Mets’ Owners “Win” Court Settlement

The Wilpons and Madoff trustee Irving Picard reached a settlement today. Though both sides might try to spin the case as a win, it’s the Wilpons that should be happier about how this case came to an end.

Irving Picard might choose to focus on the fact that the settlement required of the Wilpons that they pay $162 million to his clients, those that lost money in Bernie Madoff’s Ponzy scheme. It’s true that this $162 million number is impressive in some ways. It’s almost twice the $83 million that Judge Jed Rakoff basically guaranteed the trustee in his first landmark ruling in the case. It also represents the profits that the Wilpons’ many Madoff accounts made in a six-year window — settling the debate about two- and six-year windows that has been prevalent in this clawback case.

But it’s still an almost un-mitigated win for the Wilpons.

For one, they don’t have to begin paying the settlement for three years. That’s important to an ownership that has massive debt on the team, stadium, and television station coming to term in the next two years. They get a little grace period, and a little breather room that they can spend convincing investors that their ownership is sound.

More important, however, is the revelation that the Wilpons can now join the line of Madoff claimants. Not only did they make $162 million in net-winner accounts with the Madoffs, but they are also claiming $178 in losses on their net-loser accounts.

Why didn’t the Wilpons and the trustee just offset those two numbers to begin with? Well, because it’s been Picard’s stance that you have to pay for net winner accounts first and then get in line for net loser accounts. That publicly held stance has been cemented by this settlement, which will help Picard with future negotations, but it also means that the Mets’ owners could end up cancelling out much of their debt to the trustee’s fund.

How much? According to bankruptcy expert Douglas Furth, probably more than half. In my conversation with Furth today, the partner at a bankruptcy specialist expounded on the possible future return on the Wilpons’ $178 debt claim:

[Furth] points out that “net loser claims today are trending somewhat north of 50 cents on the dollar” in public markets — which means that “people who have studied this closer think that this is a good investment.” Someone paying more than fifty cents on the dollar for a Wilpon claim in 2012 believes that, by the time he is able to cash in that claim, that debt will return him enough money to make an investment of present-day cash make sense.

If the Mets’ owners do indeed get more than half of their losses returned to them, they might manage to lose less than nine figures in the Madoff mess. They still have massive debts coming to term on the ballpark, team and television network over the next three years. Mets ownership is not out of the woods yet.




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Graphs: Baseball, Roto, Beer, brats (OK, no graphs for that...yet), repeat. Follow him on Twitter @enosarris.


40 Responses to “Mets’ Owners “Win” Court Settlement”

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  1. sturock says:

    I’m a Met fan. Why can’t these owners just go away? Why do I have the sinking feeling that they will be in charge for at least the rest of my lifetime? And I’m not going to feel any better about them should this team *ever* get good again.

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    • vivalajeter says:

      sturock, leading up to the Madoff fiasco, the Mets had the highest payroll in the NL over the prior decade. It wasn’t well spent, but they spent money that would make most fans jealous. As far as getting new owners, be careful what you wish for.

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      • Joey says:

        vivalajeter, the reason that they had that giant payroll was because of the Madoff money. They were building Madoff profits directly into their contracts with players. Diverting money to the back end of contracts with interest because if they diverted a player’s money to the end of the contract at 3% for the player they would make an extra 7% off of that money. Madoff would guarantee them 10% return so even if they promised a player 5% more money in the long run it would actually make the Mets 5% as well.

        It’s insane that the Mets aren’t being controlled by Major League Baseball. The Dodgers weren’t run as poorly as the Mets and MLB essentially forced that outfit to change entirely. But the Mets get loans from the MLB and a free pass for being active participants in a major Ponzi scheme.

        The Mets were encouraging all of their employees to invest in Madoff. Not just players but staff as well. The Mets knew that Madoff would get those employees 10% no matter what on any invested money.

