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

Filing 171

MEMORANDUM OF LAW in Opposition re: 145 MOTION in Limine TO EXCLUDE STERLING STAMOS DOCUMENTS. Trustee's Memorandum of Law in Opposition to Defendants' Motion in Limine to Exclude Sterling Stamos Documents. Document filed by Irving H. Picard. (Bohorquez, Fernando)

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 OPPOSITION TO DEFENDANTS’
MOTION IN LIMINE TO EXCLUDE STERLING STAMOS DOCUMENTS

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. 

STERLING STAMOS’ STATEMENTS ARE PARTY ADMISSIONS OF THE
STERLING PARTNERS .....................................................................................................2 
A. 
B. 

II. 

THE STERLING PARTNERS ARE NOT MERE “LIMITED
PARTNERS” OF STERLING STAMOS ............................................................... 2 
THE STERLING PARTNERS ARE NOT MERE “PASSIVE
INVESTORS” IN STERLING STAMOS .............................................................. 3 

STERLING STAMOS’ MATERIALS TO PROSPECTIVE INVESTORS ARE
BUSINESS RECORDS THAT WERE REQUIRED BY LAW TO BE ACCURATE ......6 
A. 

B. 

III. 

STERLING STAMOS’ CLIENT PRESENTATION AND OTHER
SOLICITATION MATERIALS WERE CREATED AND
MAINTAINED IN THE REGULAR COURSE OF ITS
BUSINESS.............................................................................................................. 7 
THE BUSINESS RECORDS AT ISSUE WERE REQUIRED BY
LAW TO BE ACCURATE AT THE TIME THEY WERE MADE
AND TO BE RETAINED, AND THUS HAVE AMPLE INDICIA
OF TRUSTWORTHINESS .................................................................................... 9 

EMAILS BY STERLING STAMOS EMPLOYEES IN THE REGULAR COURSE OF
STERLING STAMOS BUSINESS ARE BUSINESS RECORDS ...................................11 
A. 

B. 

IV. 

CERTAIN STERLING STAMOS INTERNAL AND EXTERNAL
EMAILS IN RESPONSE TO MADOFF’S ARREST WERE
MADE IN THE REGULAR COURSE OF ITS BUSINESS ............................... 13 
BASIL STAMOS’ EMAILS TO STERLING STAMOS’
CORPORATE PHILANTHROPIC PARTNERS WERE MADE
FOR A BUSINESS PURPOSE ............................................................................ 14 

DEFENDANTS HAVE ACKNOWLEDGED THE AGENCY RELATIONSHIP IN
THIS LITIGATION ...........................................................................................................16 

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

i

TABLE OF AUTHORITIES
Page(s)
CASES
Arista Records v. Lime Group LLC,
784 F.Supp.2d 398 (S.D.N.Y. 2011)........................................................................................16
Canatxx Gas Storage Ltd. v. Silverhawk Capital Partners,
Civil Action No. H-06-1330, 2008 WL 1999234 (S.D. Tex. May 8, 2008) ............................12
Conoco v. Department of Energy,
99 F.3d 387 (Fed. Cir. 1996)......................................................................................................6
DirectTV, Inc. v. Murray,
307 F. Supp. 2d 764 (D.S.C.Charleston.Div. 2004) ................................................................12
Gordon v. Ross,
87 Civ. 7105 (VLB), 1994 WL 603020 (S.D.N.Y. Nov. 2, 1994) ............................................2
In re Blech Sec. Litig.,
No. 94 Civ. 7696 (RWS), 2003 WL 1610775 (S.D.N.Y. Mar. 26, 2003) ...........................7, 11
In re Enron Creditors Recovery Corp.,
378 B.R. 54 (Bankr. S.D.N.Y. 2007) .........................................................................................6
In re Ollag Constr. Equip. Corp.,
665 F.2d 43 (2d Cir. 1981)...................................................................................................6, 11
In re WorldCom Inc. Sec. Litig.,
02 Civ. 3288, 2005 U.S. Dist. LEXIS 2215 (S.D.N.Y. 2005) .................................................10
Pappas v. Middle Earth Condo. Ass’n,
963 F.2d 534 (2d Cir. 1992).......................................................................................................3
Parker v. Reda,
327 F.3d 211 (2d Cir. 2003).......................................................................................................6
Penberg v. HealthBridge Management,
---F.Supp.2d ---, No. 08 CV 1534 (CLP), 2011 WL 4943526 (E.D.N.Y. Oct. 17,
2011) ..................................................................................................................................12, 14
Pierre v. RBC Liberty Life Ins.,
Civil Action No. 05-1042-C, 2007 WL 2071829 (M.D.La July 13, 2007) .............................12
Saks Int’l, Inc. v. M/V “Export Champion,”
817 F.2d 1011 (2d Cir. 1981).................................................................................................7, 9
The Ret. Plan of the Unite Here Nat'l Ret. Fund v. Kombassan Holding, A.S.,
629 F.3d 282 (2d Cir. 2010).....................................................................................................12
United States v. Kaiser,
609 F.3d 556 (2d Cir. 2010).....................................................................................................12
United States v. Saks,
964 F.2d 1514 (5th Cir. 1992) ...................................................................................................2
i

