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

Filing 153

DECLARATION of DANA M. SESHENS in Support re: 143 MOTION in Limine TO BAR USE OF PREJUDICIAL PHRASE., 145 MOTION in Limine TO EXCLUDE STERLING STAMOS DOCUMENTS.. Document filed by Charles 15 Associates, Charles 15 LLC, Charles Sterling LLC, Charles Sterling Sub LLC, College Place Enterprises LLC, Coney Island Baseball Holding Company LLC, Estate of Leonard Schreier, FFB Aviation LLC, FS Company LLC, Fred Wilpon Family Trust, Arthur Friedman, Ruth Friedman, Iris J. Katz and Saul B. Katz Family Foundation, Inc., Judy and Fred Wilpon Family Foundation, Inc., Amy Beth Katz, David Katz, Dayle Katz, Gregory Katz, Howard Katz, Iris Katz, 157 J.E.S. LLC, Air Sterling LLC, BAS Aircraft LLC, Jason Bacher, Bon Mick Family Partners LP, Bon-Mick, Inc., Brooklyn Baseball Company LLC, C.D.S. Corp., Michael Katz, Saul B. Katz, Todd Katz, Katz 2002 Descendants' Trust, Heather Katz Knopf, Natalie Katz O'Brien, Mets II LLC, Mets Limited Partnership, Mets One LLC, Mets Partners, Inc., Minor 1 (REDACTED), Minor 2 (REDACTED), L. Thomas Osterman, Phyllis Rebell Osterman, Realty Associates Madoff II, Red Valley Partners, Robbinsville Park LLC, Ruskin Garden Apartments LLC, Saul B. Katz Family Trust, Michael Schreier, Deyva Schreier Arthur, See Holdco LLC, See Holdings I, See Holdings II, Sterling 10 LLC, Sterling 15C LLC, Sterling 20 LLC, Sterling Acquisitions LLC, Sterling American Advisors II LP, Sterling American Property III LP, Sterling American Property IV LP, Sterling American Property V LP, Sterling Brunswick Corporation, Sterling Brunswick Seven LLC, Sterling Dist Properties LLC, Sterling Equities, Sterling Equities Associates, Sterling Equities Investors, Sterling Heritage LLC, Sterling Internal V LLC, Sterling Jet II Ltd., Sterling Jet Ltd., Sterling Mets Associates, Sterling Mets Associates II, Sterling Mets LP, Sterling Pathogenesis Company, Sterling Third Associates, Sterling Thirty Venture LLC, Sterling Tracing LLC, Sterling Twenty Five LLC, Sterling VC IV LLC, Sterling VC V LLC, Edward M. Tepper, Elise C. Tepper, Jacqueline G. Tepper, Marvin B. Tepper, Valley Harbor Associates, Kimberly Wachtler, Philip Wachtler, Bruce N. Wilpon, Daniel Wilpon, Debra Wilpon, Fred Wilpon, Jeffrey Wilpon, Jessica Wilpon, Judith Wilpon, Richard Wilpon, Scott Wilpon, Valerie Wilpon, Wilpon 2002 Descendants' Trust, Robin Wilpon Wachtler. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Exhibit C, # 4 Exhibit D, # 5 Exhibit E, # 6 Exhibit F, # 7 Exhibit G, # 8 Exhibit H, # 9 Exhibit I, # 10 Exhibit J, # 11 Exhibit K, # 12 Exhibit L, # 13 Exhibit M, # 14 Exhibit N, # 15 Exhibit O, # 16 Exhibit P)(Seshens, Dana)

EXHIBIT K

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C O N F I D E N T I A L

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
11-CV-03605(JSR)(HBP)

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IRVING H. PICARD, Trustee for
the Liquidation of Bernard L.
Madoff Investment Securities LLC,

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Videotaped
Deposition of:

Plaintiff,
PETER STAMOS

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vs.

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SAUL B. KATZ, et al.,
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Defendants.
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Transcript of testimony as taken by and before

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LESLIE ROCKWOOD, Certified Shorthand Reporter, RPR and

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Notary Public of the State of California, at the offices

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of Shearman & Sterling, Four Embarcadero, Suite 3800,

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San Francisco, California, on Thursday, January 5, 2012,

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commencing at 9:48 a.m.

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PICARD v. KATZ, et al.

CONFIDENTIAL

PETER STAMOS 1/5/12
229

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under management, average annualized return, standard

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deviation, Sharpe ratio, number of managers, number of

3

positive months, number of negative months and largest

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draw down.

5

A.

Yes.

6

Q.

Why would you provide those summary

7

statistics in a document like this Sterling Stamos

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Security Fund LP document?

9

A.