        How can you run an MLB team and not realize that 10% returns NO MATTER WHAT happens in the market is suspect? They didn’t have any idea that Madoff was running a game? They didn’t once ask Madoff what stocks and businesses he was investing in?

        Ridiculous.

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      • caseyB says:

        “The Dodgers weren’t run as poorly as the Mets”

        LMAO. Are you joking? McCourt used Dodger money to buy multiple multi-million dollar homes across the country and put his sons on the payroll even though they were in school at the time! There are countless other financial infractions by McCourt too.

        McCourt intentionally misused Dodger money. No one has ever alleged the Mets owners of misusing team money in such a manner. That’s a huge difference.

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      • caseyB says:

        Oh wait. This may be the biggest difference of all — McCourt had to file for bankruptcy to make payroll. The Mets owners never had to do that.

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      • Matt says:

        Off the field? One could argue the Bobby Bonilla deal was as egregious as McCourt’s houses, but that;s entirely debatable. On the field? I’d take my chances with McCourt. He seemed to realize that he had no idea how to run a team. The Wilpons think they know what they’re doing, and every decision they make is either wrong or misguided. Their track record is long and not good, even if you throw out the whole Madoff affair and the last two seasons entirely.

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      • caseyB says:

        There was absolutely nothing wrong with what the Mets owners did with Bonilla’s contract. Plenty of teams defer player money. What was wrong was that Madoff was scamming them at the time, something they didn’t know then.

        Again, McCourt’s misuse of Dodger money was fully intentional. And you admit he knows nothing about baseball. Yet you prefer him as an owner over the Wilpons? That’s your choice, but I wouldn’t want that crook anywhere near my team.

        As for current Mets management, I disagree with your assessment. I think Alderson is a capable GM, and his trade for Wheeler last season was one of the best trades in recent Mets history. So I have no issue with how the team is currently run, except I’d like to see the payroll raised some in the near future.

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      • Matt says:

        There was everything wrong with the Bonilla contract. The Wilpons thought they could make all of that money back using Madoff returns, which they assumed would be constant. That is wrong, period. I do think Alderson is a good GM as the Wheeler deal shows, but I doubt he has the autonomy for his team to ever be fully built. And yes, if I’m going to have a crook for an owner (and our owner just admitted by way of $162m that he is a crook), I’d rather have one who doesn’t think he knows how to run a baseball team. Because the Wilpons have proven, one Victor Zambrano trade at a time, that they have no idea how to make a good baseball decision.

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      • caseyB says:

        On Bonilla, we’ll have to agree to disagree. There was absolutely nothing wrong with how the Mets did that contract at that time. It was not only legal, it was within the rules of baseball at the time. What do you think other teams do with deferred contracts? They also invest the money.

        As far as Alderson goes, I have no doubt he has the autonomy. What I think he lacks is the financial leeway to do everything he wants.

        And you are absolutely wrong about what the agreement today represents. The total amount of the agreement represents a clawback of net profits — using a formula that applies to every single one of Madoff’s investors who had a net profit over the 6-year lookback period. Meanwhile Picard dropped any claim that the Mets owners were “willfully blind” or “should have known” about the scam. The Mets owners were fully exonerated of any wrongdoing by the agreement today. In fact, they may get money back in the end.

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      • vivalajeter says:

        Matt, regarding Bonilla, there are several factors that should be mentioned:

        1) They agreed to the deal in 1999. It’s easy to forget, but at the time the stock market was on one of the best bull markets of all-time. There was nothing but optimism, so the thought of getting 8% or 10% per year was pretty easy to fathom.

        2) They didn’t make the first payment to Bonilla for over a decade. I think the break-even rate was something around 5% (meaning, as long as they can invest that money for more than a 5% return, they’d be fine).

        3) By making the deal, it freed up salary for the Hampton trade. They likely would not have made it to the World Series without Hampton.

        4) When Hampton left, they received a compensation draft pick, which turned out to be David Wright.

