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

Filing 23

DECLARATION of DANA M. SESHENS in Support re: 20 MOTION to Dismiss THE AMENDED COMPLAINT OR, IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT.. Document filed by Charles 15 Associates, Charles 15 LLC, Charles Sterling LLC, Charles Sterling Sub LLC, College Place Enterprises LLC, Coney Island Baseball Holding Company LLC, Estate of Leonard Schreier, FFB Aviation LLC, FS Company LLC, Fred Wilpon Family Trust, Arthur Friedman, Ruth Friedman, Iris J. Katz and Saul B. Katz Family Foundation, Inc., Judy and Fred Wilpon Family Foundation, Inc., Amy Beth Katz, David Katz, Dayle Katz, Gregory Katz, Howard Katz, Iris Katz, 157 J.E.S. LLC, Air Sterling LLC, BAS Aircraft LLC, Jason Bacher, Bon Mick Family Partners LP, Bon-Mick, Inc., Brooklyn Baseball Company LLC, C.D.S. Corp., Michael Katz, Saul B. Katz, Todd Katz, Katz 2002 Descendants' Trust, Heather Katz Knopf, Natalie Katz O'Brien, Mets II LLC, Mets Limited Partnership, Mets One LLC, Mets Partners, Inc., Minor 1 (REDACTED), Minor 2 (REDACTED), L. Thomas Osterman, Phyllis Rebell Osterman, Realty Associates Madoff II, Red Valley Partners, Robbinsville Park LLC, Ruskin Garden Apartments LLC, Saul B. Katz Family Trust, Michael Schreier, Deyva Schreier Arthur, See Holdco LLC, See Holdings I, See Holdings II, Sterling 10 LLC, Sterling 15C LLC, Sterling 20 LLC, Sterling Acquisitions LLC, Sterling American Advisors II LP, Sterling American Property III LP, Sterling American Property IV LP, Sterling American Property V LP, Sterling Brunswick Corporation, Sterling Brunswick Seven LLC, Sterling Dist Properties LLC, Sterling Equities, Sterling Equities Associates, Sterling Equities Investors, Sterling Heritage LLC, Sterling Internal V LLC, Sterling Jet II Ltd., Sterling Jet Ltd., Sterling Mets Associates, Sterling Mets Associates II, Sterling Mets LP, Sterling Pathogenesis Company, Sterling Third Associates, Sterling Thirty Venture LLC, Sterling Tracing LLC, Sterling Twenty Five LLC, Sterling VC IV LLC, Sterling VC V LLC, Edward M. Tepper, Elise C. Tepper, Jacqueline G. Tepper, Marvin B. Tepper, Valley Harbor Associates, Kimberly Wachtler, Philip Wachtler, Bruce N. Wilpon, Daniel Wilpon, Debra Wilpon, Fred Wilpon, Jeffrey Wilpon, Jessica Wilpon, Judith Wilpon, Richard Wilpon, Scott Wilpon, Valerie Wilpon, Wilpon 2002 Descendants' Trust, Robin Wilpon Wachtler. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Exhibit C, # 4 Exhibit D, # 5 Exhibit E, # 6 Exhibit F, # 7 Exhibit G, # 8 Exhibit H, # 9 Exhibit I, # 10 Exhibit J, # 11 Exhibit K, # 12 Exhibit L, # 13 Exhibit M, # 14 Exhibit N, # 15 Exhibit O, # 16 Exhibit P, # 17 Exhibit Q, # 18 Exhibit R, # 19 Exhibit S)(Wagner, Karen)

EXHIBIT D

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

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
ADV. PRO. NO. 08-01789 (BRL)

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-------------------------------x
SECURITIES INVESTOR PROTECTION
CORPORATION,

Videotaped

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Plaintiff-Applicant,
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8

v.

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BERNARD L. MADOFF INVESTMENT
SECURITIES, LLC,
Defendant.
-------------------------------x
In Re:

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BERNARD L. MADOFF,

12

Rule 2004
Examination of:

Debtor.
-------------------------------x

9

SAUL B. KATZ

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TRANSCRIPT of testimony as taken by and before

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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

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Rockefeller Plaza, New York, New York on Wednesday,

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August 4, 2010, commencing at 10:04 a.m.

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BENDISH REPORTING, INC.
Litigation Support Services
877.404.2193
www.bendish.com

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

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BAKER & HOSTETLER, LLP
PNC Center
1900 East 9th Street
Cleveland, OH 44114-3485
BY: THOMAS R. LUCCHESI, ESQ.
For Irving Picard, Trustee
BAKER & HOSTETLER, LLP
45 Rockefeller Plaza
New York, New York 10111
BY: FERNANDO A. BOHORQUEZ, ESQ.
KATHRYN M. ZUNNO, ESQ.
For Irving Picard, Trustee

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DAVIS POLK & WARDWELL LLP
450 Lexington Avenue
New York, NY 10017
BY: DANA M. SESHENS, ESQ.
KAREN E. WAGNER, ESQ.
For Sterling Equities, certain
affiliated entities, and the Witness

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24
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ALSO PRESENT:
GREGORY P. NERO, ESQ., Sterling Equities
DANIEL McCLUTCHY, Videographer

10

1

A.

Sterling Equities itself is a holding

2

company, or it's really just a home office, where we

3

have many, many businesses.

