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

Filing 163

MEMORANDUM OF LAW in Support re: 162 FIFTH MOTION in Limine To Deem Statements By Sterling Stamos Employees In The Course Of And In Connection With Their Employment By Sterling Stamos As Admissions of The Sterling Defendants.. Document filed by Irving H. Picard. (Sheehan, David)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
BERNARD L. MADOFF INVESTMENT
SECURITIES LLC,

Adv. Pro. No. 08-01789 (BRL)
SIPA LIQUIDATION
(Substantively Consolidated)

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

Adv. Pro. No. 10-5287 (BRL)

Plaintiff,
11-CV-03605 (JSR) (HBP)
v.
SAUL B. KATZ, et al.,
Defendants.

TRUSTEE’S MEMORANDUM OF LAW IN SUPPORT OF MOTION IN LIMINE No. 5
TO DEEM STATEMENTS BY CERTAIN STERLING STAMOS PARTNERS AND
EMPLOYEES AS ADMISSIONS OF THE STERLING PARTNERS

Baker & Hostetler LLP
45 Rockefeller Plaza
New York, New York 10111
Telephone: [phone]
Facsimile: [phone]
Attorneys for Irving H. Picard, Trustee for
the Substantively Consolidated SIPA
Liquidation of Bernard L. Madoff
Investment Securities LLC and Bernard L.
Madoff

TABLE OF CONTENTS
Page

I. 

PRELIMINARY STATEMENT .........................................................................................1 

II. 

ARGUMENT .......................................................................................................................2 
A. 

STERLING STAMOS’ PARTNERS AND EMPLOYEES ARE
AGENTS OF THE STERLING PARTNERS ........................................................ 2 
1. 

Background of Sterling Stamos .................................................................. 3 
a. 
b. 

B. 

July 2005: The Sterling Partners are Separated
from the Investment Side of the Partnership in
Response to Defendant Saul Katz’s concerns ................................. 6 

c. 
2. 

Pre-2005: The Sterling Partners Participate in Both
the Financial and Investment Side of the Partnership ..................... 4 

2007: Merrill Lynch Buys Half of Each Partner’s
Share of the Partnership .................................................................. 6 

Sterling Stamos Employees are Agents of the Sterling
Partners ....................................................................................................... 7 

STATEMENTS BY STERLING STAMOS PARTNERS AND
EMPLOYEES ARE ADMISSIBLE AGAINST THE STERLING
PARTNERS ............................................................................................................ 8 
1. 
2. 

Having Knowingly Retained the Fruits of Sterling Stamos’
Business, the Sterling Partners are Estopped from Denying
an Agency Relationship with Sterling Stamos’ Partners and
Employees ................................................................................................... 9 

3. 
C. 

Agency Principles Are Not Displaced by the Limited
Liability Structure of the Partnership Entity ............................................... 8 

The Sterling Defendants Are Not Mere “Limited Partners”
of Sterling Stamos ..................................................................................... 10 

THE STATEMENTS AT ISSUE WERE MADE DURING THE
COURSE OF AND RELATING TO MATTERS WITHIN THE
AGENTS’ AUTHORITY ..................................................................................... 11 

CONCLUSION ..............................................................................................................................17 

-i-

TABLE OF AUTHORITIES
Page(s)
CASES
Employers Insur. of Wausau v. Banco de Seguros Del Estado,
199 F.3d 937 (7th Cir. 1999) .....................................................................................................9
Gordon v. Ross,
No. 87 CIV. 7105 (VLB), 1994 WL 603020 (S.D.N.Y. Nov. 2, 1994), rev’d on other
grounds, 84 F.3d 542 (2d Cir. 1996) .......................................................................................11
Higgins v. Shenango Potter Co.,
256 F.2d 504 (3d Cir. 1958).......................................................................................................9
Kaplan v. United States,
133 F.3d 469 (7th Cir. 1998) .....................................................................................................9
Marine Midland Bank v. John E. Russo Produce Co., Inc.,
50 N.Y.2d 31, 427 N.Y.S.2d 961,968 (1980) ....................................................................10, 12
Pappas v. Middle Earth Condominium Ass’n,
963 F.2d 534 (2d Cir. 1992).......................................................................................................2
Pfizer Inc. v. F&S Alloys & Minerals Corp.,
856 F. Supp. 808 (S.D.N.Y. 1994).......................................................................................2, 11
Rockey River Dev. Co. v. German Am. Brewing Co.,
193 A.D. 197, 184 N.Y.S. 155 (4th Dep’t 1920) .....................................................................10
U.S. v. Kelley,
305 F. App’x 705 (2d Cir. 2009) ...............................................................................................2
U.S. v. Pilarnos,
864 F.2d 253 (2d Cir. 1988).....................................................................................................11
U.S. v. Saks,
964 F.2d 1514 (5th Cir. 1992) ...............................................................................................2, 8
United States v. Clark,
613 F.2d 391 (2d Cir. 1979).......................................................................................................2
United States v. Heffner,
916 F. Supp. 1010 (S.D. Cal. 1996) ...........................................................................................9
United States v. Sudeen,
434 F.3d 384 (5th Cir. 2005) ...................................................................................................10
Wallace ex rel. Cencom Cable Income Partners II, Inc., L.P. v. Wood,
752 A.2d 1175 (Del. Ch. 1999)..................................................................................................9

