Irving H. Picard v. Saul B. Katz et al

Filing 116

DECLARATION of David J. Sheehan in Opposition re: 80 MOTION to Strike THE EXPERT REPORTS AND TESTIMONY OF STEVE POMERANTZ AND HARRISON J. GOLDIN.. Document filed by Irving H. Picard. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4)(Sheehan, David)

Exhibit 1

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
In re:

Adv. Pro. No. 08-01789 (BRL)

BERNARD L. MADOFF INVESTMENT
SECURITIES LLC,

SIPA LIQUIDATION

Debtor,

(Substantively Consolidated)

IRVING H. PICARD, Trustee for the Liquidation of Adv. Pro. No. 10-05287 (BRL)
Bernard L. Madoff Investment Securities LLC,
Plaintiff,
v.

11 Civ. 03605 (JSR) (HBP)

SAUL B. KATZ, et al.,
Defendants.

Expert Report of Harrison J. Goldin
Senior Managing Director
Goldin Associates, LLC
November 22, 2011

Table of Contents
I.  Professional Qualifications ..................................................................................................... 1 
II.  Scope of Assignment .............................................................................................................. 3 
III. 

Summary of Opinions .......................................................................................................... 4 

IV. 

Principles Underlying Standards for Administration of Retirement Plans .......................... 6 

A. 

Diligence/Monitoring ....................................................................................................... 6 

1. 

Safeguarding Plan Assets ............................................................................................. 7 

2. 

Expert Advice ............................................................................................................... 7 

3. 

Diligencing Opaque Investments.................................................................................. 8 

B. 

Transparency .................................................................................................................... 9 

1. 

Plan Transparency ........................................................................................................ 9 

2. 

Investment Transparency .............................................................................................. 9 

C. 

Independence .................................................................................................................. 10 

V.  The Sterling Fiduciaries and the Sterling Plan ..................................................................... 11 
VI. 

Opinions ............................................................................................................................. 13 

A.  The Sterling Fiduciaries departed from industry Standards by failing to conduct
diligence on the Madoff Option. ............................................................................................... 13 
B. 
The Sterling Fiduciaries departed from industry Standards by failing to act in the face of
warning signs. ........................................................................................................................... 15 
C. 
The Sterling Fiduciaries departed from industry Standards in the documentation and
disclosure of the Sterling Plan’s structure, administration and performance. .......................... 17 
1. 

Failure to disclose that BLMIS was the putative custodian ....................................... 17 

2. 

Failure to disclose adequately the nature of the Madoff Option ................................ 19 

3. 
Failure to communicate information properly on the performance of the Madoff
Option ................................................................................................................................... 22 
D.  The Sterling Fiduciaries departed from industry Standards by compromising their
independence and failing to make appropriate disclosure. ....................................................... 24 
E. 
The Sterling Fiduciaries departed from industry Standards by failing to promote the
diversification of Sterling Plan assets. ...................................................................................... 25 
VII.  Conclusion ......................................................................................................................... 26 

I.

Professional Qualifications
I am the Senior Managing Director of Goldin Associates, LLC (“Goldin”), a management

consulting and financial advisory firm that specializes in underperforming companies and
investments. I have over twenty years’ experience as a court-appointed trustee and as a
corporate officer, consultant and financial advisor for diverse businesses. In those roles and in
my prior role as Comptroller of The City of New York, I have been involved in retirement plan
management for well over three decades.
Before founding Goldin, as Comptroller I was for 16 years the City’s chief financial
officer; I managed tens of billions of dollars in invested pension assets and was a trustee of the
City’s various retirement systems. My responsibilities included, inter alia, the selection and
oversight of third party investment managers, asset custodians, pension consultants and other
service providers. My duties also included assessing investment risks and returns,
recommending allocations among asset classes, consulting regularly with the other pension fund
trustees, rendering periodic reports on the status of invested assets and overseeing the work of
both in-house and independent accountants, auditors and actuaries. In addition to the foregoing
relating to defined benefit plans,1 I was a trustee for defined contribution plans the City offered
to certain of its employees.2 I was voted the best comptroller in the United States by a panel of
more than 100 experts selected by Crain’s Publications.

1

Defined benefit plans comprise aggregated pools of assets out of which obligations to plan participants are funded.
These obligations generally involve specified benefits — such as a designated pension payment or the provision of
healthcare insurance — without regard to the investment performance of the corpus. Typically, at regular intervals,
the employer contributes designated amounts to the plan for the benefit of employees. While such plans may also
involve contributions from employees, the plan sponsor (i.e., the employer) is obligated to provide the promised
benefits. With certain limitations, Federal insurance provided through the Pension Benefit Guaranty Corporation
(“PBGC”) protects the benefits in defined benefit plans.
2
Especially given the risks to employers in guaranteeing defined benefits, employers have in recent years
increasingly offered retirement benefits to employees through defined contribution plans (including those commonly
referred to as 401(k) plans). A distinctive feature of defined contribution plans is that they involve an individual
account for each affected employee. A defined contribution plan does not promise a specific benefit level at
retirement. Rather, as contributions and earnings accrue over time, the participant accumulates an account balance

1

At Goldin, I have been called on often to oversee retirement plans, whether as sponsor,
trustee or otherwise, and to supervise their activities. For example, Thomas P. Grisea, then Chief
Judge of the United States District Court for the Southern District of New York, appointed me
sole trustee for the District 65 UAW Retirement Trust. In that capacity, I administered the plan
and investigated claims against its former fiduciaries relating to the discharge of their obligations
in connection with the plan. I have overseen retirement plans for the benefit of employees of at
least ten plan sponsors. I have also been appointed a trustee or other fiduciary for numerous
investment funds and investment managers, many of which managed assets for plans organized
pursuant to ERISA. For example, as post-petition CEO of Refco, Inc., I oversaw and
administered the company’s investment activities and reviewed the conduct of prior and current
fiduciaries. I was a founding Chair of the Council of Institutional Investors, the leading
organization of pension fund managers in the United States, and a member of the Pension
Managers Advisory Committee to the Board of Governors of the New York Stock Exchange.
I was for many years an adjunct professor of accounting at the Leonard N. Stern Graduate
School of Business at New York University. I have also taught finance, as an adjunct professor
of law, at Cardozo Law School and New York Law School and as a lecturer at Columbia Law
School.
My curriculum vitae is attached as Exhibit A to this report.

and directs its investment (either himself or through a fiduciary). Often, the employer, as plan sponsor, contributes
to those accounts, in the form of matching grants or company stock. Common features of defined contribution plans
are: employees can elect to defer receipt of a portion of their salary, which is instead contributed on their behalf to
their respective accounts in the plan; employees’ contributions are not taxed when they are contributed; taxes are
levied as funds are withdrawn at retirement (except in the context of a so-called Roth 401(k)); contributions to an
employee’s individual account are invested on behalf of the employee, with varying levels of “self-direction” as
respects investment options and allocations, depending on the characteristics of the plan; the employee ultimately
receives the balance in his/her account (whether in a lump sum or through periodic payments), which is based on
accumulated contributions, plus or minus investment gains or losses and fees; and benefits are not protected through
the PBGC.

2

II.

Scope of Assignment
Baker & Hostetler LLP (“Counsel”), counsel to Irving H. Picard as Trustee (the

“Trustee”) designated by the Securities Investors Protection Corporation for Bernard L. Madoff
Investment Securities LLC (“BLMIS” or “Madoff”), retained Goldin Associates, LLC and asked
that I review certain materials in connection with the above-captioned action. Counsel requested
that I outline, based on my knowledge and experience, the standards, protocols and guidelines
that are generally accepted among those responsible for administering third-party retirement
plans (“Standards”). I have also been asked to render an opinion on whether the Sterling
Fiduciaries3 acted in a way that is consistent with those Standards in administering the Sterling
Plan, particularly in connection with the investment option the Sterling Plan offered in Bernard
L. Madoff Investment Securities LLC (“the” Madoff Option”). As part of that review and
analysis, I have considered materials listed in Exhibit B hereto.4
I have reviewed, inter alia, certain filings, relevant material produced in discovery,
published articles and research and relevant transcripts of depositions and examinations. For my
work on this matter I am being compensated at an hourly rate of $795, with time spent testifying
and in preparation therefor billed at twice that rate. Goldin is also being compensated for the
work of my staff — comprising various financial professionals — at regular hourly regular rates
ranging from $350 to $685. No payment is conditioned on any conclusions expressed in this
report.