4

real estate business, we've grown it into different

5

businesses and they vary from real estate, baseball,

6

entertainment with the network.

7

businesses.

8
9

Q.

Starting out in the

Many different

Are there any other business

categories that you would attribute to Sterling

10

Equities, or the Sterling Equities group of

11

companies?

12

A.

13

started.

14

Q.

Sterling Stamos is one that we

15

And what is the business of Sterling

Stamos?

16

A.

We found a person that we wanted to

17

start managing the money for us, so we funded him

18

and got him started.

19

Q.

We're going to talk more about that

20

aspect -- each of these aspects, actually, in

21

detail.

22
23

A.
Q.

Sure.
Are there any other aspects of

24

Sterling, the Sterling Group of companies, any other

25

categories of business that you would attribute to

22

1
2
3
4

A.
Q.

Yes.
Did you have -- what does that mean,

to invest in assets?
A.

Does that mean that --

Finding other properties, or if not

5

properties, they're businesses.

To -- our concept

6

has been to diversify.

7

of the real estate business since 1980.

8

successful in 1980 in the real estate business, we

9

want to be successful in other things to diversify.

We've been diversifying out
If we were

10

And so my responsibility is to find new things to

11

diversify into.

12

Q.

Okay.

Then when you told me before

13

that you were responsible for investing money on

14

behalf of the business or investing on behalf of the

15

business, that's what you were referring to?

16
17

A.
Q.

That's exactly what I'm referring to.
Who is responsible for investing the

18

partners' money or the Sterling entity's money into

19

securities?

20
21
22
23
24
25

MS. SESHENS:
A.
Q.

Objection to the form.

I just don't understand the question.
Okay.

Are you aware that the

Sterling companies -- strike that.
Did the Sterling companies make
investments into securities or into funds, hedge

23

1

funds, money market funds, other types of funds?

2
3

A.

Individuals might have.

4
5

The Sterling companies did not.

Q.

When you say the Sterling, when you

say the Sterling companies have not --

6

A.

Well, there was no Sterling way of

7

investing.

It was individuals made their own.

8

bought deals.

9

opportunity to join the deal.

We

People would be offered the
There was never a

10

point where we say, gee, IBM looks good, let's all

11

go buy IBM.

12

business.

13

Q.

That's never the way we've done

Okay.

Describe to me how individuals

14

would be offered the opportunity to participate in

15

the deal.

16

A.

Essentially the partners each have

17

their own percentage.

18

percentage of the company and opportunities they

19

had.

20

opportunity came up, people were told about the

21

opportunity and they could come in to that

22

opportunity up to their allotted interest.

23
24
25

It changed over years of what

And that changed over the years.

Q.

And they would invest their own

money?
A.

So when an

Yes, they would.

24

1

Q.

Were those -- the opportunities that

2

you're describing, did that include investment

3

within Madoff?

4

A.

No.

The opportunities in Madoff,

5

everybody put in what they wanted to put in.

6

was no Sterling investment in Madoff.

7

a property that we all own a certain piece of.

8

People had some excess monies, they put them into

9

Madoff.

10

Q.

There

It's not like

Are you aware that there are accounts

11

or were accounts opened at Madoff in the name of the

12

various Sterling entities?

13
14

A.
Q.

Yes.
How do you reconcile that fact with

15

what you've just told me, that there were no

16

Sterling entities that invested in Madoff?

17

MS. SESHENS:

18

A.

Objection to the form.

Let me try again.

When we bought a

19

property, it would be called 15 West 72nd Street,

20

everyone had an opportunity to invest.

21

entities that I think you're talking about were

22

because the partners said we have excess monies --

23
24
25

Q.
A.

The Sterling

In that property?
No, no.

Just leave that aside now.

I moved the ownership of that property aside and it

25

1

stays that ownership and it doesn't move around.

2

In addition, there may have been,

3

people had excess monies and they said, gee, I've

4

got some excess.

5

cash, who wants to put money into Madoff.

6

say I want to buy a house in Florida so I'm not

7

putting any money in.

8

the percentages that they put their money in in that

9

particular time would be that particular Sterling

We just sold a deal, we've got the
I might

But Joe might put it in.

And

10

way of putting that money.

11

investment that we put out to say that we're buying

12

this piece of property.

13

based upon who put how much money in as opposed to

14

what their interest in the company was.

15

But it wasn't a Sterling

And so the percentages were

The interest in the company in buying

16

the property --

17

Q.

18

A.

Was separate?
-- was set because that was their

19

percentage interest.

The Sterling LLCs or whatever

20

they were were based upon how much money any

21

particular person had, and it wasn't based upon

22

you're allowed to put X amount -- if I'm a 15

23

percent partner, you put in 15 percent into this

24

particular Sterling Madoff account.

25

way it went.

That's not the

It was the other way around.

It was

26

1

driven by who had money, and so we just put a group

2

together to do that particular one.

3
4

Q.

So what you're telling me is that

the -- and just to follow up --

5

A.

6

Q.

Sure.
-- to close the loop on that, would

7

that account be given a name that might be similar

8

to the partnership name that owned the property?

9

That owned the --

10

A.

11

Q.

12

No.

No.

No?

A.

It might.

If it was used for

13

security on a particular property, it might.

14

were so many different -- it's been a number of

15

years, so the whole concept has morphed over the

16

years.