        As much as people like to make fun of his annual $1MM payments, it wasn’t a bad move at the time, and considering Hampton/Wright, it might have worked out best in the long-run too.

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      • DD says:

        Matt, how can you give Alderson credit for the Wheeler trade, but give the Wilpons, and not Steve Phillips, the blame for Zambrano?

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      • Matt says:

        I give Alderson credit for the Wheeler deal because all he was directed to do was trade beltran, the rest he did on his own. The Zambrano deal was 100% ownership (see Adam Rubin’s reporting on the subject, widely googleable, or read the account of it in Keri’s “The Extra %2″), and was done even after the medical staff wanted to void the deal because they were certain they could “fix” him. They wanted to flex their muscles. They are bad decision makers and bad for baseball, and I fail to see how anybody can argue otherwise.

        Seriously, somebody give me one positive contribution the Wilpons have made to baseball, on a local or national level. The ballpark? I’d rather be at Shea. At least it’s our ball park, and not one made for a franchise that left long before I was born.

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      • caseyB says:

        Matt, yes it’s true the Wilpons were mostly responsible for Zambrano, but here’s what you’re forgetting — there was an interim GM in place at the time, Duquette. So you can almost understand their involvement in that instance. Apart from Zambrano, the Wilpons have had very little to do with baseball decisions. More precisely, they don’t make baseball decisions any more than the average MLB owner does. Their fault has been in hiring poor executives to run their baseball operations. Omar and Bernazard, for example, were wrong for the Mets.

        As for them being bad for baseball, huh? How do you figure this? Also, what the heck do you mean by questioning what positive contribution to the game they’ve made? What positive contribution to the game has any other single owner made to the game? That is a really weird question and argument to try to make.

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  2. vivalajeter says:

    I’ve seen a few different sources mention that they might get 50% or 60% back on their losses. Does anybody know how this is possible? I thought there were billions upon billions of dollars of ‘fake’ money in Madoff’s funds. How can half of it be recovered? Where’s the money coming from?

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    • caseyB says:

      Picard has already gotten back about 8 billion from a single Madoff investor, Picower, who was Madoff’s biggest beneficiary. The bulk of the recovered money so far has come from that single investor.

      In addition, Picard has hundreds of ongoing clawback suits going on. The one against the Mets owners was just the most notorious of them.

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      • vivalajeter says:

        casey, I think the other issue is ‘losses’ instead of ‘fictitious profits’, which I hadn’t thought about.

        Let’s say you invest a million bucks with Madoff, and your last statement (before the poop hit the fan) said you had $5MM in the account. When you get 50% back, that’s just 50% of your original investment, so you get back $500K. The other $4MM in profit vanishes like a fart in the wind.

        Does it seem like I’m thinking about it the right way?

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      • caseyB says:

        Sorry, I guess I don’t understand what you’re asking about.

        As I understand it, whatever formula Picard uses to come to an agreement with an individual investor, it is fine. Picower’s widow agreed to cough up nearly 8 billion in profits that her husband had earned over many many years (longer than the 6-year lookback period used in court).

        However, if Picard has to sue the investor and it goes to court, then recovery is limited by certain laws — ie, a max of 6 years and possibly as little as 2 years for recovery of net profits.

        Regardless how Picard recovers the money, it is all put into a pool and divided amongst the net losers. As I understand it (and I could be wrong here), net losers are determined over the life of a Madoff investment and per account, not per investor. Does this help any?

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      • vivalajeter says:

        casey, here’s my disconnect. People talk about this as if it’s one of the biggest financial fiasco’s of all-time. If that’s the case, I’d expect people to get pennies on the dollar (if they’re lucky), rather than 50 cents on the dollar. Granted, I’m not the one losing millions – but if people get half their money back, it’s not as bad as people are making it out to be. I read stories about how the small-time investors “lost everything”. That doesn’t seem to be the case.

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      • caseyB says:

        People are only getting back a portion of their principal. What they lost was years of net gains (on paper). So in that sense it was a huge scam.