United States v. Stein, S1 05 Crim. 0888(LAK), 2007 WL 3009650 (S.D.N.Y. Oct. 15,
2007) ........................................................................................................................................12
United States v. Williams,
205 F.3d 23 (2d Cir. 2000).....................................................................................................6, 7
STATUTES
15 U.S.C. §§ 78aaa et seq. ...............................................................................................................1
OTHER AUTHORITIES
17 C.F.R. § 275.206(4)-1(a)(5) (2011) ..........................................................................................10
17 C.F.R. § 275.206(4)-1(b) (2011)...............................................................................................10
17 C.F.R. § 275.206(4)-7 (2011) ...................................................................................................10
Fed. R. Evid. 801(d)(2)(D) ..............................................................................................1, 3, 11, 16
Fed. R. Evid. 803(6) .........................................................................................................1, 6, 11, 14

ii

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 opposition to Defendants’ motion in limine to exclude Sterling Stamos documents.
As set forth in the Trustee’s Motion in Limine to Deem Statements by Certain Sterling
Stamos Partners and Employees as Admissions of the Sterling Partners (“Trustee’s Motion in
Limine No. 5”), Sterling Stamos is a partnership between Peter Stamos and the Sterling Partners.
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). Contrary to the Defendants’ argument, the Sterling
Partners hold themselves out as general partners of Sterling Stamos, and have exerted control
over Sterling Stamos and its employees. Indeed, the Sterling Partners have exerted that control
in this litigation by asserting claims of attorney-client privilege over documents and statements
made by Sterling Stamos employees. Thus, for all the reasons described in the Trustee’s Motion
in Limine No. 5 and herein, the Sterling Partners are estopped from denying an agency
relationship with Sterling Stamos and its employees now for purposes of the federal rules of
evidence.
In addition, the documents objected to by the Defendants constitute records kept in the
regular course of Sterling Stamos’ business, and therefore are admissible for the additional
reason that they fall under the business records exemption to the hearsay rule pursuant to Rule
803(6).

I.

STERLING STAMOS’ STATEMENTS ARE PARTY ADMISSIONS OF THE
STERLING PARTNERS
The Sterling Partners were and are partners of Sterling Stamos. Accordingly, statements

made by the Sterling Stamos partners and employees in furtherance of Sterling Stamos’ business
are admissible against the other partners. United States v. Saks, 964 F.2d 1514, 1523-26 (5th Cir.
1992); Gordon v. Ross, 87 Civ. 7105 (VLB), 1994 WL 603020, at *1, *5 (S.D.N.Y. Nov. 2,
1994) (statement by an individual whom the defendant considered his “equal partner[]” was
admissible against defendant).
A.

THE STERLING PARTNERS ARE NOT MERE “LIMITED PARTNERS”
OF STERLING STAMOS

The Defendants assert that no agency relationship existed between the Sterling Partners
and Sterling Stamos because they had no “control” over Sterling Stamos but were rather merely
“limited partners” and “passive investors.” None of these assertions are true. As a threshold
matter, even if the Sterling Partners were mere “limited partners” of Sterling Stamos, this
limitation on liability would not negate the agency relationship, for all the reasons discussed in
the Trustee’s Motion in Limine No. 5.
In any event, the Sterling Partners are not mere “limited partners.” Sterling Stamos is a
partnership between the Sterling Partners on the one hand and Peter Stamos and the Stamos
partners on the other (and, since 2007 when Merrill Lynch bought half of each side’s stake,
Merrill Lynch). It consists of numerous interlocking entities.
For purposes of this litigation, the parties have used “Sterling Stamos” to refer to the
management company for Sterling Stamos’ investment funds, Stamos Partners Capital
Management, LP, although the parties themselves have sometimes used “Sterling Stamos” to