17

think there's any set rule.

18

and talk about any particular thing, I could tell

19

you what I remember of that particular company.

20

There

So, if you talk about an indiv -- I don't
If you want to show me

But essentially what I'm trying to

21

say is that those Sterling named companies were

22

driven by people putting money in as opposed to

23

buying an asset where everyone joins in the assets.

24

So I don't look at those as Sterling companies.

25

Although it's got a Sterling name on it, it's not as

27

1
2

if it's a Sterling company.
Q.

Once these accounts were opened at

3

Madoff, and we will look at lists, maybe later, once

4

the accounts were open, did you have any

5

responsibility with regard to those accounts?

6
7
8
9

A.

Absolutely none.

Q.

Did you keep track somehow of the

monies in those accounts?
A.

I would keep track of my share of

10

that money as if I'm watching my money and not as a

11

company.

12

the 15 West 72nd Street company, and look to see

13

what the company is doing, but I never followed

14

those individual groups as companies.

15

report periodically showing my liquidity, my cash,

16

and so it would have pieces of each of those

17

companies, not a particular percentage that I had

18

before, but the absolute amounts.

19

my asset.

20
21
22

I could watch the company I just bought,

Q.

I would get a

So I would watch

And what was that report that you

received periodically called?
A.

23

Q.

I don't know what

it was called.

24

It was my report.

25

A.

From whom did you receive it?
From the accounting department.

36

1

operates some of our properties.

2

Q.

3
4

A.

Dan.

Dan Knopf, K-n-o-p-f.

And

Fred's son-in-law is Wachler.

5
6

What's his name?

Q.

What is David Katz's area of

responsibility in the Sterling organization?

7

A.

Like me he's looking at different

8

deals.

9

some of the properties that we own outside the fund.

10

But his responsibility was to oversee Changing World

11

Technologies, the conversion of College Place from

12

the garage business to a condominium business.

13
14

Has some real estate responsibilities in

Q.
A.

Right.
We have an Internet business today

15

that I don't understand called Twistage, which he's

16

responsible for.

17

Technologies?

18

Q.

19
20
21
22
23

A.

Did I say Changing World

You did.
Okay.

And he helped me with

Sterling, the management part of Sterling Stamos.
Q.

How did he help you with the

management part of Sterling Stamos?
A.

Well, it's really he and Peter that

24

formulated the idea of starting this.

And so he and

25

I were board members of Sterling Stamos until we

37

1

sold half the company to Merrill Lynch.

2

Q.

3

A.

4

Q.

5

A.

6

Q.

7
8

A.

In?
Two years ago.
Couple years ago?
Yeah.
And you're no longer on the board?
I'm still on the board, but David's

not.

9

Q.

10

organization?

11
12

A.

What does Greg Katz do within the

He works at SAP, which is our fund

business, as does Todd.

13

Q.

14

A.

15

Q.

16

A.

17

Q.

18

A.

19

Q.

Okay.

They both work at --

Yes.
And so Todd and Michael -Michael's two sons.
They're all in SAP?
They're all in SAP.
And then you mentioned your

20

son-in-law Brendan O'Brien at the Sterling Stamos

21

side.

22

A.

23

Q.

24
25

A.
of it.

Right.
What does he do there?
He's in the customer relations part

45

1

today, last week.

2

three stocks in my portfolio.

3

particular portfolio I still have with them.

4

said I must have those five or seven years.

5

says, how about 19.

6

focus on that.

7

Q.

8

I said -- in that
And I
He

I'm not an active -- I don't

Do you understand -- do you consider

yourself a sophisticated investor?

9

MS. SESHENS:

10
11

I said to him, I know there are

Q.

Objection to the form.

I'm talking about in the stock

market, not in real estate or anything else.

12

A.

In the sophisticated, in today's

13

world of derivatives that are going on, the answer

14

is no.

15
16
17
18
19
20
21
22
23
24
25

Q.

What about -- maybe I'll make it more

simple.
A.
Q.
A.
Q.

So now I'm less sophisticated.
You answered the question.
Okay.
Are you, have you ever -- you've

obviously bought and sold stock, correct?
A.
Q.
A.
had stock...

Not for the last umpteen years.
Okay.
I just said 19 years I didn't know I

46

1

Q.

2

A.

Have you ever traded in options?
25, 30 years ago may have traded in

3

Ginnie Mae options that I got killed in.

4

don't do well in the markets, the stock market.

5

not good at it, it's not my business.

6

an active trading account anywhere.

7

Q.

8
9

A.
Q.

10
11
12

A.
Q.

15
16

I'm

I don't have

Have you ever traded on margin?
Yes.
Where have you done that?
At Prudential Bache.
Would you describe for me what that

is, to trade on margin.

13
14

So, I

A.
Q.

I'm sorry?
What does that mean, to trade on

margin?
A.

That I own stocks and I borrow

17

against the company, lends me money.

18

company has -- they lend me up to a certain

19

percentage of the value of the stock.

20

Q.

Brokerage

And you've done that through

21

Prudential Bache?

22

A.

23
24
25

Q.
A.

Yes.
Anywhere else?
Well, if you use the word on margin,

that can only be through a stock brokerage company.

52

1

was simple, well respected member of the community.

2

So...

3
4
5
6
7
8
9
10
11

Q.

