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

Filing 180

MEMORANDUM OF UNDERSTANDING. The Trustee (the "Trustee") for the Liquidation of Bernard L. Madoff Investment Securities LLC ("BLMIS") and the Defendants (the "Defendants") in the litigation (the "Madoff Litigation") captioned Picard v. Katz, et al, Civ. 03605 (JSR), agree to a final settlement (the "Settlement") on the terms as further set forth in this Memorandum of Understanding. (rjm)

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Memorandum of Understanding

The Trustee (the "Trustee") for the Liquidation of Bernard L. Madoff Investment
Securities LLC ("BLMIS") and the Defendants (the "Defendants") in the litigation (the "Madoff
Litigation") captioned Picard v. Katz, et aI, Clv. 03605 (JSR), agree to a final settlement (the
"Settlement") on the terms set forth below.
I. Legally Binding Agreement. This agreement, which is made as of March 16,2012, (the
"Agreement") sets forth all of the material terms of the Settlement and is intended to be legally
enforceable and binding on the parties.
2. Mutual Releases. The Trustee and the Defendants will release each other from ally and
all claims that have been or could have been asserted in the Mad off Litigation or any other present
or future litigation or proceeding relating to or arising out of the liquidation ofBLMIS (the
"Trustee Claims"). Such releases shall exclude any claim arising out of the enforcement of this
Agreement.
3. Payment Obligations. The Defendants will payor cause to be paid to the Trustee an
aggregate amount of $162 million (the "Settlement Payment"). The Settlement Payment will be
made as follows:
(a) The Defendants will unconditionally and irrevocably assign to the Trustee 100%
of all recoveries in respect of their Customer Claims from any source, including
from any forfeiture fund established by the U.S. Department of Justice pursuant to
28 C.F.R. Part 9 ("Customer Claim Recoveries"), up to and including the amount
of the Settlement Payment during the five years from the date of court approval of
this Agreement. For the avoidance of doubt, the Defendants will be entitled to
retain any Customer Claim Recoveries in excess of the Required Payment.
(b) During the first three years after the date of court approval of this Agreement, the
Defendants' payment obligation hereunder is limited to Customer Claim
Recoveries (i.e., during such three year period, the Defendants will be under no
obligation to make any payments in excess of Customer Claim Recoveries).
(c) Ifby the end of the third year, the payments to the Trustee from Customer Claim
Recoveries have not satisfied the Settlement Payment, the remaining unpaid
amount (the "Remaining Amount") shall be divided into two equal annual
installments payable by Defendants at the end of the fourth and fifth years, less any
additional Customer Claim Recoveries received and assigned to the Trustee during
those years. Subject to paragraph 5 below, payment obligations pursuant to this
clause (c) will be several, not joint, among the Defendants proportional to the
respective "six year fictitious profits" claims against each Defendant, as set forth in
the MadoffLitigation.
4. Claims Against MadoffEstat~ and Similar Matters. The Defendants' Customer Claims
shall be allowed in full and will be entitled to fuJI recovery thereon on the same basis as all other
"good faith" BLMIS customers, except that (i) SIPC will not be obligated to "advance" funds to the

Defendants pursuant to SIPA Section 78 fff-3 and (ii) Customer Claim Recoveries will be assigned
as set forth above. "Customer Claims" means all claims of any Defendant against the BLMIS
Estate, the fund for victims ofBLMIS established by the U.S. Department of Justice or any similar
fund for the benefit ofBLMIS customers. The parties agree that Defendants' Customer Claims
total approximately $178 million.
5. Guarantee. Fred Wilpon and Saul Katz, jointly and severally, and on behalf of all
Defendants, will irrevocably and unconditionally guarantee the payment of the Remaining Amount
up to a total aggregate amount of $29 million.
6. Termination of Litigation. The parties will stipulate to the dismissal with prejudice of
the Mad off Litigation. The Defendants agree to terminate and not pursue any other litigation
involving the Trustee or SIPC arising out of or relating to BLMIS, including the "net equity"
appeal.
7. Announcement~. The announcement of the Settlement will include a statement by the
Trustee that he has reviewed the evidence and determined that he will no longer pursue the willful
blindness claim against Defendants. All parties agree not to make any disparaging statement with
respect to each other or the Settlement.
8. Access to Information. From and after the date hereof until April 13, 2012, the
Defendants will provide the Trustee with reasonable access to information that enables the Trustee
to confirm the financial basis for the Settlement and the representations ofthe Defendants.
9. Conditions. Notwithstanding any provision of this Agreement to the contrary, the
obligations of the Trustee are subject to the approval ofthe Settlement by the District Court
pursuant to Bankruptcy Rule 9019. Notwithstanding any provision of this Agreement to the
contrary, the obligations of the Defendants under this Agreement are subject to the receipt of all
required lender approvals. The parties will seek to obtain the required approvals as expeditiously
as possible, but in no event later than April 13, 2012.
10. Definitive Documentation. The parties will work in good faith to enter into definitive
documentation reflecting the terms set forth above and other terms customary for agreements of
this type as expeditiously as reasonably possible, but in no event later than April 13,2012. In the
event that the parties are not able to reach agreement with respect to any terms of the definitive
documentation by such date, those terms will be resolved through a process of binding arbitration,
with the arbitration to be conducted by a lawyer selected by former G~~nor Mario Cuomo. The
arbitrator's obligation will be to resolve any disagreement by reference,.tl'le terms that are
customary for agreements of this type. Regardless of whether any terms are to be resolved through
arbitration, the Settlement shall be binding on the parties.
I I. Governing Law. This Agreement will be governed by and construed in accordance
with the laws of the State of New York without regard to the conflict oflaw rules thereof that
would provide for the application of the law of any other jurisdiction, and each party consents to
the exclusive jurisdiction of the United States District Court for the Southern District of New York
with respect to any matter arising out of, or relating to, the Settlement.
12. Miscellaneous. This Agreement shall be binding upon and inure to the benefit of each
party hereto and their respective successors, heirs, personal representatives and estates. This

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Agreement may be signed in any number of counterparts, each of which shall be deemed an
original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

For the SIP A Trustee for the Liquidation
of Bernard L. Madoff Securities LLC

For the Defendants

BAKER & HOSTETLER LLP
45 Rockefeller Plaza
New York, New York 10111
Telephone: [phone]

DAVIS POLK & WARDWELL LLP
450 Lexington A venue

Attorneys Jar Irving R Picard, Esq.
Trustee Jar the Substantively
Consolidated SIPA Liquidation oj
Bernard L. Madoff Investment
Securities LLC And Bernard Madoff

New York, New York 10017
[phone]
AttorneysJor DeJendants