        When they say some are getting back 70 or 75% of their investment, they mean their initial investment or principal. Not the gains. So the Wilpons will still have lost hundreds of millions under Madoff (in terms of gains). Even if they will be getting back some of their initial principal from some of their accounts.

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      • vivalajeter says:

        Yeah, I agree with you on that. That’s what I was referring to in the example above (about getting back $500K rather than 50% of the $4MM profit). I just wasn’t able to word it as well as you just did :)

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  3. caseyB says:

    I think this was a huge win for the Mets owners. Sure they still have some debts, but their biggest potential liability has now been removed.

    As a Mets fan, I’m also pretty happy with the outcome. Now Wilpon and Katz can concentrate on the product on the field rather than proceedings in the courtroom which have overshadowed their life for the last year. I feel it was also a just outcome as it was a huge stretch and pretty ludicrous to think that Fred Wilpon would put his buddy Koufax at risk by recommending he invest with someone he thought was a con man. That never made sense, and justice has prevailed.

    I feel the team is generally in good hands with Alderson, and hopefully today’s events will lead to a higher cash infusion into the payroll in the near future.

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    • Richie says:

      Baseball Prospectus had an excellent article on this. Just about all Madoff’s investors thought he was gaming the system based on insider information they figured he had access to. So yeah, they knew he was a con man. They just mis-figured they were on the right side of it this time around.

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    • caseyB says:

      Link? I don’t believe it. There has never been any mainstream article claiming that “about all of Madoff’s investors” thought he was engaging in insider trading.

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      • crunchyinOR says:

        What the BP article talks about is Madoff ‘front-running’ – trading on the patterns visible in his legit trading house. Lots of dough coming in because people figured correctly he was essentially skimming because he could. It was a separate business but nonetheless connected in terms of funds available.

        There is also ample evidence that the Mets & many others knew the Madoff numbers smelled but they were all making money and the SEC didn’t seem to want to do anything. So it seemed somewhat safe to continue.

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      • Joey says:

        There have been thousands of articles talking about how many people suspected that Madoff was using insider trading or some other illegal activity to make his gains. The Madoff story was major international news. There are stories and articles in just about every language detailing the suspicious activity that should have tipped everyone off about Madoff.

        The article on BP is titled “What Wilpon Knew”.
        http://www.baseballprospectus.com/article.php?articleid=16076

        “But even if the Sterling partners believed Madoff was running a Ponzi scheme—and that is neither suggested by the trustee, nor is it the level of proof he needs to reach—what they saw, over a period of 23 years, was an investment that somehow provided positive returns—always. In good markets, in bad markets—consistency, not huge profits, was what Bernie Madoff provided to Fred Wilpon and Saul Katz”.

        Start reading at point in the article if you want to get to the good stuff. But it’s impossible to look at the evidence and not realize that the Wilpons and many other investors knew exactly what was going on. These guys didn’t know that Madoff was a con artist the same way that none of the MLB owners knew that most of their players were using steroids during the steroid era. These guys must walk around with blindfolds on 24/7.

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      • caseyB says:

        Hahaha, that’s Howard Megdal. He’s a joke. I mean everyone in Metland know he’s got a serious bone to pick with the Wilpons (who denied him press credentials). He’s been basically on a crusade or fatwah against the Wilpons ever since the beginning of this case, and has been predicting their downfall ever since. There is a certain segment of Mets fans who he obviously speaks to, but many others think he is a wacko.

        Megdal is known to write about pure speculation and half-truths. I can’t take anything he writes seriously, and no mainstream publishers has written anything close to the claims to the Megdal makes.

        No newspaper or reputable publisher has ever claimed that most of Madoff’s investor thought he was doing something shady.