2

1

refer to other entities. Among the Sterling Stamos entities relevant here are: (1) the
management company (Sterling Stamos), (2) the management company’s general partner, and
(3) Sterling Partners Associates, LLC (the “GP entity”), which is the General Partner for all of
Sterling Stamos’ domestic funds.
As the Defendants admit, the Sterling Partners are members of the GP entity, see Def. Br.
at 5; they are also its part owners. Thus, Sterling Stamos routinely holds out Saul Katz and Fred
Wilpon in materials to potential investors as its “General Partners,” see, e.g., Ex. 11 attached to
the accompanying Declaration of Regina L. Griffin dated March 12, 2012 (“Griffin Decl.”);
Griffin Decl. Exs. 24 and 28, or simply as its “partners.” (See, e.g., Griffin Decl. Exs. 29 and
30.)
For this reason alone, because each partner is an agent of every other partner in a
partnership, statements made by any authorized employee of Sterling Stamos in the course of his
or her employment are admissible against the Sterling Partners under Rule 801(d)(2)(D). See,
e.g., Pappas v. Middle Earth Condo. Ass’n, 963 F.2d 534, 538 (2d Cir. 1992) (“The authority
granted in the agency relationship need not include authority to make damaging statements, but
simply the authority to take action about which the statements relate.”).
B.

THE STERLING PARTNERS ARE NOT MERE “PASSIVE INVESTORS”
IN STERLING STAMOS

Defendants also deny an agency relationship by claiming that the Sterling Partners were
merely “passive investors in, not active partners of, Sterling Stamos,” Def. Br. at 1. This claim is
belied by Sterling Stamos’ own documents and witness testimony. These documents and
testimony establish, among other things:
1

See Griffin Decl. Ex. 25 (LP agreement for Sterling Stamos Security Fund) (“Sterling Stamos
Security Fund, L.P. (‘the Fund’) has been formed by SP Associates, LLC (‘Sterling Stamos’)
to…”). SP Associates, LLC is the GP entity of which the Sterling Defendants are a member.

3



Sterling Partner Saul Katz “was intimately involved in the financial and business
aspects of the business” and, during its early years, Sterling Stamos made no
significant business decisions without the approval of Saul Katz. (Griffin Decl.
Ex. 6 at 62:15 – 63:5.)



Sterling Stamos identified Sterling Partners Saul Katz and David Katz as
“General Partners” and “investment professionals” in materials distributed to
investors, and marketed their involvement with the fund to potential investments.
(Griffin Decl. Exs. 11, 25 and 7 at 235:10-13.)



Sterling Partner Saul Katz was the decisionmaker as to whether Sterling Stamos
should remain invested in the Merkin/Madoff funds over the objections of its
Chief Investment Officer, Noreen Harrington. (Griffin Decl. Ex. 3 at 83:4-84:3.)



Sterling Partner Saul Katz has been on the Board of Directors of Sterling Stamos
since its inception and Sterling Partner David Katz was on the Board of Directors
from 2002 to at least 2005. (Griffin Decl. Ex. 6 at 64:25-65:8 and Griffin Decl.
Ex. 56.)



Sterling Stamos informed investors that Sterling Partners Saul Katz and David
Katz were “actively involved in the investment decisions as well as the
management of Sterling Stamos.” (Griffin Decl. Ex. 31.)



Saul Katz, on behalf of the other Sterling Partners and often with Sterling Partner
David Katz, participated in decisions ranging from the design of Sterling Stamos’
logo, see Griffin Decl. Ex. 60, to its webpage, see Griffin Decl. Ex. 32, to the
firm’s allocation, see Griffin Decl. Ex. 33, and management fees, see Griffin
Decl. Ex. 34.



The unanimous approval of all “active Sterling Stamos Partners,” including
Sterling Partners Saul Katz and David Katz was required for the hiring of all new
investment professionals. (Griffin Decl. Ex. 35.) Thus, Sterling Partners Saul
Katz and Fred Wilpon participated in the interview and hiring process of, among
others, Sterling Stamos’ Chief Investment Officer, see Griffin Decl. Ex. 3 at
16:25-18:15 and its Chief Financial Officer, see Griffin Decl. Ex. 1 at 39:1-41:15.



Sterling Stamos employees wishing to recommend an investment made
presentations, including correlation analysis, infrastructure, potential growth, risk
management, organization, Sharpe Ratio and investment strategy, to Sterling
Partners Saul Katz and David Katz as well as Peter Stamos. (Griffin Decl. Ex. 3
at 24:12-25:11, 31:18-32:5.)



Sterling Partner David Katz managed one of the Sterling Stamos Funds. (See
Griffin Decl. Exs. 7 at 160:25-161:20 and 20.)



Sterling Partners Saul Katz and David Katz were signatories of financial
institutions accounts opened on behalf of Sterling Stamos. (See Griffin Decl. Ex.

4

37.)


Sterling Partner Saul Katz represented the “Sterling side” of the partnership in
dealings with Peter Stamos. (Griffin Decl. Ex. 7 at 16:18-23.)