This would be standard practice for an

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institutional investor in particular, but also for

11

individual investors to want to know the answers to all

12

those questions:

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the size of the fund?

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returns?

What's the size of the firm?

What's

What are the average annual

What's the standard deviation?

15

These are the standard statistics that are

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generated by our firm on behalf of our fund to funds, and

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they are very similar to those statistics that we collect

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from the underlying fund managers that are also

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summarized for our potential investors and existing

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investors.

21

Q.

22

If you could turn to the -- page 23 of that

same document, Bates range, last three numbers, 8242.

23

A.

Yes.

24

Q.

Okay.

25

And do you see where it says,

"Professional senior investment team"?
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A.

Yes.

2

Q.

There's yourself.

Down lower, Saul B. Katz.

3

Was he one of the investment professionals of Sterling

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Stamos?

5

A.

In the general sense, yes.

At that time in

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2005 -- early part of 2005, I believe this still is

7

January, before we became a registered investment

8

advisor, we would often refer to Saul and David and Fred

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as part of our investment team, with the understanding

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being that their role was quite limited.

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But that they actually had a great deal of

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experience as investors, primarily in real estate, but

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also in private equity and, as we now know, to a limited

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extent in hedge funds.

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experience in hedge funds, but it turns out that the

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experience they had in hedge funds was primarily one

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manager.

18

relationship with us in the firm.

19

We thought they had deep

But we would emphasize their professional

Q.

And they were a member of your senior

20

investment team at or about the time of the date of this

21

document, which is December of 2004?

22

A.

As I described the senior investment team,

23

which was, in the general sense, they had no role in the

24

day-to-day operations of the investment team, but they

25

did provide us with introductions to potential managers,
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quite broadly.

2

their real estate network, through their sports network,

3

through their investments on running of Sterling American

4

Properties and in their joint venture with American

5

Securities and private equity that led to introductions

6

to numerous managers across all asset classes.

7

Q.

They had a very broad network through

If you could look at the second attachment,

8

it's entitled "A Sterling Stamos Security Fund LP

9

Marketing Supplement, October 2004," beginning Bates

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range of SSMT01238252.

11

A.

Is it the October '04 document?

12

Q.

Uh-huh.

13

A.

And which page would you like me to turn to?

14

Q.

If you could turn to page 4 of that document,

15

which is Bates range, last four digits, 8255.

16

A.

Yes.

17

Q.

The third bullet, "Access to the investment

18

expertise and experience of Sterling Stamos," do you see

19

that?

20

A.

Yes.

21

Q.

"The fund who has access to the business

22

expertise of Sterling Equities.

Sterling Equities was

23

founded by the Wilpon and Katz families who are

24

sophisticated investors with respect to hedge funds,

25

private equity and real estate.
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"In addition to providing perspective that

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only experience can generate, the networks of both the

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Wilpon and Katz families also provide the fund with

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proprietary sourcing and due diligence capabilities."

5

A.

Yes.

6

Q.

Was this document provided to investors in or

7

around October 2004?

8

A.

Yes.

9

Q.

And can you tell me what the proprietary

10

sourcing and due diligence capabilities of the Wilpon and

11

Katz families are that you're referring to there?

12

A.

I can give you specific examples.

So we

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emphasize the business experience of Sterling Equities

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through their business experience and their historical

15

experience of having invested in hedge funds, private

16

equity and real estate.

17

They had a very broad network of

18

relationships that they introduced us to.

19

example, Mr. Chuck Klein, and through Mr. Chuck Klein we

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were introduced to a manager named Michael Lowenstein,

21

who is an outstanding manager.

22

access to him without that, and that gave us exposure to

23

a great long/short equity manager.

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25

Q.

One was, for

We would not have had

And when it says -- references the Wilpon and

Katz families also provide the fund with due diligence
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capabilities, what does that mean?
A.

The networks of both the Wilpon and Katz

3

families do provide us with due diligence capabilities,

4

because part of due diligence is doing reference checks

5

on managers.

6

the extended experience, business experience, of them and

7

their extended network and our ability to do proprietary

8

sourcing, getting access to managers, as well as to do

9

due diligence.

10

And so our objective here was to express

I don't believe in any way that they brought

11

specific due diligence expertise on how to invest in

12

hedge fund managers, other than what I discussed before,

13

which is understanding the relationships and how to

14

develop trust with them.

15
16
17

Q.

Does it say in here that you don't believe

they have due diligence capabilities?
A.

No.

I said --

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MR. GOUDISS:

19

Go ahead.

20

THE WITNESS:

I object.

There -- due diligence starts

21

at the broad and goes to the very specific.

22

diligence expertise was at the very broad level.