-ii-

TABLE OF AUTHORITIES
(continued)
Page(s)
STATUTES
15 U.S.C. §§ 78aaa et seq. ...............................................................................................................1
Delaware Revised Uniform Partnership Act § 15-301 ....................................................................9
RULES
Fed. R. Bankr. P. 2004 .................................................................................................................5, 8
Fed. R. Evid. 801(d)(2) .......................................................................................................... passim
Fed. R. Evid. 801(d)(2)(D) ................................................................................................1, 2, 3, 11
Fed. R. Evid. 801(d)(2)(E) ...............................................................................................................2
Rules 1972 Amendments .................................................................................................................2
OTHER AUTHORITIES
Restatement (Third) of Agency §1.01 (2006) ..................................................................................8
Restatement (Third) of Agency §4.01 (2006) ................................................................................10

-iii-

Irving H. Picard, as trustee (“Trustee”) for the substantively consolidated liquidation
proceedings of Bernard L. Madoff Investment Securities LLC (“BLMIS”) and the estate of
Bernard L. Madoff (“Madoff”), under the Securities Investor Protection Act (“SIPA”), 15 U.S.C.
§§ 78aaa et seq., by and through his undersigned counsel, hereby submits this memorandum of
law in support of his motion in limine to deem statements made by agents and/or employees of
the Sterling Partners1 in one of their businesses, Sterling Stamos Partners Capital Management,
LP (“Sterling Stamos”) as admissions by the Sterling Partners pursuant to Federal Rule of
Evidence 801(d)(2)(D).
I.

PRELIMINARY STATEMENT
The Trustee intends to introduce evidence obtained from the records of Sterling Stamos,

an entity that is partially owned by the Sterling Partners and which is a partnership between the
Sterling Partners and Peter Stamos. All Sterling Stamos records, documents and statements on
which the Trustee intends to rely at trial were created and/or adopted by agents of the Sterling
Partners in the scope of and during the existence of their agency, and therefore are non-hearsay
party admissions of the Sterling Partners for purposes of Fed. R. Evid. 801(d)(2)(D). Indeed,
having accepted and retained the benefits of their partnership in Sterling Stamos—including
millions of dollars in incentive and management fees and $115 million for the sale of only half of
their interest, the Sterling Partners of Sterling Stamos cannot now be heard to deny that
statements made by and on behalf of that partnership are admissible against them.

1

The Sterling Partners for purposes of this Motion are Saul B. Katz, Fred Wilpon, David M.
Katz, Richard A. Wilpon, Michael Katz, L. Thomas Osterman, Arthur Friedman, Jeffrey S.
Wilpon, Marvin B. Tepper and Gregory Katz.

1

II.

ARGUMENT
Rule 801(d)(2)(D) provides that a statement is not hearsay when it is “made by the

party’s agent or employee on a matter within the scope of that relationship and while it
existed[.]” Fed. R. Evid. 801(d)(2)(D) (2011). To establish a statement is admissible under the
Rule, the party seeking to introduce the declaration must show “(1) the existence of the agency
relationship, (2) that the statement was made during the course of the relationship, and (3) that it
relates to a matter within the scope of the agency.” Pappas v. Middle Earth Condominium Ass’n,
963 F.2d 534, 537 (2d Cir. 1992). Admissibility under this rule is subject to “liberal treatment.”
Id.; see also Committee Notes on Rules 1972 Amendments (calling for “generous treatment of
this avenue to admissibility”).
A.

STERLING STAMOS’ PARTNERS AND EMPLOYEES ARE AGENTS OF
THE STERLING PARTNERS

A statement of a party’s business partner, made during the course of the partnership and
in connection with its business, is admissible against the party. U.S. v. Saks, 964 F.2d 1514,
1524 (5th Cir. 1992); see also U.S. v. Kelley, 305 F. App’x 705, 707-08 (2d Cir. 2009) (tax
returns of defendant’s partnership were admissible as non-hearsay statement by party’s agent in
prosecution for securities fraud and wire frauds; the tax forms were signed by the managing
partner within the scope of his responsibilities to the partnership); Pfizer Inc. v. F&S Alloys &
Minerals Corp., 856 F. Supp. 808, 811 n.1 (S.D.N.Y. 1994) (statements by personnel of a “de
facto partner” constitute Rule 801(d)(2)(D) party-admissions); United States v. Clark, 613 F.2d
391, 403-04 (2d Cir. 1979) (statements of participants in joint venture admissible against jointventurer defendant under Rule 801(d)(2)(D) and (E)). Here, all documents sought to be offered
by the Trustee are statements by the Defendants’ partner Peter Stamos and/or employees or
agents he authorized to act on behalf of the partnership.