The extent of the Sterling Partners’ control over Sterling Stamos is exemplified by the
uncontested fact that in 2005, Sterling Stamos was entirely restructured at Saul Katz’s demand so
that the Sterling Partners could remain involved in Sterling Stamos without having to disclose
their Madoff investments to regulators. (See Griffin Decl. Ex. 6 at 55:5-60:5.) Following the
restructuring, the Sterling Partners were no longer marketed as investment professionals, but the
Sterling Partners remained on the Board of Directors of Sterling Stamos. See Trustee’s Motion
in Limine No. 5 at pp. 6-7. The Sterling Partners remained General Partners, i.e., members and
part owners of the GP entity. Id. The Sterling Partners’ assets continued to represent a
substantial portion of assets under management, a factor that was stressed to potential investors.
Even after the restructuring of Sterling Stamos, the Sterling Partners continued to assert
control, putting pressure on the Chief Executive Officer, Peter Stamos, to “make [the] company
more profitable” in 2006 (Griffin Decl. Ex. 38 at SE_T668732) and telling him that they would
“run SS on a more bottom line basis.” (See Griffin Decl. Ex. 39.) The Sterling Partners
participated in negotiations with Merrill Lynch regarding certain aspects of the sale of their
interests in Sterling Stamos, and when the Sterling Partners and Peter Stamos sold their
respective portions of Sterling Stamos and the GP entity to Merrill Lynch, they each received the
same amount of money for their respective shares. Saul Katz remains a member of the Board of
Directors of Sterling Stamos today.
The Sterling Partners reaped tens of millions of dollars from their partnership in Sterling
Stamos, including management fees, incentive fees and sale of a portion of their ownership
interests to Merrill Lynch for $115 million. (See Griffin Decl. Ex. 7 at 239:11-23.) Having

5

retained the fruits of the labor of their Sterling Stamos partners and agents, the Sterling Partners
are estopped as a matter of law from denying now that such a relationship existed.
II.

STERLING STAMOS’ MATERIALS TO PROSPECTIVE INVESTORS ARE
BUSINESS RECORDS THAT WERE REQUIRED BY LAW TO BE ACCURATE
The Trustee plans to introduce firm overviews, due diligence packages and related

materials prepared by Sterling Stamos and distributed to potential investors, such as those
referred to in the Defendants’ motion in limine as “marketing materials.” These materials are
admissible for the additional reason that they are records of a regularly conducted business
activity pursuant to Federal Rule of Evidence 803(6).
Records made and kept in the ordinary course of a business are admissible pursuant to
Rule 803(6), which “‘favor[s] the admission of evidence rather than its exclusion if it has any
probative value at all.’” United States v. Williams, 205 F.3d 23, 34 (2d Cir. 2000) (quoting In re
Ollag Constr. Equip. Corp., 665 F.2d 43, 46 (2d Cir. 1981)). “[T]he sufficiency of foundation
evidence is ‘assessed in light of the nature of the documents at issue; documents that are standard
records of the type regularly maintained by firms in a particular industry may require less by way
of foundation testimony than less conventional documents proffered for admission as business
records.’” In re Enron Creditors Recovery Corp., 378 B.R. 54, 57 (Bankr. S.D.N.Y. 2007)
(quoting Conoco v. Dep’t of Energy, 99 F.3d 387, 392 (Fed. Cir. 1996)). The foundation may
be established by any witness who “understands the system used to prepare the records.’” Id.
(quoting Conoco, 99 F.3d at 391); see also Parker v. Reda, 327 F.3d 211, 215 (2d Cir. 2003)
(business records may be admitted notwithstanding the unavailability of the record's author, so
long as a custodian or other qualified witness testifies that the document was kept in the course
of a regularly conducted business activity and also that it was the regular practice of that business
activity to make the record).

6

A “principle precondition” to admissibility under the business records is that the records
have “‘sufficient indicia of trustworthiness to be considered reliable.’” Williams, 205 F.3d at 34
(quoting Saks Int’l, Inc. v. M/V “Export Champion,” 817 F.2d 1011, 1013 (2d Cir. 1981); see
also In re Blech Sec. Litig., No. 94 Civ. 7696 (RWS), 2003 WL 1610775, at *5 (S.D.N.Y. Mar.
26, 2003) (“The key determination as to whether a document falls under the business records
exception to the hearsay rule is whether the document is trustworthy.”).
A.