3

“Sterling Fiduciaries” as used herein refers to Sterling Equities Associates (“Sterling”), the sponsor of the Sterling
Equities Associates Employees Retirement Plan (the “Sterling Plan”), and the trustees of the Sterling Plan, Arthur
Friedman and Michael Katz. At the Sterling Plan’s inception, Leonard Schreier, who later died, was also a trustee.
See F. Wilpon Tr. 137:8. For a further discussion on fiduciary roles under the Sterling Plan, see infra at pp. 11-12.
4
Counsel has informed me that discovery is ongoing. I reserve the right to supplement this report to reflect
additional materials as they become available.

3

III.

Summary of Opinions
Standards have evolved and become accepted over time among those who, in a fiduciary

capacity, administer third-party retirement plans (“Retirement Plan Managers”). Those
Standards have been the subject of extensive comment in professional literature and can be
found, among other places, in checklists and best-practices manuals.5 It is on the basis of my
well over three decades of experience in retirement plan asset management (“Retirement Plan
Management”) that I render the opinions contained in this report, as summarized below.
•

The Sterling Fiduciaries departed from industry Standards by failing to conduct
diligence on the Madoff Option.

Retirement Plan Managers must understand, evaluate and communicate clearly to
retirement plan participants the nature of the investment options they are offered and how given
investment managers are compensated. Especially as to hedge-fund-like, opaque investments,
this requires appropriate due diligence and consultation with experts. The Sterling Fiduciaries
offered the Madoff Option without customary disclosures relating to performance, cost, risk and
time horizon.
•

The Sterling Fiduciaries departed from industry Standards by failing to act in
the face of warning signs.

Pursuant to industry Standards (and their underlying principles discussed below),
Retirement Plan Managers cannot be passive when confronted with credible concerns relating to
the legitimacy of an investment option. In that event, they must perform additional diligence or
discontinue the investment in question. Over the course of the Sterling Plan’s existence, unusual

5

See, e.g., “Report of the Working Group on Guidance in Selecting and Monitoring Service Providers,” U.S.
Department of Labor, November 13, 1996, Section V; “Prudent Investment Practices: A Handbook for Investment
Fiduciaries,” Foundation for Fiduciary Studies, 2003; “Prudent Practices for Investment Stewards: Defining a
Global Fiduciary Standard of Excellence for Investment Stewards,” fi360.com, 2006.

4

circumstances relating to the Madoff Option emerged, including questions raised by financial
institutions and business partners, as well as BLMIS’s inability to provide customary reporting.
•

The Sterling Fiduciaries departed from industry Standards in the
documentation and disclosure of the Sterling Plan’s structure, administration
and performance.

Retirement Plan Managers must provide participants full, objective and reliable
information as to the plans they administer. In my opinion, the Sterling Plan documents did not
fully and clearly set forth the structure and operation of the Sterling Plan. The Sterling Plan
documents provided inaccurate information regarding the administration of the plan, particularly
regarding the Madoff Option, including respecting custodianship of assets and fees.
•

The Sterling Fiduciaries departed from industry Standards by compromising
their independence and failing to make appropriate disclosure.

A Retirement Plan Manager should avoid selecting any investment option as to which
he/she may not be disinterested. Certainly, he/she must disclose any significant business or
personal connections to a principal of such an investment option. The Sterling Fiduciaries had a
longstanding business relationship and extensive dealings with Madoff, including investments by
Madoff and his family in Sterling entities that were not fully disclosed to participants in
accordance with applicable Standards.
•

The Sterling Fiduciaries departed from industry Standards by failing to
promote the diversification of Sterling Plan assets.

A significant consideration for Retirement Plan Managers is the appropriate
diversification of plan assets. Heightened care in this regard is required where a Retirement Plan
Manager himself/herself presents an investment option in which plan participants concentrate
their assets excessively. That the Sterling Fiduciaries prepared information on the Madoff
Option alone, and that thereafter up to 96% of plan assets were allocated to that option, suggests
a departure from applicable Standards.
5

IV.

Principles Underlying Standards for Administration of Retirement Plans
The core principles that underlie the aforementioned Standards can be summed up

succinctly: diligence, transparency and independence (“Principles”). Retirement Plan
Management Standards are not formalized in a body of canons; rather, they have evolved over
time from the experiences and nuanced judgment and practices of professionals who have played
that role.6 In other words, such Standards arise from the commonly accepted application of the
Principles, which I describe below.
A.

Diligence/Monitoring

A fiduciary is responsible for exercising due diligence to ensure that a plan makes
reasonable investments (or offers reasonable investment alternatives) and that those investments
are properly managed, reported on and safeguarded. Among other things, diligence should focus
on ensuring an appropriate level of risk in a particular portfolio. Accordingly, in conducting
diligence, Retirement Plan Managers need to understand the risks, benefits and time horizons
that different investment options involve and how those options relate to one another and to
various investment objectives. That is inherent in the Standard emphasizing appropriate
diversification.7 In a self-directed plan, to encourage diversification and risk management,

6

See, e.g., Donald Stone, “Investment Selection and Monitoring: A Practical Approach to Best Practices,” Plan
Sponsor Advisors, January 2005, pp. 2-3.
7
See “Prudent Practices for Investment Stewards,” fi360.com, 2006, p. 10 (”Diversify assets to specific risk/return
profile of client.”); Thomas R. Hoecker, “ERISA and the 401(k) Plan Fiduciary,” Snell & Wilmer L.L.P., 2006, pp.
3 & 17-18; Donald Stone, “Investment Selection and Monitoring: A Practical Approach To Best Practices,” Plan
Sponsor Advisors, January 2005, pp. 5-6; Susan Stabile & Jayne Zanglein, “ERISA Fiduciary Litigation: A ThreePart Primer: Part II: What Duties Are Required of Fiduciaries?,” Journal of Pension Planning and Compliance,
2007, Section III: “Duty of Diversification;” “A Guide to Understanding Fiduciary Responsibility in 401(k) Plans,”
OneAmerica Financial Partners, Inc., p. 4; Fred Reish & Joe Faucher, “The 401(k) Fiduciary’s Duty To Prudently
Select a Broad Range of Investments,” Journal of Pension Benefits, Vol.7, No. 4, Summer 2000. The Sterling
Fiduciaries were aware of the importance of diversification. See also Friedman Tr. 352:4-353:23 (testifying that
“everybody understood the concept of diversifying and respected it and thought that it was the right thing”); Stamos
Tr. 153:25-154:5 (testifying that he stressed the importance of diversification to Saul Katz); D. Katz Tr. 31:10-32:25
(noting that he had been “screaming” for diversification as respects the assets of the Sterling Fiduciaries and their
affiliates).

6

Retirement Plan Managers should give participants access to materials that explain and describe
diversification and its relevance to their investment options.
1.

Safeguarding Plan Assets

Another critical aspect of appropriate diligence is the safeguarding of plan assets. A
Retirement Plan Manager who has an intimation of impropriety by anyone with access to those
assets, such as, for example, a co-fiduciary, must act swiftly and decisively to safeguard the
assets. In my experience, in such circumstances industry Standards require additional diligence
to address the concern, the removal of a service provider or withdrawing the assets invested with
the manager involved.8
2.

Expert Advice

A fiduciary who is not sufficiently knowledgeable or skilled in one or another aspect of
his/her responsibilities must procure the requisite knowledge or skill — either directly or by
hiring one or more qualified advisors — so he/she can faithfully administer the plan or invest (or
oversee the investment of) its assets consistent with applicable Standards.9 The Standards obtain
universally, regardless of the size of a plan. A Retirement Plan Manager on a limited budget can
outsource professional services relatively inexpensively, i.e., accessing an investment platform
that is highly transparent, disinterested as respects the plan and vested with requisite expertise to
assist in forming, administering and reporting on the plan. Indeed, in my experience, it is

8

James O. Wood, "Where Have All the Good Fiduciaries Gone?,” Benefits Quarterly, 1st Quarter 1998, p. 38
(“[O]nce a fiduciary knows of a co-fiduciary breach, this fiduciary is obligated to act and remedy the breach.”).
9
“Prudent Investment Practices: A Handbook for Investment Fiduciaries,” Foundation for Fiduciary Studies, 2003,
p. 17, Practice No. 1.4 (“A fiduciary is required to prudently manage investment decisions and should seek
assistance from outside professionals such as investment advisors/consultants and money managers if the fiduciary
lacks the requisite knowledge….”); Fred Reish, “The Fiduciary Safe Harbor for Investment Managers,” Reish &
Reicher, 2010, Introduction Section (“When fiduciaries lack the technical knowledge to properly select the
investments, they are required to hire knowledgeable advisors.”); Susan Stabile & Jayne Zanglein, “ERISA
Fiduciary Litigation: A Three-Part Primer: Part II: What Duties Are Required of Fiduciaries?,” Journal of Pension
Planning and Compliance, 2007, 33.3, Section II.B: “Duty to Seek Advice;” Donald Stone, “Investment Selection
and Monitoring: A Practical Approach To Best Practices,” Plan Sponsor Advisors, January 2005, p. 4.