2

1.

Background of Sterling Stamos

Sterling Stamos was formed as a partnership between Peter Stamos and the Sterling
Partners, primarily Fred Wilpon and Saul Katz. (See excerpts from the Deposition of Peter
Stamos dated Jan. 5, 2012, at 14:19-23 attached to the accompanying Declaration of Regina
Griffin dated March 5, 2012 (“Griffin Decl.”).) Fred Wilpon and Saul Katz chose Peter Stamos
to be the Chief Executive Officer for Sterling Stamos (Id. at 196:19-23), which at first was to
serve as a family office for the Katz, Wilpon and Stamos families. (Id. at 28:9-14.)
Sterling Stamos is an investment manager of private investment funds created in 2002.
Fred Wilpon, Saul Katz and Peter Stamos structured an entity whereby the eight Sterling
Partners collectively owned fifty percent of Sterling Stamos as well as fifty percent of the
general partner of all of Sterling Stamos’ domestic private investment funds (the “GP entity”),
while Peter Stamos and the Stamos partners owned the other fifty percent of these entities. (See
Griffin Decl. Exh. 45.) A board of directors was established with Saul Katz and his son
representing the Sterling Partnership side and Peter Stamos and his father representing the
Stamos partnership side. (See Griffin Decl. Exh. 12 at 37:5-15.)
Sterling Stamos’ partnership agreement itself creates an agency relationship between its
partners—including the Sterling Partners—and the partnership’s partners and/or employees.
Pursuant to the partnership agreement, Peter Stamos, the individual authorized to act on behalf of
the General Partner of Sterling Stamos, is vested with broad authority to take any action he
deems “necessary or advisable or incidental” to carry out the purposes of the partnership. (See
Limited Partnership Agreement of Stamos Partners Capital Management, LP, dated June 15,
2002, at SE_T751849-1877; attached to the Griffin Declaration as Exh. 13; First Amended and
Restated Limited Partnership Agreement of Stamos Partners Capital Management, LP, dated
Dec. 31, 2003, at SSKW00019536-19544; attached to the Griffin Declaration as Exh. 14; Third
3

Amended and Restated Limited Partnership Agreement of Stamos Partners Capital Management,
LP, dated July 1, 2007, at SSMT02406282-6353, attached to the Griffin Declaration as Exh. 15.)
Among other things, the General Partner is and was entitled to appoint Partners to serve as
officers of the Partnership with such titles and responsibilities as the General Partner in its sole
discretion deems appropriate; and authorize any Partner, officer, employee or other agent to act
for and on behalf of the Partnership as to the foregoing and all matters pertaining thereto.
(Griffin Decl. Exh. 13, § 2.02(o)-(p), at SSKW00019543-4.)2 Under the Agreement, any limited
partner assigned by the General Partner to perform any duties relating to the partnership agrees
to perform those duties “diligently, faithfully and loyally. (Id. § 2.04(c), at SSKW00019544.)
Although the partnership has twice been restructured, as discussed below, the authority of the
General Partner and its agents to act on behalf of the partnership has not fundamentally changed
over the years.
a.

Pre-2005: The Sterling Partners Participate in Both the
Financial and Investment Side of the Partnership

Notwithstanding that Sterling Stamos was structured as a limited partnership with only
the General Partner authorized to act on behalf of the business, Sterling Stamos made no
significant business decision during the early years of its operation without Defendant Saul
Katz’s approval. (See Griffin Decl. Ex. 11, Rule 2004 Deposition of Peter Stamos, dated Aug.
19. 2010, at 63:2-4.) Saul Katz, whom Peter Stamos understood to be acting on behalf of all the
2

In addition to the Sterling Partners, the Partners of Sterling Stamos identified in the 2002
agreement include Noreen Harrington, Spiro Stamos, Derek Daley, Ellen Horing, Kevin
Okimoto, Ashok Chachra, Christopher Stamos, Basil Stamos. (See Griffin Decl., Ex.13, Sterling
Stamos Agreement, Bates No. SE_T751849, at 1877.) The schedule of partners identified in the
2003 agreement include non-defendants Spiro Stamos, Ellen Horing, Kevin Okimoto, and Ashok
Chachra. (See Griffin Decl., Ex.14, First Amended Sterling Stamos Agreement, Schedule A,
Bates No. SSKW00019536 at SSKW00019576.)

