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Friday, February 4, 2011

A New Bernie on the NY Sports Pages - A Mad(off)dening ERISA Development for Mets Fans

[Thanks to my dear friend, eagle-eye Mike S., for alerting me to the story discussed below.]

Maybe not since the J. Geils Band case have we seen a sports/entertainment ERISA litigation with as much substantive meat on the bones as the Wilpon 401(k) litigation reported in today's issue of the New York Times. (Well, speaking of meat, there was the interesting Michael Vick case, but that never really developed into authority.) As any long-suffering fan of the Mets (guilty!) knows, there is the well-aired theory that the Mets' recent woes are not wholly unrelated to the Madoff debacle, as a result of investments by the Wilpons with Madoff, including as a result of issues stemming from the efforts by the trustee for the Madoff victims to recover various amounts from the Wilpons.

Now, reports The New York Times, there's an ERISA case! From the story:

But the trustee's lawsuit, it turns out, is not the only one to accuse the Mets' owners of failing to meaningfully investigate Madoff.

Elyse S. Goldweber, the widow of a former employee of Wilpon's and Katz's corporate holding company, Sterling Equities Associates, has charged in a federal lawsuit in New York that the company, Wilpon and two other officers breached their fiduciary duties by offering employees the chance to invest their 401(k) plan with Madoff. By the time Madoff's scam had been uncovered, about 92 percent of the 401(k) plan had been invested with his fraudulent firm, all of it lost. Goldweber had $280,420 invested in her husband's 401(k), and it was wiped out, the lawsuit says.


Next we get actual, gen-yoo-ine ERISA quotes:

The lawsuit says that Sterling officers, as overseers of the retirement plan, were required to use "care, skill, prudence and diligence" in administering it, and to diversify investments "to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so." But Goldweber's lawsuit contends that the officers - two of whom, the suit noted, were certified public accountants - fell far short of honoring that obligation.

Continuing on, the article identifies facts raising complex ERISA issues:

The lawsuit, which was filed last summer and covers about an eight-year period starting in 2000, cites example after example of instances in which other individuals and institutions over the years raised alarms about Madoff and his firm, Bernard L. Madoff Investment Securities, LLC.

Moreover, the Goldweber lawsuit noted that Madoff and his wife were investors in Wilpon's and Katz's real estate business at the same time Sterling Equities was offering his firm as an option in the retirement plan - something the suit says was never disclosed to employees.

"These reciprocal investments, and the close personal relationship between" the Madoffs "and the Wilpons created a conflict of interest so great that investing with Madoff should never have been an option for a 401(k) participant and likely caused defendants to purposely turn a blind eye to these red flags," the lawsuit contends.


And then come outlines of certain defenses one might expect to see in cases like this:

In interviews this week with other newspapers, Wilpon's lawyers have insisted it is simply unfair to blame Wilpon and others at Sterling for failing to uncover a scheme that government regulators and others missed for decades. The list of Madoff victims includes scores of savvy investors who evidently never suspected anything was amiss, despite the years of extraordinarily steady, profitable returns on their investments.

And what case involving 401(k) plans would be complete without (i) the selection/monitoring hot-button (finally now manifesting itself in regulatory language, after a history of the development of DOL litigation positions, in the recently issued 29 C.F.R. §§ 2550.404a-5(f), 2550.404c-1(d)(2)(iv)), and (ii) a foray into the land of self-dealing? So we get:

But the 51-page lawsuit filed for Goldweber asserted that senior executives at Sterling charged with administering the retirement plan - Wilpon, Arthur Friedman and Michael Katz - "failed to conduct adequate due diligence that would have alerted an investor that Madoff's 'investment strategy' was really a massive Ponzi scheme."

And the suit cited the findings of a government inquiry into the performance of the Securities and Exchange Commission, the agency that had chief oversight responsibility. The inquiry, done by the agency's inspector general, faulted the S.E.C. for missing repeated and obvious signs of trouble, but in doing so, it noted that any number of private investors or investment entities over the years had themselves come to regard Madoff's operation as suspect.

. . . .

The lawsuit contended that Sterling officers were not only negligent, but also conflicted. Madoff was an investor with Wilpon and Katz, as was his wife, Ruth. Over the years, Madoff and his wife have put millions of dollars into various Sterling entities. . . .

Picard has asserted in court papers there was no evidence that Madoff ever got anything in return for his investments in Sterling.

The lawsuit lists an array of reasons why Madoff's secretive operation might have raised curiosity or concerns.


I mean, there are some pretty intense ERISA issues here, ranging from detailed 404(a) and (c) issues to quite interesting issues under 406(b). And it looks like it may play out in none other than the sports pages!! This one might be worth watching with interest - and I guess you don't have to be an ERISA lawyer to think so.

P.S.: Go Jets! (That's right! - I NEVER give up!!)

1 comment:

xtremErisa - said...

Further to this post, did anyone notice that the NY Daily News' major two-page report on the Madoff's trustee suit against the SEC's chief attorney, which was also referenced on the front page, appeared in the . . . sports pages?!? (And it was written exclusively by sports writers.) I dunno, but I thought this was pretty funny.