7

common, particularly in smaller, self-directed plans, for Retirement Plan Managers to make
investment options available to plan participants through (and with the advice of) a wellrecognized financial institution platform, such as Fidelity or Vanguard (or in this case,
Manufacturers and Traders Trust Co. (“M&T”)). Such institutional platforms have the expertise
and resources necessary to help Retirement Plan Managers (particularly those who are not
experts in the industry) comply with industry Standards.
When I first assumed responsibility for the investment and management of retirement
assets upon my election as New York City Comptroller in 1973, I did not have experience with
Retirement Plan Management. Accordingly, to ensure that my decisions regarding Retirement
Plan Management were consistent with industry Standards, I sought the counsel of various
professionals. Over time, with the assistance of my staff and professional Retirement Plan
Managers, I developed familiarity with various factors that are critical to proper Retirement Plan
Management, including the essential role of diversification of plan assets in risk management.
Over a 16 year period I acquired expertise in that regard.10
3.

Diligencing Opaque Investments

It is not customary to offer an opaque hedge-fund-like investment option in a selfdirected defined contribution plan. If a Retirement Plan Manager intends to deviate from
prevailing practice by including such an investment option in a plan, particularly one that is selfdirected, substantial diligence is indicated, both before doing so and on an ongoing basis. It is
only through independent diligence that the Retirement Plan Manager can become satisfied with
the bona fides of the investment option. Absent such confidence, a responsible Retirement Plan
Manager must avoid the option or divest from it.

10

It was in part to promote best practices for institutional asset managers, including Retirement Plan Managers, that
I co-founded the Council of Institutional Investors.

8

B.

Transparency

Transparency relating to the activities of Retirement Plan Managers involves both how
plans are organized and administered (plan transparency), on the one hand, and how plan assets
are invested (investment transparency), on the other hand. Transparency is critical in Retirement
Plan Management because plan participants must have access to clear, complete and accurate
information about the plan and its investments, particularly so they can rely on their fiduciaries.
1.

Plan Transparency

As to plan transparency, documentation relating to plan formation, administration and
reporting must be accurate and clear. A Retirement Plan Manager has to adhere to the policies,
procedures and requirements that are set forth in such documents, provided they do not cause
him/her to act in a way that is inconsistent with his/her responsibilities as a fiduciary.11
Participants should be able to rely on the accuracy and clarity of the written materials they
receive and to use them to hold Retirement Plan Managers accountable.
2.

Investment Transparency

As to investment transparency, when investing plan assets or selecting a menu of
investment options for a self-directed plan (a “Plan Menu”), a Retirement Plan Manager must
review each investment option diligently to ensure that it is appropriate.12 In part because this
can be resource intensive for hedge-fund-like investments, investments of this kind are generally
not offered in relatively smaller, self-directed plans.13 The Standard for Retirement Plan

11

“Prudent Practices for Investment Stewards,” fi360.com, 2006, p. 15, Practice S-1.1 (“Investments are managed in
accordance with all applicable laws, trust documents, and written investment policy statements (IPS).”).
12
“Prudent Practices for Investment Stewards,” fi360.com, 2006, p. 34, Practice S-3.1 (discussing due diligence
requirements); Donald Stone, “Investment Selection and Monitoring: A Practical Approach To Best Practices,” Plan
Sponsor Advisors, January 2005, pp. 4-5; Martin J. Burke, “Fiduciaries Have a Duty to Monitor and Remove
Investments if they Prove Unsuitable for the Plan,” 401(k) Advisor, May 2008.
13
See Jon Lukomnik, “Why Institutions Don’t Allocate To Hedge Funds,”AIMA Journal, 1999 (stressing that
fiduciaries must understand the investments they make); “Prudent Practices for Investment Stewards,” fi360.com,

9

Managers as to reasonable diligence is ongoing, requiring not only initial diligence, but also the
regular monitoring of investment alternatives by Retirement Plan Managers and/or their staffs or
outside professionals retained for this purpose. As Comptroller, I hired independent third parties
to conduct diligence on investment options and directed my staff to review and monitor such
options on a regular basis. Plans with limited resources available for diligence and monitoring
can efficiently and inexpensively satisfy applicable Standards, and the Principles that underly
them, by utilizing investment platforms offered by large institutions that are independent, highly
transparent, subject to extensive market scrutiny and regulated robustly.
C.

Independence

Retirement Plan Managers must avoid conflicts of interest, or the appearance of such
conflicts, because they can interfere with their independent investment judgment.14 The
appearance of conflicts can undermine the faith of participants in the independence of the
Retirement Plan Managers on whom they rely.
An important priority for me as a Retirement Plan Manager has been to ensure that
neither I nor other fiduciaries I selected or with whom I worked had any such conflict. If there is
the prospect of a conflict, it must be disclosed, especially when it relates in any way to a decision
as to the investment or safety of plan assets. When as New York City Comptroller I oversaw the
selection of investment managers, the process involved vetting prospective managers for
potential conflicts of interest.

2006, p. 28, Criterion 2.5.1 (“Individuals responsible for implementing and monitoring investment decisions have
the time, inclination, and knowledge to do so effectively.”).
14
“Prudent Practices for Investment Stewards,” fi360.com, 2006, p. 19, Practice S-1.3 (describing the importance of
avoiding conflicts or the appearance thereof).

10

V.

The Sterling Fiduciaries and the Sterling Plan
A defined contribution plan like the Sterling Plan is typically initiated by an employer

(who thereby becomes the plan sponsor) to provide a retirement benefit to employees. The plan
sponsor, usually with expert assistance, initiates the preparation of basic plan documents and
designates plan trustees; together with the sponsor, the trustees are the plan’s principal
fiduciaries.15 The principal fiduciaries often delegate certain of their fiduciary obligations to
other professionals, who are also fiduciaries, such as a plan administrator, a plan record keeper
and a custodian of plan assets.
Sterling, as plan sponsor, formed the Sterling Plan on May 1, 1997. At inception, the
Sterling Plan covered 191 employees16 and Sterling played a number of key roles and assumed
various responsibilities relating to oversight and administration. For instance, according to plan
documents, in addition to being the plan sponsor, Sterling was also the plan administrator and the
designated fiduciary for ERISA purposes.17 Those documents designated Arthur Friedman and
Michael Katz,18 the Sterling Trustees, with responsibility “for the investment, administration and
safekeeping of assets” of the Sterling Plan.19
Pursuant to the Sterling Plan documents, the Sterling Fiduciaries (Sterling and the
Sterling Trustees) were to perform such critical plan functions as (i) selecting the investment
options to be made available to employees and reviewing the performance of those investment
options; (ii) hiring professionals to aid in administration; (iii) communicating with employees as

15

See David A. Hildebrandt & Richard Libert, “A Primer on ERISA Fiduciary Responsibilities, DOL Weighs in on
Enron Retirement Plan Litigation,” Defined Contributions Insight Magazine, September/October 2002, pp. 1-2
(“Power to appoint a fiduciary confers fiduciary status. Persons who have the power to appoint, retain and remove
plan fiduciaries are themselves plan fiduciaries.”); “Meeting Your Fiduciary Responsibilities,” U.S. Department of
Labor, October 2010, pp. 1-2.
16
STESAA0017390 at STESAA0017415.
17
STESAA0011052 at STESAA0011075 and STESAA0011143.
18
STESAA0013065 at STESAA0013070; STESAA0011665 at STESAA0011668. As noted above, the third initial
trustee, Leonard Schreier, died. See supra n.3.
19
STESAA0011369 at STESAA0011476.

11

to their participation and benefits; (iv) maintaining Sterling Plan records; and (v) reviewing and
approving financial reports.20 According to plan documents, the designated custodian was
M&T,21 which was to (i) receive contributions; (ii) make distributions; and (iii) maintain relevant
records.22
The Sterling Fiduciaries followed customary industry practice by hiring a reputable
financial institution (M&T) to provide essentially a semi-customized 401(k) plan investment
platform, complete with expert advice on plan formation (including prototype documents), the
selection of investments and plan management. In addition, as is common, the Sterling
Fiduciaries hired a third party, EBS Benefit Solutions (“EBS”) (during the relevant time period,
it also apparently went by the names Excellus Benefit Services and Empire Professional
Services), to provide record keeping services. EBS’s responsibilities included assembling
information on the performance of the investment options and preparing reports for distribution
to participants.23 EBS maintained records reflecting each participant’s investment allocations24
and acted as an intermediary between Sterling and M&T on the transfer of funds.25
Over time, the assets in the Sterling Plan grew. By December 11, 2008, total plan
investments were valued at $24.8 million, with $23.7 million, or 96%, invested in the Madoff
Option.26

20

STESAA0011052 at STESAA0011143.
STESAA0013065 at STESAA0013070; Friedman Tr. p. 524:16-25.
22
STESAA0011369 at STESAA0011482.
23
See, e.g., STESAA0021235.
24
See, e.g., STESAA0021237.
25
See, e.g., STESAA0015651 at STESAA0015656.
26
STESAA0015657.
21

12

VI.