4

Sterling Partners (Griffin Decl. Exh. 12 at 16:18-23), was intimately involved in the financial
and business aspects of the business, including payroll, budget profitability and capital
expenditures. (Griffin Decl. Exh. 11 at 62:17-23; Rule 2004 Deposition of Saul Katz, dated Aug.
4, 2010, at 143:14-144:21, attached to the Griffin Declaration as Exh. 6.) The Board of Directors
consisted of Saul Katz and his son David, and Peter Stamos and his father Spiro Stamos.
(Griffin Decl. Exh. 12 at 37:5-15.) Peter Stamos understood that all decision-making authority
around final investment decisions, hiring and firing and acceptance and non-acceptance of
investors had been delegated to him by the Board, including Saul and David Katz. (Id. at 46:1247:7.)
A Sterling Stamos 2004 prospectus stated that “Saul and David Katz are general partners
of Sterling Stamos and actively involved in investment decisions as well as management of
Sterling Stamos.” (See Griffin Declaration Exh. 40.) Similarly, a hedge fund questionnaire
response identified Saul and David Katz as two of the four “primary portfolio decision makers”
at Sterling Stamos. (See Griffin Decl. Exh. 16 at SSMSAA0184408-10.) As Peter Stamos
testified, as of 2004-05:
[T]he Katz and the Wilpon and Sterling Equities partners represented a substantial
portion of all of the assets that we managed. So to call them our largest limited
partner would be an understatement . . . . If you included in that all of the referrals
that they made to us of limited partners who also chose to invest with us, the
Sterling Equities related investments, their investments with us, was a significant,
I believe, majority of the assets we had.
(Griffin Decl. Exh. 12 at 297:25-298:10.) Sterling Partners’ capital represented “very
conservatively” between 50-100% of the firm’s capital for the first year and a half. (See
deposition of Kevin Barcelona, dated Dec. 15, 2011, at 99:15-19, attached to the Griffin
Declaration as Exh. 1.)

5

b.

July 2005: The Sterling Partners are Separated from the
Investment Side of the Partnership in Response to Defendant
Saul Katz’s concerns

In July 2005, Sterling Stamos registered as an investment advisor with the Securities and
Exchange Commission. Saul Katz had expressed concerns that such registration would require
the Sterling Partners to disclose their relationship with BLMIS, which would endanger the
Sterling Partners’ relationship with Madoff. (Griffin Decl. Exh. 11 at 49:19-50:1; 50:12-16,
126:3-127:21.) In order to alleviate Saul Katz’ concerns, Sterling Stamos engaged in a physical
and legal restructuring to separate the Sterling Partners from the investment side of the business.
(Id. at 56:14-57:20.) The purpose of the Sterling Stamos restructuring was to separate “the
financial management of the business and the investment side of the business” (Id. at 63:21-24),
so that the Sterling Partners could continue to participate in Sterling Stamos without having to
disclose their investment in BLMIS to regulators. (Id. at 55:5-56:21.)
Saul Katz remained a member of the Board of Directors (Griffin Decl. Exh. 11 at 64:2565:8), where he continued to represent the Sterling Partners’ interests and remained responsible
for determining bonus incentive payments and the like. (See Deposition of Saul Katz, dated Jan.
13, 2012, at 125:20-126-22, attached to the Griffin Declaration as Exh. 7.)
c.

2007: Merrill Lynch Buys Half of Each Partner’s Share of the
Partnership

The Sterling Partners and the Stamos Partners each sold half of their respective interests
in Sterling Stamos and the GP entity to Merrill Lynch in 2007.3 Saul Katz participated in

3

At one point both Merrill Lynch and Citibank expressed interest in buying into Sterling Stamos.
Sterling Partners board meetings note that Saul Katz was to tell Peter Stamos that “if we don’t
sell we’ll be running [Sterling Stamos] on a bottom line basis.” See Griffin Decl., Ex. 17 at
SE_T668814.

6

negotiations on behalf of the “Sterling Equities side” of the partnership, conferring with Peter
Stamos (Griffin Decl. Exh. 12 at 237:9-238:25), and negotiating directly with Merrill Lynch on
certain matters. (See Deposition of Kevin Dunleavy, dated Dec. 21, 2011, at 69:20-70:22;
excerpts from the Dunleavy deposition are attached to the Griffin Declaration as Exh. 4.) Merrill
Lynch paid a total of $230 million for a fifty percent stake, half of which was paid out to the
Sterling Partners and half of which was paid out to the Stamos partners, proportionate to their
respective ownership stakes in the firm. (Griffin Decl. Exh. 12 at 239:19-23 and Exh. 2.) Saul
Katz continued to participate actively on the Sterling Stamos Board. (See Griffin Decl. Exhs. 19
and 20.)
2.