STERLING STAMOS’ CLIENT PRESENTATION AND OTHER
SOLICITATION MATERIALS WERE CREATED AND MAINTAINED IN
THE REGULAR COURSE OF ITS BUSINESS

Sterling Stamos is and was a fund of funds in the business of soliciting investors. It is the
regular course of business for Sterling Stamos to create “pitch books” or “firm overviews” for
potential investors. (See Griffin Decl. Ex. 1 at 145:21-146:7.) Among other things, these “pitch
books” contain information about the funds such as fund performance and assets under
management (“AUM”) as well as biographical information of Sterling Stamos investment team
members and key operating professionals. (Id. at 145:21-152:18.) The information in these
presentations is compiled by the CFO and Sterling Stamos staff and “given a legal and
compliance review” by counsel. (Id. at 150:14-24.) The purpose of firm overviews and fund
overviews is to inform potential investors, and to be used by the Sterling Stamos team as they
meet with potential investors, to walk them through the history of the firm, its investment
process, and the performance of its funds. (Griffin Decl. Ex. 7 at 226:10-227:4.)
Sterling Stamos’ CFO and CEO testified specifically about the firm overviews and other
introductory materials provided to investors contained in Griffin Decl. Exs. 8, 9 and 25. (Griffin

7

Decl. Ex. 1 at 153:10-17, 186:9-188:14, 196:16-199:11; Ex. 7 at 224:6-237:42; see Griffin Decl.
Exs. 8, 9 and 25.) Barcelona testified that these documents and others like them were commonly
prepared by Sterling Stamos and provided to potential investors in accordance with standard
industry practice; and that the performance information in the document was likely provided by
him. (Griffin Decl. Ex. 1 at 153:10-156:2, 186:9-189:4.)

The firm overview and related

materials include such information as firm history, principles and investment philosophy,
investment objectives, asset allocation, estimated net performance results, fund performance
results, a description of the investment process, biographies of the investment team and key
professionals, an “investment universe” overview including target returns, allocation,
performance, and other information about specific funds, and overviews of specific Sterling
Stamos Funds.3 (Id. at 152:22-158:19 (Griffin Decl. Ex. 8); 181:11-188:15 (Griffin Decl. Ex.
9).) Barcelona testified that he would provide current fund-related performance and AUM
information for these materials and would review to make sure the date was accurate, while the
other information would come from the investment team. (Griffin Decl. Ex. 1 at 184:18-23,
187:14-20.) Peter Stamos, as chairman and CEO, reviewed the firm overview. (Id. at 158:1519.) The summary statistics contained in these documents were the standard statistics generated
by the firm and collected from underlying fund managers and summarized for potential and
existing investors. (Griffin Decl. Ex. 7 at 229:15-20.)
The same information is replicated in the Sterling Stamos responses to due diligence
questionnaires such as those challenged by Defendants. For example, Griffin Decl. Ex. 24 is a
due diligence package containing a fund overview, documents from the firm overview including

2

Other examples of firm overviews or pitch books are found in Griffin Decl. Exs. 8, 11, 24 and
53.
3
Other examples of such investor introductory materials are found at Griffin Decl. Ex. 25.

8

the investment universe overview and performance estimates, responses to a due diligence
questionnaire including legal and regulatory questions, performance, a quarterly review letter
and annual audited financial statements for one of the funds.
Thus, the materials challenged by the Defendants are records of acts, events, conditions
or opinions of Sterling Stamos, including fund performance, asset allocation, AUM, performance
targets and volatility, audited financials, and other information that was contemporaneously
gathered and verified by Sterling Stamos employees and reviewed by counsel. The evidence
demonstrates that these documents were created and maintained by Sterling Stamos in the
regular course of its business of obtaining investors for its funds, and that it was Sterling Stamos’
practice as well as industry practice to create these records. The evidence shows that Sterling
Stamos provided these documents and documents like them to potential investors for the purpose
of inducing investors to invest in its funds. The record, therefore, amply demonstrates that the
documents fall under the business records exception. See Saks Int’l, 817 F.2d at 1013-14
(evidence that shipping tallies comported with general custom in industry and were actually
relied on sufficient to establish they were business records).
B.

THE BUSINESS RECORDS AT ISSUE WERE REQUIRED BY LAW TO
BE ACCURATE AT THE TIME THEY WERE MADE AND TO BE
RETAINED, AND THUS HAVE AMPLE INDICIA OF
TRUSTWORTHINESS

Defendants assert that because these documents were prepared for the purpose of
soliciting investors, they “by their very nature” lack indicia of trustworthiness. (Def’s Br. 7.) If
anything, the opposite is true. Registered investment advisors like Sterling Stamos are required
by law to adopt compliance policies and procedures to ensure, among other things, the accuracy
of disclosures made to investors, clients, and regulators, including account statements and
advertisements, and the accurate creation of required records and their maintenance in a manner