When were there -- when did you

become aware of SEC investigations?
A.

When I read about it in the paper,

with those accountants in Florida.
Q.

Were you aware at the time it was

occurring or were you -A.
Q.
A.

12

Q.

I saw it in the paper.

-- or after the fact?
After the fact.

After the fact.

I

didn't know --

13

No.

14
15
16
17
18
19
20

A.
Q.

Let me ask the question differently.
Sure.
Did you read about it in the paper

and become aware of it after the collapse of Madoff?
A.
Q.

No.
Closer in time to when the event

actually happened?
A.

21

Q.

22

Yes.

Yes.

Florida?

23

A.

So you remember the accountants in

Well, I remember there were

24

accountants in Florida who got in trouble with the

25

SEC and the SEC had Bernie give everybody back their

53

1

money, as I read, which he gave back immediately.

2

And the SEC, with this problem, in my mind would

3

have investigated Bernie to make sure that Bernie is

4

doing the right thing and he wasn't part of the

5

charge on the accountants.

And, again, Bernie is

6

clean, Bernie is terrific.

SEC has done a good job.

7

Q.

Do you remember any other instances

8

of becoming aware of SEC investigations of

9

Mr. Madoff?

10
11

A.
Q.

No.

Not in detail.

No.

What's the relationship between

12

either Sterling or the Mets and Travelers?

13

back in 1990, what was the relationship?

14
15
16

A.
Q.
A.

At least

What time was that?
1990.
I know we borrowed money from them.

17

I don't even recall why we borrowed the money, but I

18

know we borrowed money from them.

19

Q.

Do you recall Travelers doing any

20

diligence on Madoff in connection with any of its

21

dealings with Sterling?

22

A.

Yeah, because we put up some of

23

Madoff's accounts for security, so they did an

24

investigation with due diligence.

25

Q.

Did you have any role in that

54

1

investigation?

2

A.

Actually, I remember the name Barry

3

Gonder.

4

also remember Barry Gonder telling me that his wife,

5

who's in the securities business, did a similar

6

strategy that Bernie was doing.

7
8
9

I think he represented them at the time.

Q.

I

When did he tell you that, at the

time?
A.

10

Q.

11

At that time.

her strategy?

12

A.

Did he tell you anything else about

Not that I recall.

Just the fact

13

that certain things stick in your head --

14

gesundheit -- certain things stick in your head, and

15

that's, like the name Barry Gonder comes up.

16

Q.

Now, did you, in preparation for your

17

deposition, did you review Barry Gonder, any memos

18

from Barry Gonder?

19

A.

20

Q.

21

reviewed those?

22

A.

Yes, I did.
Did you remember his name before you

Yes, I did.

I don't take credit for

23

remembering too many names, but that one for some

24

reason I did.

25

(Exhibit SK-1 marked for

56

1

us.

Before that he was outside counsel, so I can't

2

tell you 1990 if he was general counsel or outside

3

counsel.

4

Q.

But he was counsel, though, correct?

5

He was a lawyer?

6

A.

He is a lawyer.

I'm only saying to

7

you that he was outside counsel and I'm not sure

8

when he joined us as general counsel.

9

I'm not sure if he was general counsel or outside

10

counsel.

11

Q.

So in 1990

But he's still MBT.
Do you recall any discussion with

12

your partners concerning this memo or the

13

attachment?

14
15
16

A.
Q.

No.
Do you know whether this memo was

prepared -- strike that.

17

The attached memo, which is Barry

18

Gonder's memo to the Sterling Doubleday file, do you

19

know whether that was dated before or after

20

Travelers loaned money and closed the loan with your

21

organization?

22
23

A.
Q.

I do not know.
Do you know whether you relied in any

24

way on Mr. Gonder's findings in connection with any

25

decisions that you made to invest with -- to invest

57

1

money with Madoff after the date you received a copy

2

of this document?

3

A.

I certainly didn't depend on Barry

4

Gonder's memo, but it's all confirmation that grows

5

over a period of time, with feeling more secure

6

about what's going on.

7
8
9
10
11
12

Q.

Did you receive account statements

from Madoff with respect to your Madoff accounts?
A.

At some time I did.

Q.

And what would you -- was there some

time that you didn't?
A.

I don't recall when I stopped looking

13

at them.

14

over to Arthur.

15

Q.

16

A.

What I did with them is I turned them all

That was going to be my question.
I turned them over to Friedman.

So

17

whether they stopped coming to me, my secretary

18

would send them right on to Arthur before they came

19

to me, but I didn't look at them.

20
21
22
23
24
25

Q.
A.
Q.

Okay.

So, was that your practice?

Yes.
After a short period of time you did

not look at the account statements?
A.
Q.

Right.
Do you recall receiving any other

67

1
2
3
4
5

A.
Q.

8
9
10
11
12

You got -- what was your grade point

at Brooklyn College?
A.
Q.

6
7

Yes.

Brooklyn College?
Yeah.
MS. SESHENS:

A.
Q.
A.

Objection.

2.1.
Seriously?
Seriously.

Hardly got out.

I went

there and, glad to get out.
Q.

Okay, maybe there was a reason you

didn't understand Bernie, I don't know.

13

I may have asked this before.

Did

14

you discuss this relationship, do you recall any

15

discussions with your partners about this

16

relationship between the rate of return to be

17

expected from your Madoff investments and the

18

treasuries?