Opinions
A.
The Sterling Fiduciaries departed from industry Standards by failing to
conduct diligence on the Madoff Option.
The Sterling Fiduciaries departed from applicable Standards and Principles because they

offered participants in a self-directed plan an opaque, hedge-fund-like investment option (subject
to minimal regulation), without conducting due diligence.27 Self-directed defined contribution
plans do not in the main include hedge-fund-like alternatives in their Plan Menu options. But
where a Retirement Plan Manager offers such an option, he/she must understand the strategy of
the investment option fully and convey that information (in understandable terms), covering such
matters as investment strategy, risk, returns, time horizons and costs, to plan participants.
The Sterling Fiduciaries were advised by their 401(k) consultant that the Madoff Option
was “unusual” for a 401(k) plan because there was “little information” and no “independent
analysis” was available.28 As discussed above, when a Retirement Plan Manager lacks requisite
expertise, he/she must seek independent expert advice to ensure that he/she understands the
investment options fully and can convey essential information about them to plan participants.
The Sterling Fiduciaries failed to diligence the Madoff Option in connection with offering it as
part of the Sterling Plan29 and sought independent expert assistance from M&T only as to the
Sterling Plan investment options offered through the M&T investment platform (“M&T
Options”). Plan fiduciaries who offer hedge-fund-like options, such as BLMIS, must conduct
due diligence and monitoring (either themselves or through an independent, qualified third party)

27

Although the BLMIS investment option was not a “hedge fund” in the traditional sense (it was set up as a
brokerage account over which the investment advisor had discretion to make trades), certain features (such as the
absence of meaningful reporting and the asserted use of complex hedging strategies) made it akin to a hedge fund
vis-à-vis Retirement Plan Management. Indeed, Wilpon testified that “there was a known factor in the community
that Bernie was one of the top hedge fund investors in the world.” F. Wilpon Tr. 144:8-10.
28
STESBC0002006.
29
See Friedman Tr. 570:5-24.

13

to ensure that the investment is appropriate for the plan, and, where there is self-direction, to
educate plan participants.30
In my experience, investments of this kind are understandably more prevalent in large
plans — such as major defined benefit (pension) plans — with billions of dollars invested. Even
so, only about a quarter of defined benefit (pension) plans (which tend to be much larger than the
Sterling Plan and have a scale that warrants the expenditure of significant resources for
independent diligence of complex investment alternatives) allocated plan assets to hedge funds in
2008.31 Tellingly, in 2000, scarcely 1% of such (pension) plans invested in hedge funds.
Although I cannot point to specific data on the subject, my informed view is that the proportion
of defined contribution plans — particularly small, participant-directed defined contribution
plans — offering such options in 2000 would have been closer to 0% than 1%.
The Sterling Fiduciaries have said they thought Madoff was compensated by “somehow”
taking commissions, but they did not know the particulars.32 A critical function of Retirement
Plan Managers is to gather information on fees charged to a plan, to make sure they are fair and
reasonable and to communicate that information accurately to plan participants. The Sterling
Fiduciaries gave plan participants the BLMIS Information Page (defined below), which
represented that the Madoff Option involved no fees.33 In my opinion, the failure to diligence
and disclose the fee structure deviated from applicable Standards and Principles.

30

Leslie Rahl & Stephen Rahl, “Institutionalization of Hedge Funds,” Hedge Fund Strategies: A Global Outlook,
Fall 2002, p.70 (“[I]n order to invest in hedge funds, the institutional investor needs increased transparency in order
to satisfy prudent main [sic] considerations for risk controls with regard to individual investments….”). See also
Jon Lukomnik, “Street Sense: Doing Diligence,” Plan Sponsor, July 2003, p. 1 (“[S]ince so many hedge funds are
smaller shops, dependent upon one or two people, the character and motivation of those key employees is crucial. In
such situations, character affects everything from how the portfolio will be managed during times of stress, to the
likelihood of fraud. Combine this with the general lower level of regulation of hedge funds, and a number of hedge
fund investors go so far as to hire private investigators to examine the principals of a hedge fund before investing.”).
31
Vincent Bouvatier & Sandra Rigot, “Pension Funds’ Allocations to Hedge Funds: an Empirical Analysis of U.S.
and Canadian Defined Benefit Plans,” SSRN.com, January 2011, p. 24 (in progress).
32
Peskin Tr. 296:7-12 (explaining that “I always thought his fee was in the buy/sell somehow, somewhere. Not a
fee; he just made, you know, a few cents on every share”); see also Friedman Tr. 146:9-24.
33
STESAA0019533 at STESAA0019541.

14

B.
The Sterling Fiduciaries departed from industry Standards by failing to act
in the face of warning signs.
As discussed above, a critical aspect of Retirement Plan Management diligence is taking
steps necessary to understand plan investments and safeguard plan assets. The Sterling
Fiduciaries stated that they did not conduct due diligence in anticipation of offering plan
participants the Madoff Option.34 In my opinion, various warning signs warranted enhanced
diligence on the Madoff Option.
For instance, the Sterling Fiduciaries offered BLMIS as an investment option even
though BLMIS, a supposedly technically advanced firm trading exclusively in highly liquid
securities,35 did not provide daily performance information and at times seemed to be unable to
distinguish between realized and unrealized gains;36 in my experience, this type of information
should have been readily available. Given the foregoing, the need for diligence was signaled
loudly by the incongruous claims of BLMIS that although it was a high-tech operation and
invested in relatively liquid securities that could be priced readily, it could not provide electronic
account information.37
According to Friedman, more than one potential custodian refused to do business with the
Sterling Plan because of the inclusion of the Madoff Option.38 Even M&T restricted its role as
custodian solely to assets connected to the M&T Options.39 In my opinion, that warning sign
34

See Friedman Tr. 570:5-24 (because the Sterling Fiduciaries had invested much of their own money with Madoff
successfully, “[i]t would seem a bit strange or unnecessary to do further diligence”). Sometime in the 1980s
Friedman attempted to understand how BLMIS achieved its returns by trying to replicate them and failed. Friedman
Tr. 144:14-146:8; 163:1-13. A similar unsuccessful attempt was made around 2005. Rongione Tr. 101:5-103:5.
35
Compare STESAA0021018 at STESAA00210123 (1996 Madoff “company profile” noting that “Madoff
Securities’ computerized transaction processing means that the firm can customize client reports and deliver them
electronically in whatever format best meets the needs of customers”), with STESAO0003000 (2008 email from
Sterling’s Cynthia Bernstein stating that Madoff does not provide electronic statements).
36
See Friedman Tr. 555:18-19; STESAA0021235 at STESAA0021236.
37
STESAA0021018-STESAA0021026; STESAA0019533 at STESAA0019541.
38
Friedman Tr. 554:13-555:3.
39
STESBC0001532; see also STESBC0001698 (2004 email from EBS employee inquiring “who executes the
trades for the Madoff fund and who acts as custodian (holds the assets)?” in connection with an effort by EBS to
provide daily reporting).

15

should have alerted the Sterling Fiduciaries to investigate the irregularities of the Madoff Option.
I know of no other instance in which potential custodians declined an otherwise profitable
business opportunity because of concerns about a Retirement Plan Manager’s inclusion of a
single investment option. Retirement Plan Managers acting in accordance with industry
Standards and Principles would be concerned by these facts and recognize the need for great
caution, leading to further diligence and potential divestment from the investment that provoked
the concern.
Over the course of the Sterling Plan’s existence, the Sterling Fiduciaries were told that
because of Madoff’s lack of transparency, BLMIS could not meet the due diligence tests applied
by their own hedge fund, Sterling Stamos, and a sophisticated co-investor in that hedge fund,
Merrill Lynch.40 Friedman also learned that a business partner procured an insurance policy to
cover fraud respecting his Madoff investment; Friedman and other Sterling principals considered
doing the same.41
Faced with the unusual circumstances described above, a Retirement Plan Manager
acting in accordance with industry Standards and Principles would conduct further diligence or
divest from the fund at issue. Friedman testified that neither he nor Michael Katz conducted any
diligence in offering the Madoff Option because it would have been “a bit strange or
unnecessary,” given the Sterling Fiduciaries’ personal investment history with Madoff.42 Such
reliance on personal investment history was, in my opinion, an insufficient justification for
failing to conduct the diligence that would have accorded with industry Standards.