9

that secures them from unauthorized alteration or use and protects them from untimely
destruction. See The Securities and Exchange Commission, “Information for Newly-Registered
Investment Advisers,” available at http://www.sec.gov/divisions/investment/advoverview.htm
(last visited Mar. 12, 2012) (citing 17 C.F.R. § 275.206(4)-7 (2011)). And indeed Sterling
Stamos has adopted such policies. (See Griffin Decl. Ex. 52 at SSKW00011851 (July 2005
Compliance Manual).) As recognized in Sterling Stamos’ compliance manuals, it is a violation
of the Advisors Act to publish, circulate or distribute any advertisement “[w]hich contains any
untrue statement of a material fact, or which is otherwise false or misleading.” 17 C.F.R. §
275.206(4)-1(a)(5) (2011).4 Sterling Stamos acknowledges that “advertisement” includes,
among other things “letters, including monthly and quarterly letters to investors and those sent
by email” and “standardized written material in booklets used by advisers for presentations to
prospective clients.” Id.; see also Griffin Decl. Ex. 52 at SSKW00011851; Ex. 59 at
SSKW00000067 (April 2006 Compliance Manual). Accordingly, it is Sterling Stamos’ policy
that all marketing materials must be reviewed and approved by the Compliance Officer. (See
Griffin Decl. Ex. 52 at SSKW00011851.)
The overview and other client presentations challenged by the Defendants all bear
standard SEC disclosure language in compliance with these regulations, and were prepared for
presentation to potential investors such as Merrill Lynch and the investment authority of Qatar.
The materials were reviewed for financial accuracy by the CFO and for regulatory compliance

4

“Advertisement” is defined as including “any notice, circular, letter or other written
communication addressed to more than one person . . . which offers (1) any analysis, report or
publication concerning securities, or which is to be used in making any determination as to
when to buy or sell any security, or which security to buy or sell, or (2) any graph, chart, formula
or other device to be used in making any determination as to when to buy or sell any security, or
which security to buy or sell, or (3) any other investment advisory service with regard to
securities.” 17 C.F.R. § 275.206(4)-1(b) (2011).

10

by counsel. They thus bear ample indicia of trustworthiness. See In re WorldCom Inc. Sec.
Litig., 02 Civ. 3288, 2005 U.S. Dist. LEXIS 2215, at *20-23, 27-28 (S.D.N.Y. 2005) (holding
admissible under Rule 803(6) restated financials because of the legal duty to create and file such
documents with the SEC in compliance with GAAP standards and because trustworthiness of
underlying circumstances surrounding the creation of the records); In re Ollag Const. Equip.
Corp., 665 F.2d 43, 46-47 (2d Cir. 1981) (financial questionnaire provided to bank in credit
application was trustworthy although bank did not check its accuracy where making false
statements in questionnaire could lead to criminal sanctions).
In short, Defendants have not and cannot identify any categorical basis to exclude these
documents. To the extent that Defendants assert that an insufficient foundation has been laid for
any particular document, such as the DeMarche questionnaire, Defendants will have the
opportunity at trial to question Kevin Barcelona, Sterling Stamos’ Chief Financial Officer and
designated corporate representative regarding document custodian issues, concerning the
preparation and maintenance of that document and raise any challenges at that point. (See
Griffin Decl. Ex. 51.)
III.

EMAILS BY STERLING STAMOS EMPLOYEES IN THE REGULAR COURSE
OF STERLING STAMOS BUSINESS ARE BUSINESS RECORDS
For the reasons discussed above and in the Trustee’s Motion in Limine No. 5, the emails

challenged by Defendants are also party admissions and thus not hearsay pursuant to Rule
801(d)(2)(D). The vast majority of them are also admissible under the business records
exception. Rule 803(6) is not limited to any particular kind of document. Business records may
include internal company memoranda,5 corporate documents such as demands for withdrawal

5

In re Blech Sec. Litig., 94 Civ. 7696 (RWS), 2003 WL 1610775, at *5 (S.D.N.Y. Mar. 26,
2003).

11

liabilities,6 hand written notes7 and, contrary to Defendants’ suggestion, emails.8 The
admissibility of emails, like any other document, depends on the “regularity of making such
records of the business activity;” it is not necessary to establish that the “e-mails at issue were
created pursuant to established company procedures for the systematic or routine making of
company records.” United States v. Stein, S1 05 Crim. 0888(LAK), 2007 WL 3009650, at * 1
(S.D.N.Y. Oct. 15, 2007) (internal citations omitted). Like letters, memoranda or notes, emails
are admissible under this exception “if they are regularly made in furtherance of the employer’s
needs and not for the personal purposes of the employee who made them.” Canatxx Gas Storage
Ltd. v. Silverhawk Capital Partners, H-06-1330, 2008 WL 1999234, at *12 (S.D.Tex. May 8,
2008).
It is standard business practice for Sterling Stamos to communicate to its investors via
email, Griffin Decl. Ex. 1 at 234:18-25, and email is regularly used for internal communication.
(See Griffin Decl. Ex. 2 at 62:21-64:11.) Emails are stored and subject to review pursuant to
Sterling Stamos’ email review procedure. (See Griffin Decl. Ex. 58, email review procedure.)
The firm maintains emails with the understanding that all records, including email, are subject to
review by the SEC. (Griffin Decl. Ex. 52, at SSKW0011882.)

