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

Filing 170

DECLARATION of Regina Griffin Completed With Exhibits 31 to 45 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 31, # 2 Exhibit 32, # 3 Exhibit 33, # 4 Exhibit 34, # 5 Exhibit 35, # 6 Exhibit 36, # 7 Exhibit 37, # 8 Exhibit 38, # 9 Exhibit 39, # 10 Exhibit 40, # 11 Exhibit 41, # 12 Exhibit 42, # 13 Exhibit 43, # 14 Exhibit 44, # 15 Exhibit 45)(Sheehan, David)

Exhibit 39

From:
Sent:
To:

Subject:

Derek S. Daley
Wednesday, August 13, 2003 12:18:06 AM
Peter Stamos
FW: Levered fund

Peter:

Poter, I'm very worried about the possibility you conceded at the meeting this morning (and I
stilt hope is remote) that Ezra Merkins Ascot fund is simply a "feeder"fund into Bernie Madoff
fund. lt raises several issues: his trustworthiness (inasmuch as I assume he told you otherwise or,
at a minimum, failed to disclose it as a material feature of his operations) and the impact on the
portiolio (considering that it would reveal two levels of the opaqueness our lunds claim to avoid -that of Merkin's fund and the oft-mentioned impenetrable veil that shrouds the BM fund).
But I'm even more interested in extracting you from a troubling situation in which you've
invested so much personal capital. Both Kevin and Ashok have mentioned (Kevin in response to
this morning's concession and Ashok in response to a meeting yesterday with an investor who
apparently received a troubling, although admittedly less than express, "confirmation' of Merkin's
piggy-backing) the potential for a troubling inconsistency between our professed insistence on
transparency and the presence of less than transparent investments in the portfolio. If Merkin's
funds are feeders, we should immediately cease claiming transparency in our conversations with
investors (and I should stop telling investors that in an unregulated environment we provide a
form of surrogate oversight over portfolio funds by obtaining access to and reviewing positionlevel information otherwise unavailable or difficult to obtain).
Attached is the e-mail I sent you last June about the portfolio meeting with Saul that provoked
your less-than-kind "youre 100% off base" response. At the portfolio meeting and in the
conveisalion willi me that followed this e-mail, you expressed confidence that Merkin's funds
were sufficiently transparent to justify investment in them. You also stated to me that the alleged
lack of transparency was a function of Noreen's inability to listen (and ask probing questions), a
flaw to which we were all witness, the group's collective protection of you for the slight you
suffered at Merkin's hands and the inherent constraints ori fully disclosing an "options" strategy.
And you dismissed the extraordinarily high correlation between the two funds (Merkin's and BM's)
as the inevitable result of pursuing similar "options" strategies. You were equally convinced that
Merkin, with appropriate pressure, would disgorge whatever information he was incorrectly
accused of concealing.
I'm sure that I was not the only persan to whom you expressed confidence in Merkin.
The important point --our principal investor, Saul, has expressed his indifference to (indeed,
enthusiasm for) including a strategy that mirrors that of Madoff, whatever its opaqueness. The
bad news -- not all of our investors share Saul's views.
Let me know if I can help.
Derek

----Original Message
Irom: Derek S. Daley
Sent: Wednesday, June 18, 2003 7:28 PM
To: Peter Stamos
Subject: FW: Levered fund
Peter:

I asked Ashok about the process of resolving the rather heated discussion today (to which
the personal fued/stalemate between you and Noreen admitted no compromise) about whether
and the extent to which the levered fund should swap into Ezra's Ascot fund. He received the
attached message from you at the same time.
I'm confused. How do decisions get made concerning the portfolio? Although circumstances

Wit:__Da te:

Leslie RockWOOd CSR RPR

SS MT02406074

SSMSAA24O6O74
SSMSAA24O6O74

were ripe for compromise on this and the issue ofthe equity managers, neither you nor Noreen
would budge, despite the impassioned and entirely sober pleas of Saul and Ellen to compromise.
And then, with issues still apparently open, you confirm a $1 .5 to $3 million investment in Ascot!
Admittedly I stepped out to attend to other urgent business but I think I caught the gist of the
conversation about Ezra. [Incidentally, as an entirely unschooled observor, the combination of
lack of transparency, history of betrayal to you and Noreen and assessment that market
conditions no longer validate [zra's approach to options leaves me seriously unimpressed with
Ezra'a track record and historical performance]. But I'm willing to defer to your better judgment
Where I cannot defer, however, is as to process, which is seriously broken. Saul expressed
the substance, the characteristics of the fund (e.g., conservative, no pejoratively described "high
octane" players, etc.), very well. Unfortunately, I make investment decisions on the basis of
substance and process. When people I love and respect sit down and have intelligent, thoughtful
discussions and ori that basis reach a consensus that the participants embrace as perhaps less
than the ideal fund but neverthetess a skillfully crafted, well-balanced fund, I invest. I did not
witness that today.
This afternoon's conversation, Marketing lA -- in which the company sits with customers to
design a product that meets their needs -- was long overdue. lt should have taken place with
Saul three months ago. Nevertheless, what I found fascinating was that no one disagreed with
Saul's objective. The argument was over how we get there and it's unfair to paint one side as
having as its objective "home runs" or a search for "high octane" players.
People can disagree on the appropriate balance of the factors you outlined at the start of the
meeting. They can even disagree about the assessment of a certain managers qualitative and/or
statistical merit (e.g., whether Ezra is or is likely to be transparent, whether the historical data is
meaningful as applied to certain managers). Disagreements are healthy. They promote
thoughtful reconsideration, especially among people as gifted as you, Noreen, Ashok and Ellen.
But these disagreements were something else-- uncompromising, unyielding and expressed in
very personal terms (e.g., Noreen drawing clear battle lines between us (the portfolio group) and
you). lt was unproductive and, when focused on inconsequential amounts $250,000 to $1 million
in a $50 to $60 million fund, laughably absurb.
I sat there is complete horror. Watching a group of exceptionally skilled and gifted people
about whom I care unable to harness their collective wisdom. If I were Saul, I would withhold my
investment until consensus could be built and you and Noreen arrive at some happy middle
ground in terms of process for the portfolio and co-existence as partners. As to my own
investment, I remain confused and reluctant.
Derek

----Original Message
From: Ashok Chachra
Sent: Wednesday, June 18, 2003 6:44 PM
To: Derek S. Daley
Subject: FW: Levered fund

----Original Message
From: J. Ezra Merkin [mailto:JEMerkingabrielcapital.com]
Sent: Wednesday, June 18, 2003 6:22 PM
To: Peter Sta mos
Cc: Ashok Chachra
Subject: RE: Levered fund

I am sure it is fine.

SSMT02406075

SSMSAA24O6O75
SSMSAA24O6O75

I have been sitting here for the entire afternoon, and am sorry I missed
your call. You can call again if that reassures you, if not, assume it is
fine, and put it on the list for next week.
>

> From:
Peter StamosLSMTP:peter. [e-mail]]
> Sent: Wednesday, June 18, 2003 6:08 PM
> To: JEMerkin@gabrielcapital corn
> Cc: [e-mail]
> Subject: Levered fund
>

> Ezra

> Sorry that I missed you. l've asked Ashok to call toconfirm an additional
> investment ¡n Ascot. 1.5 plus. Perhaps as much as 3 million
>

OK?
>

> Looking forward to seeing you on Monday
>

> Soonmee and I both send our love from Napa. Though my vacations are
> beginning to sound a lot like yours
>

> Peter
>

SSMT02406076

SSMSAA24O6O76
SS MSAA2406076