19

A.

I don't recall having a discussion,

20

but over the years that concept has come up.

21

so, if you asked all my partners, they'd all tell

22

you the same, I think, that that's the kind of

23

expected return we had from Madoff is two to

24

two-and-a-half times treasuries.

25

Q.

Do you recall any of your other

And

68

1

partners -- whether any of your other partners

2

either understood or professed or claimed to

3

understand this correlation better than you

4

understood it?

5
6
7
8
9
10
11
12

A.

The reason for the correlation.
If I don't understand it, they don't

understand it, which is scary, isn't it?
Q.

Are you telling me you're the

smartest, you're the smartest of your partners?
A.

That's what I'm telling you.

That's

what I'm telling you.
Q.

Has that ever been discussed?

(Laughter.)

13

What, if you could tell me in your

14

own words, what did you understand Madoff's

15

strategy, investment strategy to be?

16

A.

Clearly, he was buying stocks, 20 or

17

30 stocks that were traded on the New York Stock

18

Exchange, high quality stocks, and he was purchasing

19

puts to protect the downside, selling calls to make

20

some money by selling the calls, and these were all

21

dividend --

22
23

Q.
A.

Producing stocks?
-- producing stocks.

And so we were

24

never, quote, naked in the stock market.

We were

25

always protected by the puts and the calls -- sorry.

75

1

have a chairman of the -- Office of the Chairman.

2

So three people are in the Office of the Chairman.

3

That's just the Mets and only the Mets business.

4

Q.

Okay.

5

A.

6

Monday morning.

7

meet every Monday morning.

8
9
10
11
12
13

Q.
A.
Q.
A.

16
17
18
19
20

And so the partners that run SAP

Okay.
But there is no executive committee.
Over the whole thing?
Over the whole business.

We're all

in the executive committee.
Q.

14
15

SAP meets, I think they meet every

Okay.
Did you have a personal or a social

relationship with Bernie Madoff?
A.
Q.
A.
Q.
A.

Somewhat.
Describe it, please.
Business social.
And what would that be comprised of?
He came to a number of my family

21

affairs, whether it was a wedding or bar mitzvah.

22

Not all.

23

don't think -- I can't recall a time that he and I

24

went out to dinner together, either personally or

25

with -- individually or with our wives.

I went to a couple of his, not all.

I

But we saw

76

1
2
3

them at social events.
Q.

Okay.

Just because you were at the

same event?

4

A.

5

exactly right.

6

Q.

Yes, because we were at the same,

7

Madoff?

8
9
10

Did you sit on any boards with Bernie

A.
Q.

No.

No.

Did you ever vacation with

Mr. Madoff?

11

A.

No.

Never went on vacation with him.

12

Although I ran into him on two different times while

13

on vacation, but I didn't vacation with him.

14

Q.

Where was that?

15

A.

16

South of France.

17

Q.

18

A.

Once in Sardinia and once in the

Was that by design you ran into him?
Absolutely not.

As a matter of fact,

19

as an aside, I could tell you that I was with my

20

brother and we saw him at our favorite restaurant

21

and we bought him dinner and my sister-in-law to

22

this day is angry at me for having bought him

23

dinner.

24

Q.

25

angry --

Was she angry at the time or was she

77

1
2

A.
Q.

Oh, no, she wasn't angry at the time.
-- or after December 11th --

3

A.

4

was angry after.

5

using our money one way or the other.

6

Q.

7

She wasn't angry at the time.

She

I said, it didn't matter, he was

So be it.
How often would you, before you got

8

so involved with the hospital work, the health

9

system work when you were focusing more on the

10

Sterling work, how often would you communicate with

11

Madoff or his office during the week?

12

A.

I think that my communication with

13

Bernie was pretty consistent throughout the whole 25

14

years, whether I was busy in the hospital or not.

15
16

Q.
A.

Okay.
And I -- Fred and I would visit him

17

maybe once a year, and maybe I would have a

18

conversation with Bernie on the phone two times in

19

addition to that parameter.

20
21

Q.
A.

Two times per year?
Yeah.

So, if I saw Bernie -- if I

22

spoke to Bernie, whether in person or by phone, two,

23

three times a year, other than the -- and if the

24

social events I talked about, just so we know, for

25

25 years, if there were 15 social events over 15

88

1
2
3
4
5
6

A.

I never had any discussions with

people.
Q.
A.
Q.
A.

Do you know what front-running is?
Yes.
What do you understand that to be?
That if some broker has information

7

or an order to buy 20,000 shares and those will

8

drive the stock up, he'll buy a thousand shares for

9

himself first before he buys it and then sells it

10
11

when he's gotten through the selling.
Q.

Did you ever have any discussion with

12

anyone that Madoff might be involved in

13

front-running?

14
15

A.
Q.

Not that I recall.
Did you ever have any suspicion that

16

Madoff might be involved -- whether you discussed it

17

with anybody or not -- might be involved in

18

front-running or inside trading?

19
20
21
22

A.

No.

Because he did it in --

front-running would be a particular stock, again.
Q.
A.

I understand.
And he did it in lumps.

And so my

23

sense of it was that because of the flow he had, he

24

had a sense of where the market was going, whether

25

it was one stock or 25 stocks.

And that was his

90

1

Q.

2
3

Their choice or your choice?