6

The Ret. Plan of the Unite Here Nat’l Ret. Fund v. Kombassan Holding, A.S., 629 F.3d 282,
289-90 (2d Cir. 2010).
7
United States v. Kaiser, 609 F.3d 556, 574-76 (2d Cir. 2010).
8
Penberg v. HealthBridge Management, ---F.Supp.2d ---, No. 08 CV 1534 (CLP), 2011 WL
4943526 at *17-18 (E.D.N.Y. Oct. 17, 2011); Canatxx Gas Storage Ltd. v. Silverhawk Capital
Partners, Civil Action No. H-06-1330, 2008 WL 1999234, at *12-13 (S.D. Tex. May 8, 2008);
Pierre v. RBC Liberty Life Ins., Civil Action No. 05-1042-C, 2007 WL 2071829, at *2 (M.D.La
July 13, 2007); DirectTV, Inc. v. Murray, 307 F. Supp. 2d 764, 769 (D.S.C.Charleston.Div.
2004).

12

A.

CERTAIN STERLING STAMOS INTERNAL AND EXTERNAL EMAILS
IN RESPONSE TO MADOFF’S ARREST WERE MADE IN THE
REGULAR COURSE OF ITS BUSINESS

After Madoff’s arrest was announced on December 11, 2008, Sterling Stamos received an
inquiry from Merrill Lynch as to whether the firm had any exposure to BLMIS. (Griffin Decl.
Ex. 1 at 223:13-24.) Sterling Stamos began a process of following up with all of its managers to
ascertain if it had any indirect exposure to Madoff. (Id.) After learning that Sterling Stamos’
Merkin investments had been invested in BLMIS, Sterling Stamos’ CFO and his team spent
approximately the next ten days assessing the portfolio impact their Madoff exposure would
have on their funds and circulating the information to others within Sterling Stamos so that it
could be communicated to investors. (Id. at 228:4-24.)
Sterling Stamos wrote a letter to investors and also hosted a conference call allowing
investors, based on the crisis, to submit redemptions based on the negative implications of the
Madoff fraud. (Griffin Decl. Ex. 1 at 230:15-23.) The written communication was sent to
investors via email. (Id. at 234-35.) In addition, Peter Stamos and other Sterling Stamos
employees received and responded to investor inquiries and redemption requests via email. (See
Griffin Decl. Ex. 41.)
The majority of the emails challenged by the Defendants are either emails between
Sterling Stamos and investors regarding the potential impact of the Madoff fraud on their
investment or on the firm9, or internal emails among Sterling Stamos employees and agents for
the purpose of assessing the impact of the fraud and responding to investors.10 These emails
were made for the business purpose of assessing Sterling Stamos’ exposure to a market event,

9

See Griffin Decl. Exs. 12, 26, 40-44, 55.
See Griffin Decl. Exs. 45, 46, 48, 49.

10

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strategizing its response, and communicating with investors regarding the potential impact on
their investment.
However “shocking” the collapse of BLMIS may have been, it is part of the business of
Sterling Stamos to assess the impact of market events on its funds and to inform potential and
existing investors of the potential impact on their investments. (See Griffin Decl. Ex. 1 at 228:1324.) These communications were made in the ordinary course of Sterling Stamos’ business for a
business purpose, and thus are business records admissible under Rule 803(6). See, e.g.,
Penberg v. Healthbridge Mgmt.,--- F.Supp.2d ---, 08 CV 1534 (CLP), 2011 WL 4943526 at *18
(E.D.N.Y. Oct. 17, 2011) (deposition testimony that it was company’s regular business practice
to share the type of information contained in email and author’s regular business and duty to
email information such as that included in email rendered email sufficiently likely to be
admissible to defeat summary judgment).
B.

BASIL STAMOS’ EMAILS TO STERLING STAMOS’ CORPORATE
PHILANTHROPIC PARTNERS WERE MADE FOR A BUSINESS
PURPOSE

Defendants also object to a series of emails from Basil Stamos to business contacts in the
wake of the Madoff scandal.11 Basil Stamos has been a partner of Sterling Stamos since at least
2003. Between 2003 and 2007, he was employed by Sterling Stamos to head up its corporate
philanthropy division. (Griffin Decl. Ex. 4 at 13:13-14:25.) Sterling Stamos marketed itself as a
“new kind of company” that would prove that you could “do well and do good at the same time:
that you could be a hedge fund and make the world a better place.” (See Griffin Decl. Ex. 5 at
17:2-7.) Investors were attracted to a “double bottom line”: getting a good return while
knowing that they were helping people. (Id. at 59:9-15.) Accordingly, Basil Stamos’ job

11

See Griffin Decl. Exs. 13-23, 57.