        “There is also ample evidence that the Mets & many others knew the Madoff numbers smelled”

        Not true. When you looked at the actual depositions (vs. selectively leaked portions), you’d see that Picard twisted the truth. Terribly. For example, Picard first claimed that Stamos first warned the Wilpons about Madoff. Yet he was prepared to testify that he actually told the Wilpons that Madoff was the most reputable and “honorable” man on Wall St. Harrington’s deposition is also questioned as she never told anyone else of her supposed suspicions.

        “There have been thousands of articles talking about how many people suspected that Madoff was using insider trading or some other illegal activity to make his gains.”

        That really isn’t true. Everyone wants to look smart after the fact. But the truth is there were only a very few who ever suspected he was doing something illegal, and even fewer who so sure that they tried to warn the authorities. You could count on the fingers of one hand who these people were.

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      • Eno Sarris says:

        I disagree with CaseyB on Megdal. He may be an advocacy journalist with a slant, but there are many claims that the mainstream media has vetted.

        Just check this piece with quotes Megdal and his work extensively.

        http://espn.go.com/new-york/mlb/story/_/id/7495353/new-york-mets-wilpons-clear-many-hurdles-retain-control

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      • caseyB says:

        Eno, I have no issue with Adam Rubin’s reporting. I would guess that everything that Rubin writes is accurate as he knows it.

        As for your link, Rubin quoting Megdal is just a small portion of that article. It is hardly extensive. And it is merely a listing of the debts that the Mets owners have outstanding, which has been widely reported in other places.

        What I have an issue in regards to Megdal are his own pieces where he purposely shades the truth or is only interested in giving half-truths. For example, look at the BP piece and how he frames everything. You would think he’s working for Picard. It is well known by now that in Stamos’ depositions that he also goes on to say that he told Sterling that Madoff was one of the most reputable and “honorable” men on Wall St that he knew. If a jury heard that, it would totally undermine Picard’s interpretation of events. Also look at how Megdal frames the “fraud” insurance. It is well known that the insurance was also considered for “insolvency” and other risks. But of course, Megdal wants to frame things the way it meets his agenda. Frankly I don’t understand Megdal’s crusade. He seems to spend an inordinate amount of his personal energy and time devoted to the sole purpose of maligning the Wilpons. Did they do something to him (other than deny him credentials)? They are just the owners of a sport team, and even if everything Megdal imagined is factual and correct, it’s not worth that expenditure of life to go after so vehemently. Again, this is sports, not some life and death socio-political or geo-political hot issue. I just don’t understand the rationale for the vendetta.

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      • caseyB says:

        Put another way, a lot of what Megdal writes is NOT independently reported by anyone else. Rubin quoting Megdal is not independently reporting something. And I am specifically referring to the comment made by Richie above that almost all Madoff investors were aware something was fishy about Madoff. That is pure speculation. Not proof.

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      • Eno Sarris says:

        I see, I’ll cede the specific. I would say that saying that Howard Megdal reported these bullet point facts about the Mets’ financial situation and then listing all the bullet points is giving Megdal credit for advancing the conversation on the Wilpons’ finances. And I’ll give him that credit as well.

        As for some of the more grandiose claims — like the one that Bud Selig was supposed to nix the Einhorn deal later on as a favor — I hear what you’re saying.

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      • Jon says:

        caseyB, do you disagree with Judge Rakoff, who denied the Wilpons summary judgment? After reviewing the same evidence, he decided that a reasonable juror could find the Wilpons were in fact reasonably blind.

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      • caseyB says:

        Jon, here’s why the judge let the case go to trial:

        “There remains a residue of disputed factual assertions from which a jury could infer either good or bad faith”

        However — and this is important and may be the reason why Picard ultimately capitulated:

        “The court remains skeptical that the trustee can ultimately rebut the defendants’ showing of good faith, let alone impute bad faith to all the defendants”

        This is what Rakoff wrote in the same ruling which allowed the trial to go forth. Experts agreed that for a judge to express such skepticism of one party’s case before the trial is unusual and significant. Here’s one take:

        “When you have a judge who has already indicated hostility to one party’s theories, it’s going to be an uphill battle for that party,” said Michael Clark, a former federal prosecutor at Duane Morris LLP in Houston who has tried about 100 cases. “Even with a jury, a judge can strongly influence the outcome.”

        http://www.businessweek.com/news/2012-03-16/mets-owners-begin-trial-to-deny-303-million-to-madoff-trustee

        Some have speculated that Rakoff also put that statement in his ruling so if an appeals court eventually got the case, it could heavily consider Rakoff’s opinion on the case.

