Don’t worry about investing in a Ponzi scheme as long as you are smart or lucky enough to recoup your money before the whole thing falls apart. That is the upshot of U.S. District Judge Jed Rakoff’s decision to significantly limit the amount of money trustee Irving Picard can seek from New York Mets owner Fred Wilpon.
It’s a huge decision. Because a professional sports franchise is involved (and I’m using the term “professional” very loosely when talking about the Mets), how this impacts Wilpon and the team on the field will dominate most of the headlines and discussions about the ruling.
But make no mistake, Judge Rakoff’s ruling will have a major effect on how much money is ever recovered for victims of Madoff’s shenanigans, and could have an effect on the future liability for all investors in Ponzi schemes….
The Wall Street Journal reports on the ruling:
The decision by U.S. District Judge Jed Rakoff limited—though didn’t eliminate—possible financial ramifications from the epic Ponzi scheme for one of Major League Baseball’s most valuable franchises.
Beyond making it harder for trustee Irving Picard to recover the owners’ principal investment in the Ponzi scheme, the ruling indicated that he would only be able to take back money withdrawn in the last two years of the fraud, a decision that could also benefit others against whom he had launched so-called clawback suits.
So let me get this straight: if somebody comes to me with an investment opportunity that sounds too good to be true, and I am either too stupid or too lazy to do my homework, I can make as much as I can during the early years of the scheme, with the only risk being that I might have to pay back some profits near the end when the whole thing crumbles? That’s the law now?
Where do I sign up? Seriously, what a wonderful country where my own ignorance allows me to hang onto millions of fraudulently obtained dollars, so long as I was an early adopter of the scheme in the first place.
Mr. Picard would have to meet a high standard of proof to seize any of the Mets owners’ principal investment—showing that the owners were “willfully blind” to signs of the fraud and ignored red flags that would have uncovered it had they investigated, the judge said.
Lawyers not involved in the Mets lawsuit said Tuesday evening that could be a very difficult burden for the trustee to meet. “Judge Rakoff’s decision is a significant step in the process of properly protecting innocent Madoff victims from the trustee’s overreaching clawback efforts,” said David Bernfeld, a lawyer who represents Madoff investors.
Martin J. Bienenstock, a bankruptcy lawyer at Dewey & LeBoeuf LLP, said it appeared from the ruling that Judge Rakoff appeared skeptical about the validity of Mr. Picard’s willful blindness claims and called it “very remote” that he could recover the principal.
“[Why] would defendants willfully blind themselves to the fact that they had invested in a fraudulent enterprise?” Judge Rakoff wrote. The judge said that Mr. Picard had a made a “less than overwhelming” but sufficient case to continue with those allegations.
You know who seems willfully blind here? Judge Rakoff. He seems willfully blind to the possibility that having plausible deniability of your investments in a Ponzi scheme can make you a TON of money if you time it right.
But hey, this is America. It’s not what you know, it’s when you know it — and whether you know when it’s more profitable to not know anything at all.
Judge Throws Curve in Mets-Madoff Case [Wall Street Journal]