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included developing relationships with nonprofit organizations for purposes of potentially
partnering with Sterling Stamos. (Griffin Decl. Ex. 4 at 14:12-21.)
Basil Stamos testified that after Madoff was arrested, he became aware of press reports
that confused Sterling Equities with Sterling Stamos. Basil Stamos drafted emails to his
philanthropic partners to rectify the mistake and reassure them that Sterling Stamos was solvent
and doing well. (Griffin Decl. Ex. 4 at 68:23-72:9.) Each of the emails forwarded a press
release clarifying the difference between Sterling Equities and Sterling Partners along with
comments from Basil Stamos. (See Griffin Decl. Exs. 13-23.) Each of the recipients was a
major philanthropic partner to whom Sterling Stamos had made donations. (Griffin Decl. Ex. 4
at 82:11-19.)
Defendants argue that these emails were sent at a time “when Basil Stamos was not a
Sterling Stamos employee and Sterling Stamos had no philanthropic arm of its business.” Br. at
n. 7. But although Basil Stamos was not employed by Sterling Stamos as of December 2008, he
was and remains a partner who owns a percentage of the firm, and who retains a Sterling Stamos
email address from which each of these emails was sent. (Griffin Decl. Ex. 4 at 16:13-20, 63:48; see also Griffin Decl. Exs. 13-23.) Moreover, Defendants’ assertion that Sterling Stamos
“had no philanthropic arm” as of December 2008 is contradicted by its own materials for
prospective investors as of that time, which continue to include “philanthropy and public
service” among its mission, strategy and guiding principles, and encapsulates its firmwide
strategy as “idealism of a not-for-profit foundation; efficiency of a for-profit investment firm.”
(Griffin Decl. Ex. 54 at SSMT02106312-13.) Thus, like the emails between other Sterling
Stamos personnel and investors regarding the firm’s response to the Madoff arrest, these emails
constitute business records of Sterling Stamos.

15

The remaining emails challenged by the Defendants, like the other documents created or
adopted by Sterling Stamos employees and partners in the course of their agency, are properly
considered party admissions and admissible under Rule 801(d)(2)(D).12 Emails by agents or
employees relating to matters within the scope of their employment constitute vicarious
admissions and adoptions, and any remaining portions of the emails are admissible for the reason
that they “provide essential context” to those statements. Arista Records v. Lime Group LLC,
784 F.Supp.2d 398, 420 (S.D.N.Y. 2011).
IV.

DEFENDANTS HAVE ACKNOWLEDGED THE AGENCY RELATIONSHIP IN
THIS LITIGATION
Defendants have asserted attorney client and attorney work product privilege as to dozens

of Sterling Stamos emails created between 2002 – 2008 on which Sterling Partners Saul and
David Katz and Sterling General Counsel Gregory Nero were copied. (Griffin Decl. Ex. 61.)
The topics of these emails, according to the log, relate to “new entity formation,” “personnel
issues,” “Bayou litigation” and “investment advisor registration issues.” (Id.)
Moreover, when Peter Stamos, Sterling Stamos’ Chief Executive Officer, was deposed in
this litigation, the counsel for Sterling Partners, Dana Seshens, requested counsel for Sterling
Stamos to direct the witness to maintain the attorney/client privilege with respect to certain
communications the witness had with counsel and which involved the Sterling Stamos. (Griffin
Decl. Ex. 7 at 59:16-60:13.)

12

As Defendants concede, the Madoff collapse was a “shocking” event. To the extent that
Defendants argue that these emails must fall out of the “regular course of business” because of
the shocking nature of the event, then these emails should be admissible pursuant to 803(1) or (2)
as present sense impressions and/or excited utterances. (See, e.g., Griffin Decl. Ex. 51 (“with so
many rumors floating around over the past 30 minutes, Ashok and I are going to call a 5 minute
staff meeting to make sure everyone accurately understands the facts relating to Madoff and our
relationship to Sterling…”); Griffin Decl. Ex. 50 (“What a mess, we were just referenced
incorrectly on cnbc.com article.”).)

16

By asserting an attorney client privilege over documents created and witnesses employed
by Sterling Stamos and not by the Defendants, the Defendants themselves have conceded an
agency relationship. (See Griffin Decl. Ex. 61, Griffin Decl. Ex. 7 at 60:9-12; see also 8 J.
Wigmore, Evidence s 2311, pp. 601-602 (McNaughton rev. ed. 1961) (attorney-client
communications in the presence of a third party not the agent of either are generally not
protected by the privilege).)
CONCLUSION
For the foregoing reasons, the Trustee respectfully requests that the Court deny
Defendants’ motion in its entirety.
Dated:

New York, New York
March 12, 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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