        So Rakoff’s decision to allow the trial to go forth could have gone either way. What is important is his expression of skepticism in the plaintiff’s case.

        I have nothing but admiration for Rakoff. If it weren’t for him, the outcome for the Mets owners might not have been as favorable as it turned out to be. Rakoff first cut out $600 million (or 60%) from Picard’s original lawsuit. And almost all rulings (and statements) thereafter from Rakoff were highly favorable to Wilpon and Katz. And Rakoff is a Yankees fan. Fancy that!

        Cuomo also deserves a lot of credit.

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    • caseyB says:

      Or, if the article is behind their pay wall, then quote the relevant part of the article that supports this claim.

      I bet it’s just someone’s opinion, rather than any fact. And you now what they say about opinions.

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  4. Greg says:

    Hey – Frank McCourt is going to get almost $2B from his team (and he almost certainly will if he throws in the parking lots). After paying off debts, the IRS and his skanky wife Jamie, he probably has $800M left. Why doesn’t McCourt but the Mets from Wilpon/Katz?

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  5. Matt says:

    The thing is, the Wilpons have been pretty terrible owners regardless of money. They wouldn’t know a sound baseball decision if it was hit over the Mo Zone. This is a major loss for the team, the fans and the franchise. I don’t care how much money they have to spend, because they won’t spend it well. Alderson has clearly been given very limited autonomy at best. Most of my Mets fan brethren think that a return to the free-spending days of 2008 will bring the franchise to glory times, but frankly I’m doubtful. Rename it the Gary Carter Rotunda and maybe they’ll start inching back in to my good graces.

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    • sturock says:

      I agree with Matt. The Wilpons just haven’t been good owners, most decisions over the past ten years or so have been bad. Somehow they put a management team in place that screwed up with three of the best players in the NL in their primes (Beltran, Wright, Reyes). Maybe Sandy Alderson will succeed where Steve Phillips, Jim Duquette, and Omar Minaya failed. Or maybe Fred & Jeff Wilpon will once again be emboldened to put their fingerprints all over the crime scene. And the Jackie Robinson Rotunda– however well-intentioned– is just another example of tone-deaf ownership.

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      • Joey says:

        Don’t forget the disastrous handling of Aaron Heilman (forcing him to be a reliever after throwing a one hitter) and Lastings Milledge (top prospect with zero discipline on and off field) and the fact that the minor league system was run more like fight club than a ball club (Tony Bernazard in this corner!) and that Willie Randolph’s firing was about as professional as you can get (he got a free trip to California at least).

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  6. The Stickler says:

    Eno – it’s “Ponzi” scheme and the P is capitalized for the name of the idiot who started this junk.

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  7. bpdelia says:

    listen for those defending the Wilpons….come on. THese guys made their money in investments for the most part. I don’t have the time or energy took it up but there were numerousexamples of people withini Sterling (if I recall Katz’s son was one of them) who became very suspicious of these remarkably connmsistent profits through bull and bear market alike.

    As for the “he wouldn’t have gotten Koufax involved” angle. Of course he would. THe whole way one of these pyramid/high Ponzi schemes works is that big time or high profile clients always make money. The scheme is impossible without the faith of investors and that faith is bought by bringing in and pleasing rich and/or famous reputable investors.

    The nature of the scheme is that even if the top investors are suspicous they don’t care because they’ve always been able to make withdrawals because they are on the top of the pyramid.

    The New Yorker, when this broke, had an excellently researched and written piece on the Wilpons investments.

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