Sterling Stamos Employees are Agents of the Sterling Partners

Each of the partners of Sterling Stamos, including the Sterling Partners, authorized Peter
Stamos, and any employee or agent Peter Stamos chose, to act on their behalf for any and all
matters connected with the partnership. Each partner provided Peter Stamos or his designee
power of attorney to execute any document of “any kind necessary or desirable to accomplish the
business, purpose and objectives of the Partnership.” (Griffin Decl. Exh. 14, § 9.02(b) at
SSKW00019565.) To the extent any partner was assigned to perform any duties in connection
with the partnership, each assumed a fiduciary duty to the partnership. These are textbook
examples of a principal/agency relationship, in which each Sterling Stamos partner authorized
the General Partner and any other partner or employee who act on his or her behalf in
furtherance of the partnership. See Restatement (Third) of Agency §1.01 (2006); Saks, 964 F.2d
at 1524 (“[T]he declarations of one partner made during the existence of the partnership and in
relation to its affairs are admissible against the other partners even if the declarant is not a party
to the action.”).

7

Authorizing another to act on one’s behalf is the essence of an agency relationship. “A
principal’s failure to exercise the right of control does not eliminate it.” Restatement (Third) of
Agency §1.01, cmt. C (2006). An anecdote described by Peter Stamos makes this point clearly.
Peter Stamos testified that at one point early on, Fred Wilpon confronted him in the hallway and
asked why Peter Stamos had fired “their friend.” Peter Stamos explained his reasoning, to which
Fred Wilpon replied, “That’s exactly why it is I chose you.” (Griffin Decl. Exh. 12 at 35:5-6;
Rule 2004 Deposition of Ashok Chachra, dated Oct. 8, 2010, attached as Exh. 3 to the Griffin
Decl. at 94:4-96:14.)
The breadth of the authority delegated by the partners to Peter Stamos is relevant only, as
discussed below, to show that virtually any act undertaken by him or anyone he employed or
engaged on behalf of Sterling Stamos was within the scope of his agency.
B.

STATEMENTS BY STERLING STAMOS PARTNERS AND EMPLOYEES
ARE ADMISSIBLE AGAINST THE STERLING PARTNERS
1.

Agency Principles Are Not Displaced by the Limited Liability
Structure of the Partnership Entity

The Sterling Defendants’ prior arguments about “control” suggest that they will argue
that ordinary agency principles do not apply because Sterling Stamos was a limited partnership.
But whether and to what extent the partners’ liability for acts of the partnership or its agents may
be limited is not relevant to the question of whether the agency relationship exists.4 A principal
on whose behalf an agent acted remains a principal even if his liability for those acts is capped at
4

Indeed, the common law of agency has been codified in Delaware state law. See Delaware
Revised Uniform Partnership Act § 15-301 (each partner is an agent of the partnership whose
acts in the ordinary course of partnership business bind the business); see also Wallace ex rel.
Cencom Cable Income Partners II, Inc., L.P. v. Wood, 752 A.2d 1175, 1180 (Del. Ch. 1999)
(“Unquestionably, the general partner of a limited partnership owes direct fiduciary duties to the
partnership and to its limited partners.”)

8

the amount of his capital investment. Thus, for example, the common law principle that notice
to one general partner constitutes notice to all partners applies to limited partners as well as
general partners. Kaplan v. United States, 133 F.3d 469, 475 (7th Cir. 1998); see also Employers
Insur. of Wausau v. Banco de Seguros Del Estado, 199 F.3d 937, 944 (7th Cir. 1999) (explaining
that Kaplan was based on principle that partnership is a “web of interlocking agency
relationships, in which each principal is imputed actual knowledge from the knowledge of any of
his agents” and applying principle to facts before it); Higgins v. Shenango Potter Co., 256 F.2d
504, 510 (3d Cir. 1958) (rule that notice to any partner is imputed to all partners whether or not
partnership is a limited or general partnership; “limitations on liability have no relevancy to a
limited partner’s being held to answer for profits realized on his contribution to the capital of the
partnership”).
Indeed, a limited partnership can be held criminally liable for specific intent crimes of its
general partner, with the attending legal consequences to the limited partner. See United States
v. Heffner, 916 F. Supp. 1010, 1012, n.5 (S.D. Cal. 1996) (rejecting limited partnership’s
argument that it could not be held liable for the acts of the president of the general partner and
noting that determination of limited partner of limited partnership’s “innocent owner” defense to
forfeiture proceeding was not ripe until after conviction). As the court in that case noted, “a
business entity cannot create a second, or a third business entity and argue that vicarious liability
cannot be imputed through the various layers of entities.” Id. at 1012.
2.