A.

Their choice.

It's their choice.

It's their choice.

4

Q.

Now, we talked to -- in our

5

discussions with other people from Sterling, we've

6

talked about investment in Madoff, not just by the

7

Sterling partners, but by what I think we've called

8

outsiders.

9

A.

10
11

Friends and family.

Q.

Friends and family.

Tell me about

your role in that, if you have any role.

12

MS. SESHENS:

13

A.

Objection to the form.

My role in that is that this was such

14

a blessing that I wanted to share with my friends

15

and family.

16

somebody needed a safe, steady return to help them

17

live their life, we introduced them to an idea.

18
19

Q.

22

And how would that introduction take

place?

20
21

And so if an opportunity came and if

A.

Tell them we're doing it and just

tell them what we know, tell them what we knew.
Q.

So give me -- what would you -- I've

23

become a good -- let's say it's 1990 and I'm a good

24

friend of yours and you're going to tell me about

25

Madoff.

What would you tell me?

96

1

investment is, your percentage?

2

A.

3
4

Q.

A.

6

Q.

Oh, no.
Didn't raise any questions in your

mind?

8
9

So the concept of Madoff having

minimums didn't strike you as unusual?

5

7

Yes.

A.

Any time you do fund raising you

always have minimums.

10

Q.

When you would go to Madoff's office,

11

I think you said you visited once a year, you

12

visited, I think you said those visits started after

13

he was in the Lipstick Building.

14

A.

15
16
17
18
19
20
21
22
23
24
25

Q.

Yes.
What would be the purpose of that

visit?
A.

Just to see how things are going,

what he sees for the next year, just his overview.
Q.

Would you discuss any specifics about

your accounts or your investments?
A.
Q.

No.
Would you -- where would you meet in

his office?
A.
Q.

At his office.
Would you tour his office?

102

1

Duran?

2

A.

3
4

Q.

7

Do you recall a company called Frank

Crystal & Company?

5
6

No.

A.

The name Frank Crystal strikes a

bell.
Q.

Do you recall the reasons why -- I'm

8

assuming from your answer, I think you said you

9

declined to buy the insurance.

10
11
12

A.
Q.

Yes.
Or determined not to.

Do you recall

the reasons why you decided not to buy insurance?

13

A.

14

waste of money.

15

Q.

Why would we waste money?

It was a

Because?

16

A.

17

anything wrong.

18

Bernie, he's totally collared.

19

our money?

20

Q.

Because Bernie's not going to do
We're not going to lose money in
Why would we waste

What did you understand -- what types

21

of loss did you understand the insurance you were

22

looking at to protect?

23
24
25

A.
Q.
investments?

I have no idea.
Did it protect losses from bad

108

1

Q.

But I just want to be clear.

Did

2

anyone ever tell you that parts of Bernie's business

3

that should be transparent were in fact not

4

transparent and, therefore, that should be a concern

5

to you?

6

Did anyone ever tell you that?
A.

The last part concern, the answer is

7

no, because the only part that wasn't transparent is

8

the part as to why he goes in when he goes in and

9

when he comes out and what helps him make that

10
11
12

decision.
Q.
A.

Okay.
I didn't have to worry about that

13

because the fact is that if he is buying the stock

14

and long and short, which is all he did for us other

15

than being in treasuries, then we have nothing to

16

worry about.

17

and when he went out.

18
19
20
21

Q.
A.

The nontransparent is when he went in

Okay.
And the fact is that not knowing that

shouldn't make you uncomfortable.
Q.

22

Okay.

Let me ask it this way then.

Did anyone ever advise you that there

23

was one or more reasons why you should be

24

uncomfortable investing your money with Madoff?

25

A.

Not that I recall.

119

1

money, so they don't bring outside money in.

2

us this was a situation where Bernie had made enough

3

money, so his family is doing their own thing in

4

their proprietary business, and this part of the

5

business would no longer continue.

6

satisfactory to us, for our own needs.

7

Q.

8

A.

9

So to

But that wasn't

For your long-term planning?
For our long-term planning.
MR. LUCCHESI:

Okay.

We have just

10

about four minutes of tape left so we're going to

11

stop.

12

quick lunch and then we'll come back.

13

record.

Is lunch here?

14
15

Why don't we take a real

THE VIDEOGRAPHER:
record, the time is 12:48.

Off the

Going off the

This ends tape 2.

16

(Luncheon recess taken.)

17

THE VIDEOGRAPHER:

18

record.

19

BY MR. LUCCHESI:

20

Q.

The time is 1:28.

We are back on the

This is tape number 3.

Mr. Katz, I want to go back over just

21

a few minor points from before lunch.

We talked

22

about this friends and family that you may have

23

introduced to Madoff.

24

that Madoff may have applied to who could be an

25

investor.

You talked about criteria

Did you have any criteria yourself as to

120

1

who you would be comfortable recommending to -- that

2

they might want to invest in Madoff?

3
4

MS. SESHENS:
A.

Object to the form.

I would not solicit anybody.

If

5

somebody came to me for advice and asked me what am

6

I doing, as a friend or a family I would tell them

7

what I'm doing and they might say, can we

8

participate in something like that.

9

thought it was appropriate for them, I would do so.

10

Q.

And if I

What would be the criteria by which

11

you would decide to determine for yourself if it was

12

appropriate for somebody?

