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

Filing 167

DECLARATION of Regina Griffin 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. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2 - Filed Under Seal Pursuant to Protective Order, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5, # 6 Exhibit 6, # 7 Exhibit 7, # 8 Exhibit 8, # 9 Exhibit 9, # 10 Exhibit 10, # 11 Exhibit 11, # 12 Exhibit 12, # 13 Exhibit 13, # 14 Exhibit 14, # 15 Exhibit 15 -1, # 16 Exhibit 15 - 2)(Sheehan, David)

Exhibit 1

1

1

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

2

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

3
4
5

--------------------------------x

6

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

7
8

Plaintiff,

Videotaped
Deposition of:

v.
9

KEVIN M. BARCELONA
SAUL B. KATZ, et al.,

10
Defendants.
11
--------------------------------x
12
13
14
15

TRANSCRIPT of testimony as taken by and before

16

NANCY C. BENDISH, Certified Court Reporter, RMR, CRR

17

and Notary Public of the States of New York and New

18

Jersey, at the offices of Baker & Hostetler, 45

19

Rockefeller Plaza, New York, New York on Thursday,

20

December 15, 2011, commencing at 9:50 a.m.

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22
23
24
25

PICARD v. KATZ, et al.

CONFIDENTIAL

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A P P E A R A N C E S:

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3
4
5
6
7
8
9

BAKER & HOSTETLER, LLP
45 Rockefeller Plaza
New York, New York 10111
BY: MELISSA L. KOSACK, ESQ.
STACEY A. BELL, ESQ.
AMANDA FEIN, ESQ.
REGINA L. GRIFFIN, ESQ.
For Plaintiff, Irving Picard, Trustee
DAVIS POLK & WARDWELL, LLP
450 Lexington Avenue
New York, NY 10017
BY: ANDREW DITCHFIELD, ESQ.
For Sterling Equities and certain
affiliated entities

10
11
12
13
14
15
16

TANNENBAUM HELPERN SYRACUSE & HIRSCHTRITT, LLP
900 Third Avenue
New York, New York 10022
BY: TAMMY P. BIEBER, ESQ.
For Sterling Stamos Capital Management
and Kevin Barcelona
SHEARMAN & STERLING, LLP
599 Lexington Avenue
New York, NY 10022
BY: ALAN S. GOUDISS, ESQ. (a.m. only)
For Kevin Barcelona

17
ALSO PRESENT:
18
DANIEL McCLUTCHY, Videographer
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20
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25
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with a young company and then also, you know, share

2

in the growth and the benefits of a -- of building a

3

business.

4

Q.

Did you understand that you were

5

going to be a partner as part of Sterling Stamos at

6

this time?

7
8
9

A.
Q.

12

A.

15

I did receive a partnership interest

when I joined the firm.
Q.

13
14

Did you receive a partnership

interest at this time?

10
11

Yes, I did.

A.

When did you join the firm?

Q.

I guess officially April 12, 2004.
What was the partnership interest

that you received at that time?

16

A.

I was given 50 basis points of

17

part -- of equity in both Sterling Stamos Capital

18

Management, as well as an equivalent general partner

19

entity.

20

earned a 50 basis point interest in each.

21

Basically there are two legal entities.

Q.

I

What was the nature of the business

22

you understood that Saul Katz, Fred Wilpon and Peter

23

Stamos were going to build?

24
25

A.

They were going to build a

diversified fund of funds business, principally for
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1

A.

2
3

Q.

6

Did you know who Madoff was at that

time?

4
5

No, I did not.

A.

No, I did not.

Q.

Did you ever look into Saul Katz's

investments with Madoff?

7

MR. DITCHFIELD:

8

A.

9

responsibility.

10

Q.

11

A.
Q.

14
15
16

That was not my -- my

Did you ever look at Fred Wilpon's

investments with Madoff?

12
13

No, I did not.

Objection.

A.