Having Knowingly Retained the Fruits of Sterling Stamos’ Business,
the Sterling Partners are Estopped from Denying an Agency
Relationship with Sterling Stamos’ Partners and Employees

The Sterling Partners cannot disavow the existence of an agency relationship with the
Sterling Stamos partners and employees when they have accepted and retained the benefits of the
partnership—which include management fees, incentive fees, and $115 million from Merrill
9

Lynch for half of their partnership interest. “[K]nowing acceptance of the benefit of a
transaction ratifies the act of entering into the transaction. This is so even though the person also
manifests dissent to becoming bound by the act’s legal consequences.” Restatement (Third) of
Agency §4.01 cmt. D (2006); See Marine Midland Bank v. John E. Russo Produce Co., Inc., 50
N.Y.2d 31, 44, 427 N.Y.S.2d 961,968 (1980) (“A principal that accepts the benefits of its agent’s
misdeeds is estopped to deny knowledge of the facts of which the agent was aware.”) (citing
Rocky River Dev. Co. v. German Am. Brewing Co., 193 A.D. 197, 201, 184 N.Y.S. 155, 158 (4th
Dep’t 1920) (discussing the rule that a principal is precluded from denying knowledge possessed
by their agents, where a fraudulent transaction has worked out to the material benefit of the
principal because “such a principal, even though ignorant and innocent, cannot receive the
benefits of such a fraudulent transaction without adopting, as an incident thereto, the means used
by the agent to produce the result”).
3.

The Sterling Defendants Are Not Mere “Limited Partners” of Sterling
Stamos

Whether or not the Sterling Partners’ liability for the conduct of Sterling Stamos is
limited under Delaware partnership law, they were and are full partners in the partnership—both
Sterling Stamos and the GP entity—for purposes of an agency analysis. No formal
documentation is necessary to create an agency relationship; it can be established by the conduct
of the actors. See, e.g., U.S. v. Pilarnos, 864 F.2d 253, 257 (2d Cir. 1988) (evidence that
defendant and declarant agreed that declarant would act as agent in criminal negotiations
satisfied Rule); United States v. Sudeen, 434 F.3d 384, 390-91 (5th Cir. 2005) (evidence that
investors had believed that individual was defendant’s “associate” or “business partner”
sufficient to satisfy Rule).

10

In addition to all the conduct described above, the Sterling Partners are members and part
owners of the General Partner of all of Sterling Stamos’ domestic funds. They were fifty percent
owners, and even now remain twenty five percent owners, of Sterling Stamos itself. At all times,
both before and after the sale to Merrill Lynch, the interests of the “Sterling side” of the
partnership have been represented on the Board of Directors, which is responsible for the
business operations of Sterling Stamos and which Peter Stamos views as the source of his
authority, by Saul Katz. (Griffin Decl. Exh. 12 at 37:10-12, 46:12-23, 281:1-7.) Such a de facto
partnership establishes that each of the partners is an agent of the other for purposes of
admissibility of statements made in connection with the partnership. Pfizer, 856 F.Supp. at 811
n.1 (S.D.N.Y. 1994) (statements of personnel of a “de facto partner” suffice for the purposes of
Rule 801(d)(2)(D) party-admissions); see also Gordon v. Ross, No. 87 CIV. 7105 (VLB), 1994
WL 603020 at *1 (S.D.N.Y. Nov. 2, 1994), rev’d on other grounds, 84 F.3d 542 (2d Cir. 1996)
(statements by the defendant-president and founder of a clearing broker that he considered two
different executive “equal partners” with himself, even though the referenced executives made
no capital contributions when they joined the firm, sufficed to admit statements of one of those
executives against the defendant as a party-opponent admission).
C.

THE STATEMENTS AT ISSUE WERE MADE DURING THE COURSE
OF AND RELATING TO MATTERS WITHIN THE AGENTS’
AUTHORITY

Applying basic principles of agency here, it is clear that Sterling Stamos’ business
records, and statements authored by and/or adopted by its partners, employees and other
authorized agents within the scope of their agency and employment, are binding admissions upon
the partners of the business, including the Sterling Partners.
The Sterling Stamos partnership was organized to provide “a full range of investment
advisory and management services, and acting as an investment manager or management
11

company. (See Griffin Decl. Exh. 13, Sterling Stamos Agreement, § 1.03 “Purposes of the
Partnership,” at SE_T751849-1852.) Sterling Stamos also used a mission of corporate
philanthropy to solicit investors. As part of this effort, Sterling Stamos adopted a mission to
donate a substantial portion of its profits to philanthropic causes. (See Deposition of Basil
Stamos, dated Jan. 3, 2012, at 14:7-9; attached to the Griffin Declaration as Exh. 9.) Basil
Stamos testified that Peter Stamos’ objectives for Sterling Stamos were to “build a world-class
investment company that had a strong social conscience and a strong philanthropic arm; that we
would do something that other firms didn’t do, and that was to give a substantial portion of our
profits to good work.” (Id. at 30:14-22.)
All partners in Sterling Stamos, including the Sterling Equities partners, were responsible
for marketing their funds to potential investors and to solicit additional investors. Griffin Decl.
Ex. 12 at 30:19-32:17. The profits of the Sterling Stamos business, including 1% management
fees and 10% Asset Under Management incentive fees, were split among the partner-owners,
including the Sterling Equities Partners, according to the respective allocations set forth in the
governing partnership agreements. (See Griffin Decl. Exh. 13, § 3 “Capital Accounts of Partners
and Operations Thereof,” at SE_T751849-1866; Griffin Decl. Exh. 14, § 3 “Capital Accounts of
Partners and Operations Thereof,” at SSKW00019522-19557.) In addition, the Sterling Equities
reaped more than $115 million for the sale of 50% of their ownership interests to Merrill Lynch
in 2007.
As a matter of law, because the Sterling Equities Partners reaped the benefits created by
the work and actions of their Sterling Stamos agents and partners, they are estopped from
denying the existence of that agency relationship. See Marine Midland Bank, 50 N.Y.2d at 44.