40

See Stamos Tr. 201:22-203:24, 211:20-212:25, 226:18-21; Furthermore, articles disseminated to all Sterling
partners questioned the bona fides of Madoff’s methods. See STESAP0000203, STESAP0000204STESAP0000208. See also, e.g., Stamos Tr. 158:15-161:17; Friedman Tr. 156:22-157:7, 579:5-23, 571:21-23
(acknowledging having read “some negative things” about Madoff).
41
STESAA0021085-STESAA0021086; STESAA0021087- STESAA0021088; STESAP0000138; Friedman Tr.
419:24-420:12, 422:6-426:17, 427:25-428:13, 429:1-431:10.
42
Friedman Tr. 570:5-24.

16

C.
The Sterling Fiduciaries departed from industry Standards in the
documentation and disclosure of the Sterling Plan’s structure, administration and
performance.
The Sterling Plan provided for self-direction in the allocation of assets, meaning that
participants were responsible for selecting their own investment options from the Plan Menu and
determining how much of their account assets to allocate to each selected option. In that
connection, the Sterling Fiduciaries were required to give participants a description of each
available investment option, including: (i) investment objectives; (ii) risk and return
characteristics; (iii) diversification of assets within the investment option; and (iv) costs.
Pursuant to industry Standards and Principles, such disclosure must be complete, clear and
accurate; the Sterling Fiduciaries were deficient in this regard.
1.

Failure to disclose that BLMIS was the putative custodian

Custody is more than just a ministerial task; the safeguarding of plan assets is a critical
function, whose faithful discharge is central to the implementation of industry Standards.43
Retirement Plan Managers must fully and clearly disclose to plan participants applicable custody
arrangements. While the Sterling Plan documents indicate that M&T was the custodian for
Sterling Plan assets,44 M&T was not in fact the custodian for over 90% of Sterling Plan money,
which was invested in the Madoff Option.45
The M&T Options were listed on a document, entitled “ERISA Investment Policy
Statement,”46 which set forth ten mutual funds available through the M&T investment platform.
Five were selected for the Sterling Plan: Vision Treasury MM, Pimco Total Return, Dodge and

43

See Tim Hatton, “The New Fiduciary Standard: the 27 Prudent Investment Practices for Financial Advisors,
Trustees and Plan Sponsors,” Bloomberg Press, 2005, p.79.
44
STESAA0013065 at STESAA0013070.
45
STESAA0015657.
46
STESAA0019901-STESAA0019903.

17

Cox Balanced, Vanguard’s Windsor II and Vanguard Index Trust 500 Portfolio.47 In a blank
space following the ten potential M&T Options, “Madoff” was written in by hand, as shown
below:

Source: STESAA0015651 at STESAA001565448
M&T had no involvement in the Madoff Option; indeed, in correspondence with the
Sterling Fiduciaries, it stated that it acted in “no capacity” respecting the Madoff Option.49 The
Sterling Plan documents I have reviewed do not so indicate, nor do they disclose the “unusual”
nature of the Madoff Option.50 Rather, departing from industry Standards and Principles, those
documents simply represent that M&T was the plan custodian, without mentioning that BLMIS
was the presumptive custodian under the Madoff Option.51
Significantly, Sterling Plan audited financial statements divided the Sterling Plan’s
investments into two categories: “Bernard L. Madoff Investment – Discretionary Brokerage
Account” and “Manufacturers and Traders Trust Company, Custodian.”52 This implied that the
Madoff Option was effectively administered and reported on separately from the M&T Options
and that all Sterling Plan assets were not held in common custody. Notably, in addition, the

47

The available M&T Options were not changed until 2008, when the Sterling Plan also began to offer (also through
M&T) ten target-date funds managed by AllianceBernstein. See, e.g, STESAA0020280 at STESAA0020322.
48
Another page in that document shows handwritten amendments to the typewritten terms on which M&T would
charge management fees in order to accommodate the Madoff Option. See STESAA0015651.
49
STESBC0001532.
50
STESBC0002006.
51
STESAA0013065 at STESAA0013070.
52
See, e.g., STESAA0007805 at STESAA0007824.

18

Sterling Plan year-end audited financial statements also indicated that Madoff Option funds were
invested in either U.S. Treasury bills or a Fidelity money market fund. Yet nothing in the
description on the BLMIS Information Page (defined below) or, for that matter, the notes to the
audited financial statements (which also describe the stocks and options in which BLMIS
supposedly invested) make any mention of periodic account liquidations into money market
funds or Treasuries.
2.

Failure to disclose adequately the nature of the Madoff Option

Participants in the Sterling Plan were apparently given a pamphlet that provided
information about each available investment option (how often such pamphlets were distributed
is not clear).53 The versions of the pamphlet I have seen describe each of the M&T Options on a
separate page, with an additional page describing the Madoff Option (“BLMIS Information
Page”).54 Each page that describes one of the M&T Options (collectively, “M&T Information
Pages”) includes the M&T logo at the top left and as to that fund explains (i) its investment
objective; (ii) the types of securities in which it invested; and (iii) its returns over the past one,
three and five year periods. Each of these M&T Information Pages also presents a comparison
of the recent returns of the M&T Option described on that page to a relevant index and cautions
that past results do not indicate future performance. These pages indicate that the source of the
information about the M&T Options is Morningstar and provide guidance on how to look up
current fund prices in The Wall Street Journal. The Sterling Fiduciaries utilized these M&T
Information Pages, supplied by M&T, to convey information to Sterling Plan participants on the
M&T Options. As Friedman testified, “The people that drew them up, supplied them, wrote up
the description and history were the experts that I was relying on to supply the options and a
53

See, e.g., STESAA0019533- STESAA0019542.
STESAF0129229 at STESAF0129230; STESAG0000400-STESAG0000401; STESAG0003216STESAG0003218.
54

19

description of the options.”55 As I noted above, such reliance on an expert is prevalent and can
be consistent with Retirement Plan Management Standards and Principles.
The pamphlet also contains the BLMIS Information Page, which bears no M&T logo, but
is nonetheless inserted before the back page (which contains the M&T logo). The BLMIS
Information Page, unlike the M&T Information Pages, was drafted by the Sterling Fiduciaries.
As Friedman explained, the Sterling Fiduciaries “added Madoff” to the pamphlet because “M&T
didn’t know anything about Madoff.”56 The BLMIS Information Page describes the BLMIS
strategy as the purchase of S&P 100 stocks and the purchase and sale of related options. It sets
forth the average and minimum returns the Sterling partners had enjoyed in their personal
BLMIS accounts — calculated by Friedman57 — over the past ten years, but contains no
information on the overall performance of Madoff funds generally or a comparison to a
benchmark or index. Unlike the M&T Information Pages, the BLMIS Information Page contains
only a narrative,58 stating, inter alia, that no management fees or expenses were associated with
the Madoff Option. Noting that BLMIS aimed to minimize risk, the BLMIS Information Page
indicates that BLMIS employs a sophisticated investment strategy that, like all investments in
equities, entails some degree of risk.59 In my opinion, this cursory, incomplete statement about
risk by the Sterling Fiduciaries departed from Retirement Plan Management Standards and
Principles, particularly respecting a hedge-fund-like investment option.60
Below are samples of the M&T Information Pages and of the BLMIS Information Page.
55

Friedman Tr. 536:12-537:15.
Friedman Tr. 541:17-542:7, 543:4-7 (“[T]hey wouldn’t know how to describe Madoff. We were supplying
that. . . .”).
57
Friedman Tr. 531:14-532:18.
58
STESAA0019533 at STESAA0019541; Friedman Tr. 543:21-544:10.
59
STESAA0019533 at STESAA0019541.
60
The BLMIS Information Page apparently resulted from a collaborative effort between the Sterling Fiduciaries and
BLMIS. Successive drafts show the evolution of the BLMIS Information Page, with the Sterling Fiduciaries
apparently seeking to arrive at a description satisfactory to Madoff. See, e.g, STESAF0129229-STESAF0129230;
STESAG0000400-STESAG0000401; STESAG0003216-STESAG0003218.
56

20

Source: STESAA0019533 at STESAA0019538

Source: STESAA0019533 at STESAA0019541

The contrast between the M&T Information Pages and the BLMIS Information Page is
stark. Indeed, around ten years into the Sterling Plan, the Sterling Fiduciaries caused the BLMIS
Information Page to be amended after receiving advice on mitigating potential “fiduciary
liability” from a 401(k) consultant.61 They eliminated (i) references to the Sterling partners’
personal returns from investing in BLMIS and (ii) the inaccurate assertion that BLMIS involved
no fees.62 While the M&T information Pages provide the sort of information contemplated by
the requirements of full and clear disclosure and transparency, the pre-amendment version of the
BLMIS Information Page (in place for most of the life of the Sterling Plan) provides little useful

61
62

STESBC0002006.
Compare STESAA0019533 at STESAA0019541 with STESAA0011998.