No.
What position were you hired for?
Chief financial officer of Sterling

Stamos.
Q.

Did you receive any marketing

17

materials from Sterling Stamos prior to accepting

18

that position?

19
20

A.
Q.

I don't believe I did, no.
Did you receive an employment letter

21

as part of your engagement as CFO of Sterling

22

Stamos?

23

A.

I don't recall.

I mean, Peter and I

24

met and we laid out an agreement on paper, literally

25

a yellow pad.

I don't recall if I received an
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official letter or not, but shortly thereafter, I

2

obviously signed a partnership agreement as -- to

3

become a partner and have an ownership stake in

4

Sterling Stamos.

5
6

Q.

partnership agreement that you signed?

7

A.

8
9

Did Sterling Equities sign the

Q.

I -- I do not recall.
What were your responsibilities as

CFO when you joined Sterling Stamos in 2004?

10

A.

My principal responsibilities were to

11

handle the day-to-day accounting and activities of

12

the management company, as well as coordinate all of

13

the fund-related reporting for the funds that we

14

had.

15

investment funds.

16
17
18

And at that time I believe we had four

Q.

What does fund-related reporting

entail?
A.

Both the monthly capital account

19

reporting to investors.

20

providers and making sure that we get that

21

information, we review it and then that's provided

22

to the investor.

23

year-end annual audit and year-end tax reporting for

24

the funds.

25

Q.

So working with our service

As well as coordinating any

When you talk about monthly capital
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account reporting to investors, did Sterling Stamos

2

provide that document directly to the clients?

3

A.

I believe that Sterling Stamos was

4

directly responsible for delivering the statements

5

back in 2004, yes.

6
7

Q.

Did you have any other

responsibilities as CFO in 2004?

8

A.

Those were principally my

9

responsibilities.

Obviously I would partake in

10

investor meetings from time to time, if there were

11

questions about reporting or tax-related questions,

12

but a significant portion of my time was dedicated

13

to just, number one, managing my own professional

14

transition from managing 50 to 60 people to being

15

the only person in the organization responsible for

16

these functions.

17

my time until I, you know, built a team over time to

18

do that.

19

Q.

So that was the majority of my --

You say majority.

What other tasks

20

were you performing at that time, if you can recall,

21

in 2004?

22

A.

Just, you know, participating in

23

meetings with Peter, Kevin and Ashok about potential

24

new funds and strategies that we would -- new

25

Sterling Stamos funds that we would potentially
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create over time.

2

Q.

3

A.

4
5

Q.

So, basically just strategy.

Who did you report to in 2004?
Peter Stamos.
Did you report to anyone else in

2004?

6

A.

I -- I would work closely with Spiro

7

Stamos, who was the chief administrative officer at

8

that time.

9

Q.

And going back, what were the four

10

funds that you understood Sterling Stamos had

11

invested in at the beginning of their operations?

12

A.

Their legal names have changed over

13

time.

14

as of that time frame?

15
16

Would you like the legal names that existed

Q.
A.

In 2004, yes.
Okay.

I believe them -- I recall

17

them to be SP Capital Security Fund, LP, SP Capital

18

Security Fund - Friends & Family, LP, SP Capital

19

Security Levered Offshore Fund, Ltd., and SP Capital

20

Growth Fund, LP.

21
22

Q.
A.

Did those names change over time?
They changed -- the third fund I

23

mentioned I think changed a couple of times, but

24

they inevitably all changed to Sterling Stamos

25

Security Fund, LP.
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1
2
3
4

A.
Q.

Not that I'm aware of, no.
Did David Katz participate in any of

those meetings about launching new funds?
A.

Not that I'm aware of.

But they were

5

also -- you know, they were partners in the firm, so

6

those discussions potentially could have occurred,

7

but nothing that I'm aware of.

8
9
10
11
12
13

Q.

Did Fred Wilpon attend any of those

meetings about launching new funds?
A.
Q.