13

A.

Well, as I said before, I looked at

14

this as an exceedingly secure investment because

15

there we had our stocks, and puts and calls, so

16

nothing could happen.

17

money, maybe will make a little less money, the

18

treasuries went down and the returns were there, but

19

it was secure.

20

You might not make as much

So, if the person understood what I

21

was telling them and looked at it, then I would see

22

if I could help to put them into Bernie.

23

Q.

Well, based on your description of

24

the investment being secure, I take it from that you

25

mean you couldn't lose all your money?

128

1

A.

2

Q.

3

A.

4

Q.

5

A.

I don't know.
Has he opened such a fund?
I don't think so.
Would you know if he did?
Yes, I would.

No, I take it back.

6

should but I'm not sure I do.

7

I

could be there and I don't even know about it.

8

Q.

9

A.

It could happen -- it

How could that be?
Because I'm not involved in the

10

management strategy.

11

strategies.

12

Q.

13

A.

14
15

Q.

I mean, in the investment

Is there a time when you were?
Never.
Never been involved in any investment

strategies at Sterling Stamos?

16

A.

17

Q.

18

A.

19

Q.

No.
Is the same true for your son David?
Yes.
Did you suggest, as part of this

20

discussion about a fund of funds with the black box

21

concept, did you suggest that Madoff be a part of

22

that?

23

A.

24
25

Q.
that?

Yes.
What was Mr. Stamos' reaction to

138

1
2
3
4
5
6
7
8
9

of funds in which you would invest?
A.
Q.
A.
Q.

No.
Not at any point in time?
No.
How were decisions -- well, first of

all, who ran Sterling Stamos?
A.
Q.
A.

10

Q.

Were there -- what was his title?
President and chief executive

officer.

11

Peter Stamos.

Who were the decision-makers as far

12

as what types of investments would be made by

13

Sterling Stamos?

14

A.

15

officer.

16

Q.

Peter was the chief investment

17
18
19
20
21
22

Were there any other persons that

were decision-makers that would -A.
Q.
A.
Q.
A.

Peter made the decisions.
Okay.

What role did you have?

In?
Sterling Stamos.
Only in where the business rented the

23

space and how many employees and budget, only on a

24

management of the business level.

25

in any investments.

Zero involvement

139

1

Q.

So management on the business level

2

would include what?

3

business rented space.

4

A.

You mentioned where the

Where the business rented space, what

5

the business plan was, how were they raising money,

6

some of the strategies in marketing and how you

7

market this thing, what do you -- what are you

8

looking to sell.

9

Q.

10

A.

David,

your son?

11

What role did David play?

12

Q.

13

A.

14

Q.

Same as me.
Same as you?
Yeah.
No decision-making with respect to

15

investments, particular investments of the Sterling

16

Stamos fund?

17

A.

The only decision we made is putting

18

our own money into any particular fund as it was

19

offered to the limited partners.

20

the fund together, not picking managers, not

21

reviewing the managers, no review process.

22

to do with the investment strategy of the company at

23

all.

24
25

Q.
A.

Who is Ashok -Ashok.

But not putting

Nothing

141

1
2
3
4

A.
Q.

I think they do.
Do you know who was on the investment

committee?
A.

I don't want to guess.

I certainly

5

know it was Peter and Ashok.

6

are committees and sometimes there aren't

7

committees.

8
9
10
11
12
13
14
15

Q.

Were you ever a member of the

investment committee?
A.
Q.

Absolutely not.
Was your son ever a member of the

investment committee?
A.

Absolutely not.

It's not our

expertise.
Q.

16
17

But sometimes there

Just bear with us one second.
(Comments off the record.)

Q.

Were you aware or are you aware of

18

the type of diligence that Mr. Stamos or people

19

working under his direction would perform before

20

deciding to invest with a particular manager in a

21

particular fund?

22

A.

I don't know the details of it, but I

23

do know that as part of the management decisions

24

that were made in running the company, we had more

25

employees per money under management than any one of

142

1

our size doing due diligence, not only on who to

2

invest with, but to continue to follow through on a

3

continuing basis to see if they continued to do what

4

they're supposed to do.

5
6
7
8
9

Q.
A.
Q.
A.
Q.

What -What they did, I don't know.
That was going to be my question.
What they did, I don't know.
Did you understand them to evaluate

10

both -- first of all, do you understand one of the

11

due diligence aspects is to evaluate the risk of a

12

particular fund's or manager's investment strategy?

13

A.

14

how they did it.

15

Q.

No.

I don't know what they did and

Do you understand that one of the

16

diligence aspects is to investigate the type and

17

evaluate the type of operational controls that a

18

particular fund brings to bear?

19
20
21

A.

I don't know the details of how they

did and what they did.
Q.

Did you ever participate in any

22

meetings or discussions where -- in your role at

23

Sterling Stamos -- where results of particular

24

diligence were discussed?

25

A.

No, because that would be an

143

1
2

investment thing and we didn't participate in that.
Q.

3
4

A.
Q.

5
6

A.
Q.

7
8
9

A.
Q.

Would you receive reports in your -Receive what?
Did you receive reports -On due diligence?
Well, stop there, on due diligence?
No.
Would you receive reports about

investment decisions that had been made --

10

A.

11

Q.

12

No.

organization?