21

information and, as Sterling’s consultant suggested, could be seen as misleading and an improper
“endorsement.”63
3.
Failure to communicate information properly on the performance of
the Madoff Option
Neither plan documents nor periodic plan reports ever distinguished between how the
assets in the M&T Options and in the Madoff Option, respectively, were accounted for and held.
Instead, by referring to M&T as the Sterling Plan’s custodian (without qualification), the Sterling
Fiduciaries created the impression that there was a single, unified system covering all investment
options, when in fact there was not.64
Sterling Plan participants were apparently given a quarterly report prepared by EBS on
the performance of the investment options available in the Sterling Plan.65 Performance figures
for BLMIS were calculated by Sterling employees and provided to EBS by Sterling
Fiduciaries.66 Although the BLMIS performance information appeared at the bottom of the
report in a different font, I have seen no indication that the Sterling Plan participants were told
that this document was compiled from different sources, possibly utilizing different metrics and
methodologies. In preparing individual statements for plan participants, EBS combined the
information on the Madoff Option it received from the Sterling Fiduciaries with information on
the performance of the M&T Options it got from M&T, without distinguishing between the
two.67
Here is an apparent example of how the Sterling Fiduciaries provided the BLMIS data to
EBS; note particularly the handwritten data at the bottom of the first chart.

63

STESBC0002006.
See, e.g., STESAA0013065 at STESAA0013070.
65
See, e.g., STESAA0019507-STESAA0019513.
66
STESAA0008068 at STESAA0008189; Friedman Tr. 545:5-546:25.
67
Friedman Tr. 545:5-546:25.
64

22

Source: STESAA0008068 at STESAA0008189
The handwritten notations at the bottom of the foregoing chart were apparently then
typed in below the returns for the other investment options on a report given to plan participants.

Source: STESAA0008068 at STESAA0008184

23

D.
The Sterling Fiduciaries departed from industry Standards by compromising
their independence and failing to make appropriate disclosure.
Under applicable industry Standards and Principles, fiduciaries must avoid all conflicts or
even the appearance thereof. Not only did the Sterling Fiduciaries and related individuals and
entities invest with BLMIS, but Mr. Madoff and his family members invested millions of dollars
in Sterling entities.68 Without disclosing the full extent and nature of those relationships, the
BLMIS Information Page simply stated that Sterling partners had invested with BLMIS, making
no mention of the Madoffs’ investments in Sterling entities. Retirement Plan Management
Standards and Principles mandate full and frank disclosure of facts that could be seen to render a
fiduciary less than disinterested.
Indeed, their self-professed ignorance about the workings of the Madoff Option and lack
of diligence aside, the Sterling Fiduciaries provided an “endorsement”69 by touting their personal
historical BLMIS results on the BLMIS Information Page.70 Friedman testified that M&T
addressed questions on only the M&T Investment Options; for the Madoff option, the Sterling
Fiduciaries answered questions.71 In my judgment it is irregular for a plan sponsor to have an
independent, outside expert educate beneficiaries on all but one investment option, while
providing that information itself for another option (here the riskiest one, with the least available
information and the greatest concerns about independence), especially where over 90% of plan
participant dollars end up with that option.
The Sterling Fiduciaries’ lack of independence is underscored by their decision to form
the Sterling Plan as a self-directed one under Section 404(c) of ERISA in part to avoid having to

68

STESAH0001860 at STESAH0001861; Friedman Tr. 219:9-17.
STESBC0002006.
70
STESAA0019533 at STESAA0019541.
71
Friedman Tr. 538:1-10.
69

24

give “a thorough briefing” on Madoff72 or otherwise leading people to “ask and know about
BM.”73 A portion of Friedman’s contemporaneous, handwritten notes referring to the concern
regarding Madoff-related inquiries is reproduced below.

Source: STESAA0021221
Under prevailing Standards and Principles, a Retirement Plan Manager’s deference to an
investment fund manager’s quest for privacy is irregular and potentially a basis for rejecting that
fund outright, because it calls into question the Retirement Plan Manager’s ability to conduct
appropriate diligence independently.
E.
The Sterling Fiduciaries departed from industry Standards by failing to
promote the diversification of Sterling Plan assets.
Diversification is central to portfolio theory and a cornerstone of sound Retirement Plan
Management. Yet up to 96% of Sterling Plan assets were invested in BLMIS, an opaque, hedgefund-like option. Fiduciaries must emphasize the importance of diversification, and the Sterling
Fiduciaries’ failure to do so was inconsistent with industry Standards, particularly given that they
admittedly did not understand the BLMIS strategy or how Madoff was compensated; conducted
no diligence in connection with the Madoff Option; played a role in presenting the Madoff
Option; had undisclosed personal business interests with Madoff; failed to act or to make
72
73

Friedman Tr. 562:4-10.
STESAA0021221.

25

supplemental disclosure in the face of mounting evidence of irregularity; and did not provide
complete and accurate documentation to plan participants.
Failure to promote diversification among plan assets contrasts with the Sterling
Fiduciaries’ own undisclosed diversification of their personal assets away from Madoff on the
basis of advice they received from their investment professionals.74
VII.

Conclusion
As discussed above, the way the Sterling Fiduciaries ran the Sterling Plan deviated from

accepted Retirement Plan Management Standards and the Principles underlying those Standards.

74

See Stamos Tr. 200:20-201:18 (stressing importance of diversification); D. Katz Tr. 31:10-32:5 (noting that he
had been “screaming” for diversification of the assets of the Sterling Fiduciaries and their affiliates); D. Katz Tr.
346:23-347:1 (explaining that Sterling Stamos was created to diversify from Madoff); Friedman Tr. 578:10-14
(“Stamos expressed” an “objection” that “Bernie Madoff was not transparent” and that “we shouldn’t have as much
money in Madoff as we do”).

26

Exhibit A
Harrison J. Goldin
Curriculum Vitae
Harrison J. Goldin is senior managing director of Goldin Associates, L.L.C., which provides
financial advisory, interim management, forensic investigation, strategic and risk management
consulting and independent fiduciary services. Mr.Goldin has often acted as examiner, trustee,
independent investigator, special master, mediator or receiver in large and complicated
bankruptcies and restructurings.
Mr. Goldin and his firm have extensive experience managing and overseeing failed financial
services companies. He was Chief Executive Officer during the bankruptcy of Refco, Inc., a
multi-billion dollar commodities, futures and stock brokerage firm that was one of the largest
ever U.S. bankruptcy filings. He was financial advisor to the Official Creditors Committee of
Drexel Burnham Lambert Trading Corporation in what was at the time the largest financial
services bankruptcy in history. He was the chapter 11 trustee for Monarch Capital, a diversified
financial services company, and Granite Partners, one of the largest hedge funds to seek
bankruptcy protection.
EXPERIENCE:

Senior Managing Director, Goldin Associates, LLC, 1990 to Present
Selected Financial Services Industry Matters:
• Refco, Inc., Chief Executive Officer
• Monarch Capital, Chapter 11 Trustee
• Granite Partners, Chapter 11 Trustee
• First Interregional Advisors, Chapter 11 Trustee
• District 65 Retirement Trust, Court-appointed Trustee
• MCorp, Liquidating Trustee
• Cityscape Financial, Examiner
• Enron North America, Examiner
• Interbank Funding, Financial Advisor to SEC Trustee
• Pharmacy Fund, Director
• Mezzonen Fund, Successor Manager
• Circle T Funds, Financial Advisor to Conservator
• Drexel Burnham Lambert Trading, Financial Advisor to Creditors’
Committee
• Lehman Brothers Inc., Consultant to SIPA Trustee
Selected Additional Assignments of Note:
• Trustee: PSINet Consulting Solutions, Power Company of America,
SmarTalk/Worldwide Direct, Gaston & Snow, Pegasus Gold

28

•
•
•

Examiner: Coudert Brothers, Loral Space & Communications, PWS
Holdings (Bruno’s), Cityscape Financial Corp.
Chief Restructuring Officer: Rockefeller Center Properties
Financial Advisor/Consultant: Tribune Company, Adelphia
Communications