Not that I'm aware of.
Did you, in 2004, regularly

communicate with Saul Katz?
A.

My communications with Saul I would

14

not say were regular, but he would periodically call

15

me about the, you know, where we were from a

16

fund-related performance perspective.

17

where we were from an AUM perspective, and at some

18

point I took over a spreadsheet that would -- held

19

balances for all of their investment accounts with

20

Sterling Stamos, and I would be the owner of that

21

book and provide that to him periodically.

22

were -- there were a few key, you know, spreadsheets

23

that we maintained that were, again, performance,

24

AUM, their balances, and I became the owner of that

25

sometime in 2004.

He would ask

There

And that's really where our
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dialogue resided.

2
3

Q.

What fund-related performance did

Saul Katz ask for during these conversations?

4

A.

Any fund that he was invested in.

5

And back in 2004, he was invested in every Sterling

6

Stamos fund.

7

Q.

8

A.

9
10

Q.

What is AUM?
Assets under management.
What did fund-related performance

entail, specifically?

11

A.

The rate of return for the -- for

12

example, the Sterling -- the SP Capital Security

13

Fund was up one percent, you know, for the month of

14

July.

15
16

Q.

Was Sharpe Ratio part of this fund-

related performance?

17

MR. DITCHFIELD:

18

MS. BIEBER:

19

A.

Objection.

You can answer.

It likely was.

You know, I believe

20

there was a number of different analyses that were

21

provided, such as current return, year-to-date

22

return, inception-to-date return.

23

I believe, part of that analysis as well.

24
25

Q.

Sharpe Ratio was,

Do you recall any other analyses of

fund-related performance that you provided to Saul
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2

Katz during this time frame in 2004?
A.

The spreadsheet likely contained

3

positive months and negative months for the funds

4

themselves.

5
6
7

Q.

2004, about how many times did you

speak with Saul Katz per week?
A.

I -- it probably -- I probably didn't

8

speak to him on a weekly basis.

9

more periodic, but it was, you know, one to two

10

It was probably

times a month in 2004.

11

Q.

12

in 2005?

13

A.

How often did you speak to Saul Katz

It probably was more periodic.

14

probably averaged once a week.

15

again, the same questions would be around

16

It

performance, AUM, et cetera.

17
18
19
20
21

Q.

And it would --

And the et cetera, does that involve

what you discussed earlier, rate of return?
A.
Q.
A.

Yes.
Does it also include Sharpe Ratio?
I don't recall ever having a specific

22

conversation with him about Sharpe Ratios.

23

don't -- I don't, you know, recall him ever being

24

interested in the Sharpe Ratios.

25

Q.

I

In 2006, how many times did you speak
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standard protocol of communication from what I can

2

recall.

3
4
5

Q.

In 2005, did you communicate with

Saul Katz via email?
A.

6

Katz in 2005.

7

Q.

I'm sure I have sent an email to Saul

In 2005 did you have a regular

8

business practice at Sterling Stamos to communicate

9

with partners via email?

10

A.

I would -- again, there was one

11

particular spreadsheet that maintained the

12

information that we've discussed already regarding

13

capital account balances, but I would also say that

14

that information was generally sent to Saul and

15

follow-up questions would come from his accountant,

16

internal account at Sterling and not necessarily

17

always Saul.

18
19
20

Q.

Who did you understand Saul's

internal accountant to be?
A.

21

Maureen Hawa.

22

Q.

It would either be Arthur Friedman or

23
24
25

Did you understand Arthur Friedman to

be the internal accountant at Sterling Equities?
A.

That was my understanding of a part

of his role.
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2
3
4
5
6
7
8
9
10
11

A.
Q.

Approximately 2-1/2 billion.
What was Sterling Stamos' AUM by the

end of 2006?
A.
Q.

Approximately 3-1/2 to 4 billion.
What was Sterling Stamos' AUM by the

end of 2007?
A.
Q.

Approximately 5-1/2 billion or so.
What was Sterling Stamos' AUM by the

end of 2008?
A.
Q.