12

Thus the statements made and/or adopted by Sterling Stamos’ partners and/or agents in
the course of the partnership’s business activities of i) soliciting, marketing and communicating
with investors regarding their investments, ii) identifying, evaluating and managing investment
managers and vehicles, are admissions of the Sterling Partners pursuant to Fed. R. Evid.
801(d)(2)(D). This includes all statements made by the following partners and/or employees of
Sterling Stamos and documents and statements created or adopted during the course of their
partnership and/or employment relationship and within the scope of their
duties/employment/agency:
1. Peter Stamos – Was at all times Sterling Stamos’ Chief Executive Officer. (Griffin
Decl. Exh. 12 at32:1-20.) The partners of Sterling Stamos, including the Sterling Equities
Partners, expressly authorized Peter Stamos to act as their general partner and agent to make all
decisions for the benefit of the Sterling Stamos partnership, including final investments
decisions, management decisions, and hiring decisions. (Griffin Decl. Exh. 12 at 32:12-33:3;
46:12-20.) Thus all statements by Peter Stamos in the course of conducting Sterling Stamos’
business -- including statements to investors about their investments, statements to investment
managers, statements to other SS employees about the business of Sterling Stamos -- are
admissions of the Sterling Partners under Fed.R.Evid. 801(d)(2)(D). (See, e.g., Griffin Decl.
Exhs. 22 and 23.)
2. Kevin Okimoto -- Between July 2002 and June 2009, Kevin Okimoto served as head
of the Investment Management Group and/or Chief Operating Officer of Sterling Stamos.
Okimoto was also a founding partner of Sterling Stamos with the Sterling Partners. He was
responsible for developing and maintaining investor relations, preparing marketing materials on
behalf of the partnership, and performing due diligence analyses on fund managers. (See

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Deposition of Kevin Okimoto, dated Jan. 6, 2012, at 24:16-19; 31:23-32:17, true and correct
copies of which are attached to the Griffin Declaration as Exh. 8.) Thus, the statements
Okimoto made to investors and the statements he prepared, reviewed and/or authorized to be
made by other Sterling Stamos employees or agents to potential and/or existing investors, are
admissions which bind the Sterling Stamos partners, including the Sterling Partners pursuant to
Fed.R.Evid. 801(d)(2)(D). (See, e.g., Griffin Decl. Exhs. 33-37.)
3. Derek Daley -- Between 2002-2003 and 2008-2010, Derek Daley was a partner in
Sterling Stamos with the Sterling Partners. He served in numerous capacities at Sterling Stamos,
including acting as its General Counsel and its Chief Operating Officer. Statements made by
Daley in the course of conducting Sterling Stamos’ business, to the extent not protected by
attorney-client privilege or the work product doctrine, are admissions of the Sterling Partners.
(See, e.g., Griffin Decl. Exhs. 38 and 39.).
4. Ashok Chachra – Ashok Chachra began his career at Sterling Stamos as an
investment associate in 2002, later acting as a Portfolio Manager in 2004, then Senior Portfolio
Manager in 2005, finally serving as Sterling Stamos’ Chief Investment Strategist until he left the
company in 2010. (Griffin Decl. Exhs. 3 at 50:4-51:1, 320:14-17; and Exhs. 25 and 40.)
Chachra also was a founding partner of Sterling Stamos. (Griffin Decl. Exh. 11 at 118:23119:11.) Chachra’s responsibilities included meeting with and conducting due diligence of new
and existing investment managers for Sterling Stamos and overseeing teams that conducted due
diligence and fund analysis. (Griffin Decl. Exh. 3 at 51:13-52:5 and 25.) Thus, the statements
Chachra made in the course of those activities on behalf of the Sterling Stamos partnership are
admissions of the Sterling Partners under Fed.R.Evid. 801(d)(2)(D). (See, e.g., Griffin Decl.
Exhs. 41 and 44.)