Comptroller, City of New York, 1974-1989
• Oversaw financial restructuring of New York City
• Directed financial and investigative audit units
• Managed over $30 billion of investment assets
• Managed the establishment and implementation of the City’s
Integrated Financial Management System (IFMS)
• Award for Excellence in Financial Reporting by MFOA
• Voted "Best Comptroller in America" by a panel of over 100 expert
judges selected by Crain's Publications
Securities business (Edwards & Hanley and James H. Oliphant & Co.),
1970-1973
Davis Polk & Wardwell, 1963-1969
U. S. Department of Justice, 1961-1963

•
•
•
•
EDUCATION:

Prior Teaching Positions:
Adjunct Professor of Law, New York Law School
Adjunct Professor of Law, Cardozo Law School
Adjunct Professor of Accounting, Stern Graduate School of Business,
NYU
Lecturer in Law, Columbia Law School
Princeton University, A.B. (summa cum laude, Phi Beta Kappa), 1957
Harvard Graduate School (Woodrow Wilson Fellow), 1957-1958
Yale Law School, LL.B. (Articles Editor, Yale Law Journal; Order of the
Coif), 1961

OTHER:

Founding Chair, Council of Institutional Investors
Fellow: American College of Bankruptcy
Member: Pension Managers Advisory Committee to the Board of
Governors of the New York Stock Exchange (past)
New York State Senator (past)
Member: Counsel on Foreign Relations; Economics Club of New York
29

Former Member, Board of Directors: America West Airlines; Envirodyne
Industries, Inc.; International Specialty Products
RECENT PRIOR
TESTIMONY
AND
PUBLICATIONS:

Expert Report, Deposition: In re Tribune Co., et al. (Bankr. D. Del. 2011)
Expert Report, Deposition: In re Lehman Brothers Inc. (Bankr. S.D.N.Y.
2010)
Expert Report, Deposition: Huntsman Corp. v. Credit Suisse Secs. (USA)
LLC, et al. (District Court, Montgomery County, Tex. 2009)
Expert Report, Deposition, Trial Testimony: In re Adelphia
Communications Corp., et al. (Bankr. S.D.N.Y. 2006)
Trial Testimony: In re Refco Inc., et al. (Bankr. S.D.N.Y. 2006)
Expert Report, Deposition, Trial Testimony: In re Coram Healthcare
Corp., et al. (Bankr. D. Del. 2001)
“Auditor Term Limits” (Op Ed), New York Times, February 1, 2002

30

Exhibit B
Materials Considered
BOASBL0017752-BOASBL0017769
BOSABO0000001-BOSABO0000138
BSTSAC0000193-BSTSAC0000199
MADTEE00645190
MADTSS00212641-MADTSS00212652
MADTSS01126938-MADTSS01126950
SSMSAA0026027-SSMSAA0026057
SSMSAA0052063
SSMSAA0052064-SSMSAA0052065
SSMSAA0184407-SSMSAA0184431
SSMSAA0231352
SSMSAA0802069
SSMSAA0847189-SSMSAA0847192
SSMSAA0906783-SSMSAA0906785
SSMSAA0934640-SSMSAA0934642
SSMSAA0934925-SSMSAA0934931
SSMSAA0935530-SSMSAA0935535
SSMSAA1010357-SSMSAA1010364
SSMSAA1010527
SSMSAA1061678-SSMSAA1061682
SSMSAA1194929-SSMSAA1194931
SSMSAA1282337-SSMSAA1282341
SSMSAA1876781-SSMSAA1876782
SSMSAA2192810-SSMSAA2192815
SSMSAA2228798-SSMSAA2228815
SSMSAA2285582-SSMSAA2285587
SSMSAA2406074-SSMSAA2406076
SSMSAC0000149-SSMSAC0000150
SSMSAC0000167
STESAA0000012-STESAA0000018

31

STESAA0000019-STESAA0000024
STESAA0000025-STESAA0000032
STESAA0000048-STESAA0000053
STESAA0000068-STESAA0000070
STESAA0000071-STESAA0000077
STESAA0000078-STESAA0000082
STESAA0000083-STESAA0000087
STESAA0000416-STESAA0000425
STESAA0000442-STESAA0000448
STESAA0000463-STESAA0000469
STESAA0001539-STESAA0001541
STESAA0001988-STESAA0002039
STESAA0007804
STESAA0007805-STESAA0007831
STESAA0007832-STESAA0007856
STESAA0007857-STESAA0007881
STESAA0007882-STESAA0007900
STESAA0007901-STESAA0007923
STESAA0007924-STESAA0007950
STESAA0007999-STESAA0008067
STESAA0008068-STESAA0008190
STESAA0008191-STESAA0008253
STESAA0008254-STESAA0008336
STESAA0008429-STESAA0008508
STESAA0008509-STESAA0008606
STESAA0008607-STESAA0008701
STESAA0008702-STESAA0008795
STESAA0008796-STESAA0008885
STESAA0008886-STESAA0008964
STESAA0008965-STESAA0009040
STESAA0009041-STESAA0009116
STESAA0009117-STESAA0009191
STESAA0009192-STESAA0009268
32

STESAA0009269-STESAA0009385
STESAA0009386-STESAA0009475
STESAA0009476-STESAA0009562
STESAA0009563-STESAA0009657
STESAA0009658-STESAA0009745
STESAA0009746-STESAA0009827
STESAA0009969-STESAA0010061
STESAA0010062-STESAA0010157
STESAA0010158-STESAA0010253
STESAA0010348-STESAA0010519
STESAA0010691-STESAA0010783
STESAA0010784-STESAA0010875
STESAA0010876-STESAA0010925
STESAA0010926-STESAA0011051
STESAA0011052-STESAA0011344
STESAA0011354-STESAA0011368
STESAA0011369-STESAA0011601
STESAA0011620-STESAA0011640
STESAA0011665-STESAA0011684
STESAA0011868-STESAA0011876
STESAA0011877-STESAA0011884
STESAA0011998
STESAA0013065-STESAA0013097
STESAA0013875-STESAA0013881
STESAA0013885-STESAA0013886
STESAA0013892-STESAA0013896
STESAA0013901-STESAA0013907
STESAA0013908-STESAA0013914
STESAA0013915-STESAA0013919
STESAA0013920-STESAA0013927
STESAA0013928-STESAA0013934
STESAA0013935-STESAA0013942
STESAA0013943-STESAA0013950
33

STESAA0013951-STESAA0013955
STESAA0013956-STESAA0013959
STESAA0013960-STESAA0013964
STESAA0013965-STESAA0013969
STESAA0013975-STESAA0013978
STESAA0013983-STESAA0013986
STESAA0013991-STESAA0013994
STESAA0014015-STESAA0014018
STESAA0014039-STESAA0014144
STESAA0015564-STESAA0015565
STESAA0015566-STESAA0015657
STESAA0015651-STESAA0015656
STESAA0016017-STESAA0016023
STESAA0016036-STESAA0016040
STESAA0016063-STESAA0016076
STESAA0016077-STESAA0016081
STESAA0016082-STESAA0016109
STESAA0016115-STESAA0016120
STESAA0016130-STESAA0016135
STESAA0016146-STESAA0016151
STESAA0016167-STESAA0016172
STESAA0016183-STESAA0016188
STESAA0016194-STESAA0016197
STESAA0016208-STESAA0016212
STESAA0016218-STESAA0016223
STESAA0016229-STESAA0016234
STESAA0016240-STESAA0016245
STESAA0016251-STESAA0016255
STESAA0016272-STESAA0016276
STESAA0016322-STESAA0016336
STESAA0016352-STESAA0016418
STESAA0016421-STESAA0016483
STESAA0016484-STESAA0016551
34

STESAA0016552-STESAA0016628
STESAA0016629-STESAA0016680
STESAA0016681-STESAA0016730
STESAA0016731-STESAA0016781
STESAA0016782-STESAA0016840
STESAA0016841-STESAA0016893
STESAA0016896-STESAA0016949
STESAA0016950-STESAA0017005
STESAA0017006-STESAA0017069
STESAA0017070-STESAA0017111
STESAA0017112-STESAA0017155
STESAA0017156-STESAA0017204
STESAA0017205-STESAA0017258
STESAA0017259-STESAA0017298
STESAA0017338-STESAA0017389
STESAA0017390-STESAA0017444
STESAA0017448-STESAA0017454
STESAA0018929-STESAA0018934
STESAA0019507-STESAA0019513
STESAA0019533-STESAA0019542
STESAA0019587-STESAA0019608
STESAA0019642-STESAA0019661
STESAA0019662-STESAA0019696
STESAA0019697-STESAA0019722
STESAA0019759-STESAA0019766
STESAA0019886-STESAA0019888
STESAA0019889
STESAA0019901-STESAA0019903
STESAA0019912-STESAA0019913
STESAA0019934-STESAA0019948
STESAA0019985-STESAA0020020
STESAA0020021-STESAA0020056
STESAA0020116
35