12

Approximately 5-1/2 billion.
Go back to your previous testimony.
Did you communicate with Arthur

13

Friedman in 2004?

14

A.

15
16
17
18
19

I don't recall any specific

communications with -- with Arthur.
Q.

Do you recall any general

communications with Arthur Friedman in 2004?
A.
Q.

Nothing that I recall.
Did you communicate with Arthur

20

Friedman in 2005?

21

A.

22
23
24
25

Q.

I believe I -- I believe I did, yes.
How frequently did you communicate

with Arthur Friedman in 2005?
A.
very periodic.

It was perhaps once a month.

It was

I think that I had requested -- or
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he -- again, I think it was with regard to kind of

2

performance information, but it was very periodic.

3

It was very infrequent.

4

probably not more than a half a dozen times, to my

5

recollection.

6

potentially cc'd on emails that either went to -- to

7

Maureen or Saul, but there was not a lot of dialogue

8

between me and Arthur.

9
10
11

Q.

I would, again, say it was

That doesn't mean that he wasn't

Did you communicate with Arthur

Friedman over the phone in 2005?
A.

I don't recall any specific

12

conversations.

13

communication was via email.

14

Q.

Again, I think most of our

And you said that that doesn't mean

15

that Arthur Friedman wasn't potentially cc'd on

16

emails that either went to Maureen -- are you

17

referring to Maureen Hawa?

18

A.

Yes.

That performance spreadsheet

19

matrix that I referred to before was -- it probably

20

went to Saul with it being cc'd to Arthur and

21

Maureen.

22

are very -- all very similar based amongst those

23

three people that we've discussed with so far.

24
25

Q.

That was -- you know, my communications

Did you provide the spreadsheet to

which you referred to any other Sterling Equities
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were, you know, managing his family's money, you

2

know, for -- you know, his family's money

3

represented a substantial portion of our firm's

4

capital base for probably the first, you know, 12 to

5

18 months of our existence.

6

Q.

When you say Saul Katz's money

7

represented a substantial portion of your firm's

8

capital base for probably the first 12 to 18 months

9

of our existence, do you know what percentage that

10
11

was?
A.

Well, we launched the firm in, in

12

October -- July or October of 2002 with about $30

13

million in our funds, and $30 million of our fund,

14

you know, that capital came from Sterling and its

15

related parties -- partners.

16

very conservatively anywhere between 50 and 100

17

percent of the capital that the firm managed for the

18

first year to year-and-a-half was Sterling's

19

equities and their related partners.

20
21
22

Q.

So, I would say that

And when you say "related partners,"

what did you understand that to be comprised of?
A.

Well, Saul, Fred, their trust, their

23

children, whether in trust or whether individually,

24

and then, you know, the other Sterling equity

25

partners as it may be, in no particular order, you
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Merrill Lynch transaction.

2

that investment committee?

3

A.

Who were the members of

At that time it would have been Peter

4

Stamos as the chair.

It would have been myself as

5

chief financial officer.

6

Kanover as general counsel.

7

-- I believe his title at that time was chief

8

investment officer or chief investment strategist.

9

I'm not quite sure on his titling, but Ashok would

It would have been Jared
Ashok Chachra as chief

10

have been a participant in that.

11

and, I'm sorry, and then the head of risk

12

management, who I think was Rohit Kumar at that

13

time, would have been represented as well.

14

Q.

Okay.

And I don't --

You testified that there was a

15

representative from operational due diligence.

16

was that representative?

17
18

A.
Q.

Who

That would have been me.
Was there a time when you had

19

operational due diligence responsibilities at

20

Sterling Stamos?

21

A.

Yes.

I had it in two distinct

22

periods.

One, after the Merrill Lynch transaction,

23

and based on a recommendation from them, was that we

24

needed to segregate our operations, operational due

25

diligence and risk management functions.
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post-transaction we reorganized and pulled different

2

members from different teams to form a diligence

3

team, which that I would oversee.

