.
But the trustee’s lawsuit goes far beyond the details of one group’s connections and business dealings with Madoff. The suit reveals engrossing details about the horrifying way Wall Street conducts itself, and paints in neon the fantastic disregard Wall Street has for the mainstream investor.
It is becoming more apparent that Wall Street knew about Madoff’s scam, but ignored any moral or ethical responsibility to do anything about it. In this instance, Merrill Lynch (MNL) was apparently aware of Madoff’s dirty dealings, but sat on the knowledge instead of alerting the Justice Department or the Securities and Exchange Commission about the fraud.
When it came to investing with Madoff, Merrill Lynch, it appears, had a huge red stop sign it flashed, but only to clients.
Merrill Lynch acquired a 50% non-controlling stake of a hedge fund owned by the Wilpons and their business associates in 2007.
The hedge fund, called Sterling Stamos, had previously warned Mets executives about investing with Madoff, according to the suit. And then, after the acquisition, Merrill Lynch repeated those same warnings to Mets executives on several occasions. For, you see, Madoff would not pass Merrill Lynch’s due diligence protocols, the lawsuit alleges.
Ivy Asset Management also had strong suspicions of fraud or illegality about Madoff and told Mets executives about their concerns, according to the lawsuit.
Last year, then New York Attorney General Andrew Cuomo sued Ivy Asset Management and two of its former senior officers, claiming the men learned “disturbing facts” about Madoff’s investment firm but “hid the truth” from clients to whom they recommended Mr. Madoff, according to the Wall Street Journal.
And on and on and on.
We can make no judgment about the Wilpons or other investors who may have profited from the scam. Only in their hearts do those Madoff investors know the truth. (The Wilpons claim they have seen paper losses from their phantom investment of $500 million.)
But the fact that the biggest, most important firm on Wall Street, Merrill Lynch, along with other investment professionals, had suspicions of Madoff and never made a peep is disturbing, if not dumbfounding. The members of the exclusive, elite club of Wall Street insiders knew something was rotten, and did nothing about it except protect their own clients. For warning their clients, they should be commended. For allegedly allowing a fraud to continue, they should be ashamed.