STESAA0020117-STESAA0020128
STESAA0020129-STESAA0020140
STESAA0020194-STESAA0020247
STESAA0020248-STESAA0020275
STESAA0020276-STESAA0020279
STESAA0020280-STESAA0020330
STESAA0020331
STESAA0020346-STESAA0020347
STESAA0020348-STESAA0020350
STESAA0020351-STESAA0020353
STESAA0020354-STESAA0020358
STESAA0020359-STESAA0020365
STESAA0020369-STESAA0020370
STESAA0020376-STESAA0020380
STESAA0020381
STESAA0020382
STESAA0020383-STESAA0020402
STESAA0020403
STESAA0020404-STESAA0020663
STESAA0020667-STESAA0020682
STESAA0020683-STESAA0020697
STESAA0020698-STESAA0020701
STESAA0020702-STESAA0020706
STESAA0020709-STESAA0020719
STESAA0020722-STESAA0020889
STESAA0021016-STESAA0021017
STESAA0021018-STESAA0021026
STESAA0021058
STESAA0021079
STESAA0021080-STESAA0021084
STESAA0021085-STESAA0021086
STESAA0021087-STESAA0021088
STESAA0021118-STESAA0021120
36

STESAA0021125
STESAA0021126
STESAA0021127-STESAA0021129
STESAA0021189-STESAA0021211
STESAA0021221-STESAA0021222
STESAA0021223
STESAA0021235-STESAA0021236
STESAA0021237-STESAA0021238
STESAA0021240-STESAA0021241
STESAA0021243-STESAA0021253
STESAA0021266-STESAA0021268
STESAA0021744-STESAA0021745
STESAB0000032
STESAC0000760-STESAC0000761
STESAC0017031-STESAC0017054
STESAC0017135-STESAC0017158
STESAE0000030-STESAE0000034
STESAE0000035
STESAF0088000-STESAF0088001
STESAF0089259-STESAF0089271
STESAF0100153-STESAF0100166
STESAF0100192-STESAF0100205
STESAF0100257-STESAF0100270
STESAF0100337-STESAF0100350
STESAF0127083-STESAF0127097
STESAF0127106-STESAF0127140
STESAF0127140
STESAF0127141-STESAF0127175
STESAF0127176-STESAF0127201
STESAF0127202-STESAF0127236
STESAF0127535-STESAF0127537
STESAF0127727-STESAF0127729
STESAF0128191-STESAF0128195
37

STESAF0129229-STESAF0129230
STESAF0129273-STESAF0129280
STESAG0000400-STESAG0000402
STESAG0003216-STESAG0003218
STESAG0018440-STESAG0018460
STESAG0018480-STESAG0018500
STESAG0018795-STESAG0018814
STESAH0000076-STESAH0000078
STESAH0001860-STESAH0001866
STESAH0007108-STESAH0007122
STESAJ0010051-STESAJ0010053
STESAO0003000
STESAP0000128
STESAP0000138
STESAP0000139
STESAP0000145-STESAP0000146
STESAP0000178-STESAP0000182
STESAP0000183
STESAP0000203-STESAP0000208
STESAP0000209
STESAP0000210
STESAP0000215-STESAP0000223
STESAP0000263
STESAT0002632-STESAT0002649
STESAV0000803
STESAV0000888
STESAV0001321
STESAZ0001844
STESAZ0006168
STESAZ0007784
STESAZ0029348
STESAZ0031648
STESAZ0033797
38

STESAZ0034873
STESAZ0035121
STESAZ0040678
STESAZ0043855
STESAZ0043928
STESAZ0044165
STESAZ0045204
STESBC0001532-STESBC0001533
STESBC0001698
STESBC0002006
STESBC0002007-STESBC0002008
STESBC0002232
STESBD0000740-STESBD0000741
STESBD0001554
STESBD0001750-STESBD0001753
STESBE0008666-STESBE0008679
STESBE0009076-STESBE0009085
STESBE0014111
Deposition of Cynthia Rongione, November 15, 2011
Rule 2004 Examination of Arthur Friedman, Vol. I, June 22, 2010
Rule 2004 Examination of Arthur Friedman, Vol. II, June 23, 2010
Rule 27 Examination of Arthur Friedman, June 29, 2010
Rule 2004 Examination of Arthur Friedman, Vol. III, June 24, 2010
Rule 2004 Examination of Arthur Friedman, Vol. IV, June 29, 2010
Rule 2004 Examination of David Katz, Vol. I, August 31, 20120
Rule 2004 Examination of David Katz, Vol. II, September 1, 2010
Rule 2004 Examination of Fred Wilpon , July 20, 2010
Rule 2004 Examination of Mark Peskin, Vol. I, July 29, 2010
Rule 2004 Examination of Mark Peskin, Vol. II, July 30, 2010
Rule 2004 Examination of Peter Stamos, August 19, 2010
Rule 2004 Examination of Saul Katz, August 4, 2010
Letter from D. Seshens to B. Esser, November 24, 2010
Trustee’s Subpoena to D. Freeman October 11, 2011
39

Trustee’s Subpoena to Providium
Trustee’s Subpoena to EBS-RMSCO Inc.
Trustee’s First Set of Requests for Production of Documents to Sterling Defendants, September
16, 2011
29 C.F.R. § 2550.404c–1
29 U.S.C.A. § 1104
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September 2006
“A Guide to Understanding Fiduciary Responsibility in 401(k) Plans,” OneAmerica Financial
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Amy L. Cavanaugh, “Managing 401(k) Plans: Investment Policy Statements: Now More
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Brian Ray Hodge, “Fraud and Fiduciary Liability,” Employee Benefits Journal, Dec 2003
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Securities Exchange Act of 1934,” U.S. Securities and Exchange Commission, 17 CFR Part 241,
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David A. Hildebrandt & Richard Libert, “A Primer on ERISA Fiduciary Responsibilities, DOL
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David Glovin, “Madoff Business Interests Include Mets Owner Wilpon’s Fund,” Bloomberg,
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Donald Stone, “Investment Selection and Monitoring: A Practical Approach to Best Practices,”
Plan Sponsor Advisors, January 2005
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“ERISA section 404(c) checklist,” Putnam Investments
Eugene F. Maloney, “The Investment Process Required by the Uniform Prudent Investor Act,”
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“Fact Sheet: Tips For Selecting And Monitoring Service Providers For Your Employee Benefit
Plan,” U.S. Department of Labor (http://www.dol.gov/ebsa/newsroom/fs052505.html), May
2004

40

“Fiduciary Planning Guide,” Putnam Investments, November 2010
Fred Reish & Franklin Santagate, “401(k) Investments: Satisfying ERISA’s Fiduciary Rules,”
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Fred Reish & Joe Faucher, “The 401(k) Fiduciary’s Duty To Prudently Select A Broad Range of
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“Investigation of Failure of the SEC to Uncover Bernard Madoff’s Ponzi Scheme, Public
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James E. Kemper & Jason E. Levine, “How Fiduciary Duties May Change In the Wake of
Enron,” Employee Benefit Plan Review, May 2003
James O. Wood, “Where Have All the Good Fiduciaries Gone?,” Benefits Quarterly, First
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41

Model Funds,” U.S. Department Of Labor, Federal Register Volume 68, Number 15, January
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Complaint (filed July 30, 2010), Goldweber, et al. v. Sterling Equities Associates, et al., No. 10Civ.-05786 (S.D.N.Y.)

42

Amended Complaint (filed March 18, 2011), Picard v. Katz, et al., No. 11-Civ.-3605 (S.D.N.Y.)
and No. 10-Adv.-05287 (Bankr. S.D.N.Y.)
Memorandum of Law in Support of the Sterling Defendants Motion to Dismiss the Amended
Complaint or, in the Alternative, for Summary Judgment (filed March 20, 2011)
Trustee's Memorandum of Law in Opposition to the Sterling Defendants' Motion to Dismiss or,
in the Alternative, for Summary Judgment (filed May 19, 2011)
Reply Memorandum of Law in Further Support of the Sterling Defendants' Motion to Dismiss
the Amended Complaint or, in the Alternative, for Summary Judgment (filed June 20, 2011)
Trustee's Supplemental Memorandum of Law in Further Opposition to the Sterling Defendants'
Motion to Dismiss the Amended Complaint or, in the Alternative, for Summary Judgment (filed
July 22, 2011)
Supplemental Memorandum of Law in Response to Supplemental Memorandum of the Trustee
and SIPC and in Further Support of Sterling Defendants' Motion to Dismiss or, in the
Alternative, for Summary Judgment (filed Aug. 12, 2011)
Decision by Judge Rakoff (filed Sept. 27, 2011)

43