4

someone from the investment team who had a legal

5

background.

6

who was very good from a financials and operations

7

perspective.

8

reformulate our process and procedures.

9

was really -- it's a continuing process today but,

10

you know, we really kind of tried to redefine that

11

starting in, you know, from July 1 on.

12

know, we -- as part of the purchase agreement, we

13

were -- it was mandated that we go onsite and visit

14

all of our managers, you know, by I believe the end

15

of 2008.

16

with all of our managers based on, you know, the

17

requirement of the purchase agreement.

18
19
20

So we pulled

We pulled someone from the finance team

And we started to formulate -And that

And, you

So we embarked on a process of meeting

Q.

And when you say purchase agreement,

what are you referring to?
A.

I'm referring to the Merrill

21

Lynch/Sterling Stamos purchase agreement effective

22

July 1, 2007.

23

MS. KOSACK:

And, Tammy, we'd like to

24

request a copy of that document as well.

25

MS. BIEBER:

Okay.

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2

Q.

And just so we're clear, what does

operational due diligence mean?

3

A.

It is a -- it's an element of

4

evaluation of an underlying manager to assess their,

5

their operations, both from a financial statement

6

review perspective, as well as an infrastructure, to

7

evaluate whether the infrastructure process and

8

procedures they have in place are reasonable to

9

effectuate the investment style, investment thesis

10

that they're trying to, you know, effectuate.

11

Q.

And when you refer to "they're trying

12

to effectuate," who are you referring to in that

13

case?

14

A.

We're referring to the individual

15

fund managers that -- you know, and their

16

infrastructure that they have in place.

17

know, reasonable and sound to execute on strategy.

18

Q.

Is it, you

And earlier you testified that you

19

had two distinct periods where you were performing

20

operational due diligence.

21

period when you were performing --

22
23
24
25

A.
Q.
A.

When was the first time

I --- operational due diligence?
I oversaw the operation of the -MS. BIEBER:

Let her finish and

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2

THE VIDEOGRAPHER:

Going off the

record, the time is 1:57.

3

(Recess taken.)

4

THE VIDEOGRAPHER:

5

record.

6

BY MS. KOSACK:

7

Q.

We are back on the

The time is 2:14.

Mr. Barcelona, you testified that

8

people became interested in Sterling Stamos through

9

word of mouth.

10

A.

What did you mean by that?
Well, as we added new investors,

11

they, you know, shared their investment experience

12

and knowledge of the firm with other, you know, of

13

their friends and family and were introduced to the

14

firm and met with Peter and either, A, decided to,

15

you know, invest in our offerings or decided not to.

16

So, that's how I would describe kind of word of

17

mouth.

18

Q.

Did you ever provide any information

19

to potential investors looking to invest with

20

Sterling Stamos?

21

A.

Well, the firm over time evolved, you

22

know, what's termed in the industry pitch books that

23

describe the investment strategy of our funds and

24

their performance.

25

information that went into those books, such as the

I would have contributed to the

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performance and the current AUM of those funds, but

2

that would have been my contribution to the, you

3

know, product that would have been put in front of

4

them, in addition to the standard legal documents,

5

such as a private placement memorandum or a, you

6

know, limited partnership agreement or subscription

7

document, as it may be.

8
9
10

Q.

Would you have had any other

responsibilities with respect to the pitch book that
you just testified about?

11

A.

Other than providing kind of, you

12

know, information about the funds in respect to

13

performance and AUM, not that -- no, not that I can

14

recall.

15
16

MS. KOSACK:
for one second?

17
18

Can we go off the record

THE VIDEOGRAPHER:

Going off the

record, the time is 2:15.

19

(Brief discussion off the record.)

20

The VIDEOGRAPHER:

21
22

We are back on the

record, the time is 2:16.
Q.

Do you know who else at Sterling

23

Stamos provided contributions to the pitch book that

24

would be provided to potential investors?