23

broad level of understanding the nature of the

24

individuals that we're investing with.

25

was quite profound and allowed us to meet managers that
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Their due
At the

And their network

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were often closed to outside investors.

2

And the level of questioning that I would

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have of Saul, in particular, based upon his judgment, was

4

if he knew the manager, what he thought of that person as

5

an individual, could we trust them?

6

questions we had to answer, the trust and value based,

7

those are qualitative judgment calls.

8

part of due diligence.

9

most important parts.

10

So in the first nine

It's an important

I would argue it's one of the

And then on the quantitative side, you know,

11

can they actually do the job, can they execute on hedge

12

fund strategies and so on, that was our job.

13

Q.

BY MS. GRIFFIN:

Okay.

Page 11 of that

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document, Bates range, last four digits, 8262.

15

Saul B. Katz, it says, "Mr. Katz is a general partner of

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Sterling Stamos and is actively involved in the

17

investment decisions, as well as the management of

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Sterling Stamos."

19

Under

Was that true in or about October 2004?

20

A.

Yes.

At that time he was actively involved.

21

Again, with the caveat being that his active involvement

22

was, on the investment side at least, at the very general

23

level.

24
25

On the business side, very specific level.
Q.

And David Katz, it says, "Mr. Katz is a

general partner of Sterling Stamos and is actively
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involved in the investment decisions as well as the

2

management of Sterling Stamos."

3
4

Is that an accurate statement in or about
October 2004?

5

A.

Yes.

6

Q.

Okay.

7

A.

With the same caveat, at the general level on

8

the investment side.

9

side of it.

10

Q.

More specifically on the management

Were you marketing Mr. Katz's, Mr. Saul Katz

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and Mr. David Katz, their involvement with the fund to

12

your potential investors?

13

A.

Yes.

14

Q.

And did you inform your potential investors

15

that their -- strike that.

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MR. GOUDISS:

Thank you.

17

MS. GRIFFIN:

I'll save you the objection.

18

MR. GOUDISS:

You saved me the objection.

19

MS. GRIFFIN:

You're coughing so hard I felt

20

bad.

21

Q.

On page 3 of the first attachment -- my

22

apologies.

23

A.

Going back to the first?

24

Q.

Yes.

25

A.

Okay.

Jumping back.

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infective, but what David did have is -- and does have, I

2

believe, to this day, some of Saul's judgment and

3

instincts about people.

4

you know, counsel me in the same way, in this case not

5

like a father but more like brother, and ask me questions

6

about the managers.

7

days he even came on some manager interviews with us,

8

gave us some of his judgment.

9

deferred the investment decisions to us.

10

Q.

And so David would regularly,

And that's why I think in the early

But, again, like Saul, he

Now, you also testified in response to

11

questions to Ms. Griffin that you -- not you personally,

12

but Sterling Stamos was marketing Mr. Katz, Mr. Wilpon

13

and David Katz to potential investors.

14

Do you recall that?

15

A.

Yes.

16

Q.

And can you tell me why it is that Sterling

17

Stamos, or what was SP Capital at the time, was marketing

18

those individuals to potential investors?

19

A.

Because they had a, if you'll pardon the

20

phrase, sterling reputation in the New York area in

21

general -- I mean, in the investment world in general,

22

because of their remarkable track record in real state,

23

remarkable track record with American Securities and

24

private equity, and that gave us credibility.

25

addition to the fact that they owned the New York Mets,
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were at the time highly respected owners.

A portion of

2

the Mets, I believe, at the time.

3

they owned 50 percent or more at this point in time.

4

that opened doors both on the manager's side, the people

5

that we invested with.

6

know, use the cachet of the New York Mets and the ability

7

to have access to the owners' box and to throw out the

8

first pitch or to have a charitable event at Shea Stadium

9

as an incentive for hedge fund managers to consider us.

I don't know whether
And

Specifically they would, you

10

I think I got an allocation to Michael Lowenstein when he

11

asked for a charitable event that they could throw out

12

the first pitch or have a couple seats.

13

day I got access to him.

14

Then the next

That's on the one hand.

On the other hand, they had the reputation of

15

being savvy businessmen, very thoughtful, very credible.

16

And so a number of other limited partners who chose to

17

invest with us would do it under the halo of the fact

18

that Saul and Fred had chosen us as their investment

19

manager for a significant portion of their assets.

20

Q.

Okay.

Last set of questions.

Mr. Stamos, at

21

any point prior to December 11th, 2008, did you believe

22

that there was a high probability that Bernie Madoff was

23

engaged in fraud?

24

MS. GRIFFIN:

Objection.

25

THE WITNESS:

No.

If I had any inkling

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