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5. Rohit Kumar – Rohit Kumar served as Sterling Stamos’ Managing Director of Risk
from July 2005 until March 2010. (Griffin Decl. Ex. 25 and 43at ML&CI000006546; Ex. 12 at
249:1-250:6.) His responsibilities included control of risk and volatility and he reported on that
subject to clients, as well as attended meetings with clients and answered questions. (Griffin
Decl. Ex. 10, Litigation Deposition Testimony of Chris Stamos, dated January 4, 2012 , 68:969:12.) Thus, the statements Kumar made in the course of those activities on behalf of the
Sterling Stamos partnership are admissions of the Sterling Partners under Fed.R.Evid.
801(d)(2)(D). (See, e.g., Griffin Decl. Exhs. 41 and 42)
6. Kevin Barcelona – Kevin Barcelona is Sterling Stamos’ Chief Financial Officer
(“CFO”), a position he has held since April 2004. (See Griffin Decl. Exh. 1 at 42:12-13; 46:1315.) His responsibilities include the accounting and activities of Sterling Stamos management
company, coordinating fund-related reporting to investors and partners, fund strategy, and audit
and tax reporting. (Id. 47:8-49:1.) He also performs operational due diligence to evaluate
Sterling Stamos investment managers and participates in the preparation of marketing materials.
(Griffin Decl. Ex. 1 at 121:18-122:22; 123:1-17, 145:7-146:7; 147:3-11; 150:25-151:9; 187:1-6.)
Thus, the statements Barcelona made to Saul Katz and other Sterling Equities partners, and the
statements he prepared, reviewed and/or authorized to be made by other Sterling Stamos
employees or agents to potential and/or existing investors, are admissions which bind the
Sterling Stamos partners, including the Sterling Equities partners pursuant to Fed.R.Evid.
801(d)(2)(D). (See Griffin Decl. Exhs. 25-28.)
7. Chris Stamos – Chris Stamos began working with Sterling Stamos during the winter
of 2003 and ultimately became its Chief Operating Officer until approximately June/July 2007.
(Griffin Decl. Ex. 10, at 14:17-15:7; 84:8-13; 185:2-16.) Chris Stamos has also been a partner in

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Sterling Stamos with the Sterling Partners since approximately winter 2003 up through to the
present day. (Id. at 79:15-80:11.) Chris Stamos’ responsibilities included assisting with the
development of Sterling Stamos’ marketing materials to clients, co-branding efforts between
Stamos and Sterling Equities, which led to the development of the Sterling Stamos logo,
interacting with clients, developing and maintaining investor relations, hiring staff for the IT and
accounting departments and general operational tasks. (Id. at 15:1-7; 34:23-35:15; 75:15-21;
84:18-85:6) Thus, the statements Chris Stamos made to investors and the statements he
prepared, reviewed and/or authorized to be made by other Sterling Stamos employees or agents
to potential and/or existing investors, are admissions which bind the Sterling Stamos partners,
including the Sterling Equities partners pursuant to Fed.R.Evid. 801(d)(2)(D). (See Griffin
Decl. Ex. 32 and 25.)
8. Basil Stamos – Basil Stamos was the head of Sterling Stamos’ corporate philanthropy
division from approximately December 2003 to June/July 2007. (Griffin Decl. Ex. 9 at 13:914:4.) Basil Stamos has also been a partner in Sterling Stamos with the Sterling Partners since
December 2003 up through to the present day. (Id. at 15:11-17; 16:13-20; 63:4-8.) Basil Stamos
was responsible for selecting appropriate humanitarian causes for Sterling Stamos to dedicate
their capital. (Id. at 14:10-21.) Additionally, Basil Stamos interacted with potential Sterling
Stamos investors regarding Sterling Stamos’ philanthropic projects. (Id. at 24:13-20.) After
December 11, 2008, Basil Stamos sent emails to several of Sterling Stamos’ philanthropic
partners to avoid any confusion with Sterling Equities’ Madoff investments and emphasize that
there was no concern with respect to Sterling Stamos’ donations because the firm was solvent as
Peter Stamos had correctly advised the firm not to invest with Madoff. (Id. at 70:2-71:5; 82:983:25; 87:11-88:1; 94:14-96:3.) Thus, the statements Basil Stamos made to investors,

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specifically Sterling Stamos’ philanthropic partners, are admissions which bind the Sterling
Stamos partners, including the Sterling Equities partners pursuant to Fed.R.Evid. 801(d)(2)(D).
(See, e.g., Griffin Decl. Exhs. 30 and 31.)
CONCLUSION
For the foregoing reasons, the Trustee respectfully requests that the Court deem
statements made and/or adopted by agents and/or employees of Sterling Stamos in the course of
their agency as admissions of the Sterling Partners pursuant to Federal Rule of Evidence
801(d)(2)(D).
Dated:

New York, New York
March 5, 2012

Respectfully submitted,
By: /s/ David J. Sheehan
BAKER & HOSTETLER LLP
45 Rockefeller Plaza
New York, New York 10111
Telephone: [phone]
Facsimile: [phone]
David J. Sheehan
Email: [e-mail]
Fernando A. Bohorquez, Jr.
Email: [e-mail]
Regina L. Griffin
Email: [e-mail]
Tracy L. Cole
Email: [e-mail]
Attorneys for Irving H. Picard, Trustee for the
Substantively Consolidated SIPA Liquidation
of Bernard L. Madoff Investment Securities
LLC and Bernard L. Madoff

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