25

A.

Can you define a certain time frame,
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1

because obviously it changes over the years, as

2

there have been many employees at the firm.

3

Q.

When was the first time in your

4

employment at Sterling Stamos that you worked on a

5

pitch book for potential investors?

6

A.

Again, I guess to clarify, as I would

7

have provided information.

I wasn't the creator or

8

the manager of these pitch books, but I would

9

imagine I would have provided, you know, certain

10

fund-related information within probably the first

11

couple months of my employment.

12

Q.

And during the first couple months of

13

your employment in 2004, do you know who else

14

provided information for the pitch books for

15

potential investors with Sterling Stamos?

16

A.

Kevin Okimoto and Peter and Ashok

17

would have had contribution to that document.

18

for others, I don't -- I don't know what their

19

contribution as it may have been, because they may

20

have delegated certain aspects of it to those

21

people.

22

Q.

As

What contributions did Kevin Okimoto

23

have to pitch books for potential investors with

24

Sterling Stamos?

25

A.

Since he was involved in client
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1

with Peter, Kevin and Ashok and, you know, over time

2

other people would get involved as their

3

contribution was needed.

4

on the time frame, it could have been, you know, a

5

variety of individuals.

6

always Peter, Kevin and Ashok while they were each

7

employed by the firm.

8
9
10

Q.

Did you know of any other Sterling

pitch books for Sterling Stamos?
A.

12

14

But, you know, it was

Stamos employees that provided contributions to

11

13

But, you know, depending

Well, I -MS. BIEBER:

Objection.

You can

answer.
A.

I would envision that it was given a

15

legal and compliance review by our particular

16

general counsels at that time.

17

you know, there were different general counsels at

18

different times in the firm's history.

19

have had an element of their review and

20

contribution.

21

other -- again, I didn't manage the process, so I

22

couldn't say that there was -- it was three or ten

23

people that inevitably had some form of input into

24

the -- into those books.

25

Q.

Which, obviously,

So it would

But I don't distinctly recall any

As far as their performance
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information that you testified was part of those

2

pitch books, were you responsible for providing

3

performance information?

4

A.

If there was fund-related performance

5

in those books, then I would have -- I would have

6

provided that information, or the team would have,

7

obviously, gone into our files to pull that data.

8

So, yes, it would have been information that would

9

have been under my purview.

10

Q.

When you see -- say, "the team would

11

have obviously gone into our files to pull that

12

data," to which team are you referring?

13

A.

I'm referring to the team that was

14

working on the pitch document, the group of

15

individuals that were perhaps putting that together.

16
17

Q.

Is that group comprised of Peter

Stamos?

18

MS. BIEBER:

Objection.

I think he's

19

answered this three different ways, and I think at

20

this point we're kind of calling for speculation.

21

MS. KOSACK:

22

that was working on this.

23

He referenced a team
I'm just trying to figure

out --

24

MS. BIEBER:

But he's told you --

25

MS. KOSACK:

-- if that's separate.

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Q.

Do you know for what purpose a

2

company overview, such as this document, would have

3

been prepared?

4

A.

To introduce the prospective

5

subscriber or interested party to our firm as a

6

whole and potentially our products.

7
8

Q.

preparing the company overview?

9
10

What role would have you had in

MS. BIEBER:

I think he's

answered this several times.

11

THE WITNESS:

12

MS. BIEBER:

13

Objection.

I have.
Go ahead and answer it

again.

14

A.

I would have provided the team

15

preparing that information any investment related --

16

any Sterling Stamos investment fund-related

17

performance, or any current AUMs for any particular

18

Sterling Stamos fund, and then would have

19

subsequently reviewed that information to insure

20

that it was inputted accurately.

21

Q.

And if you could -- we're going to

22

skip documents just for a second.

Going to the next

23

document, which starts with Bates number

24

SSMT00025980, do you have that document in front of

25

you?
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