13
14

A.
Q.

-- by the Sterling Stamos

No.
What types of reports or information

15

would you receive in your role at Sterling Stamos

16

regarding the operation of the business of Sterling

17

Stamos?

18

A.

We'd have periodic meetings, talk

19

about how the company is doing, its P & L.

20

its investments but its own P & L and its own

21

operations.

22
23
24
25

Q.

Not in

So whether it was making money

itself?
A.

That's correct.

The Sterling Stamos

company itself which charges to manage money and

151

1

people in and use this asset as one of the assets

2

that they would send on to their investors.

3

Q.

So that became another investment

4

opportunity -- your products are now an investment

5

opportunity for --

6

A.

7

Q.

8

-- Merrill Lynch's customers?

A.

9

Yes.
MS. SESHENS:

10
11

Merrill clients.

Q.

Objection to the form.

So, did you sell, what -- did you

sell a percentage of the business to Merrill?

12

A.

13

Q.

We sold 50 percent.
Was it done in two different

14

tranches?

15

A.

16

tranches.

17
18

Q.

Yes.

The payment was in two

What is, since the sale, what is

your -- has your role with the company changed?

19

A.

20

Q.

21

Yes.
How so?

A.

Because it was originally built for

22

my family, as I described earlier, and so that Peter

23

would be like helping our family manage the family

24

money.

25

everything with Madoff, so it was going to be a real

He thought we had more money than we had,

152

1

family office to manage that money.

2

Peter got totally enamored with what

3

he had grown, and got very excited, and instead of

4

sticking to the focus of running the family

5

business, he was now on a different plane and so it

6

doesn't have the same -- this is going to be like

7

U.S. Trust Company when I'm done, so I've got to go

8

back and find somebody else --

9
10

Q.
A.

To manage your family money?
-- to manage our family money and

11

build a family office again.

12

declined.

13

we still have a lot of money there as limited

14

partners, but we're not on the same wavelength.

15

Q.

So our interest

We still own 25 percent of the company,

Do you have any role in the business

16

management -- the management of the business, as you

17

described it before?

18

A.

I'm still on the Board of Directors,

19

but there are three members of Merrill Lynch on the

20

board, there's Peter and his father and there's me,

21

and we meet once every four to six months.

22

they're moving in a different direction.

23

have a large input in it.

24
25

Q.

And so
I don't

So, just to sum up where you are with

that company, you still have limited partnership

158

1

thought Peter was a very bright person and could

2

accomplish some good stuff.

3
4

Q.

Did you ever ask Peter his opinion of

Madoff?

5

A.

Peter had an opinion of Madoff having

6

to do with the fact that he had been an investor, a

7

very satisfied investor.

8

take all my money out of Madoff and give it to him

9

to manage.

He would have liked me to

So I always got static from him as to

10

why you have so much money in one place.

11

you know my money in Sterling Stamos is with 125

12

different managers.

13

diversification.

14

all my money over.

15

Q.

16

A.

Because

So Peter believed in

And he would have loved me to move

Did he advise you to do that?
No, never really advised me to do

17

that.

18

more money over.

19

Always sort of hustling for me to move some

Q.

You viewed that as a kind of a

20

business hustle?

21

A.

22
23
24
25

Q.
A.
Q.
A.

Yes.

A pleasant one, not a...

I understand.

They were competitors.

For my money.
For your money.
They were friends and competitors for

159

1
2

my money.
Q.

Now, certainly after you were setting

3

up, you set up Sterling Stamos, there were meetings

4

that you attended with Peter Stamos, your son David,

5

Peter's father I think you said --

6
7

A.
Q.

Spiro.
Spiro.

And Ezra Merkin.

Do you

8

recall one or more meetings with that cast of

9

characters?

10

MS. SESHENS:

11
12

A.
Q.

13
14
15
16
17
18
19
20
21

A.

Objection to the form.

Cast of characters, I like that.
With those individuals.
This is pretty good.

No, I don't

recall.
Q.
A.
Q.
A.
Q.

Do you know Ezra Merkin?
Yes.
How do you know him?
I met him through Peter.
And have you had more than one or two

meetings with Mr. Merkin?
A.

I take that back.

I met him through

22

Peter in our relationship which became friendlier

23

over -- he's an incredible baseball fan, he's a

24

crazy baseball fan, so he always liked to talk

25

baseball.

I met Ezra earlier, didn't know him,

165

1

A.

2

Q.

3

A.

4

Q.

5

A.

6

Q.

Because of Madoff?
Yeah.
Had you -- was this a novel concept?
It's margin, we talked about it

earlier.

7

We lost more money than we had to.

8

A.

9
10
11

Q.

It's similar to margin?
It's exactly margin.
Except you're borrowing from the

bank?
A.

Yeah.

So the brokerage companies

12

borrow from the bank, too.

13

They do the same thing.

14

Q.

15

They're just a conduit.

It's not their money.

Fair enough.
Did you view -- do you view your

16

investment strategies over the years on behalf of

17

the Sterling entities and on behalf of your family

18

to be relatively conservative?

19
20
21
22
23

MS. SESHENS:
A.
Q.
A.
Q.

Objection to the form.

Very.
Very conservative?
Very.
Did you consider the double-up

24

accounts to be stepping outside that conservative

25

boundary or did you view that as a conservative

197

1

Q.

Is it your testimony that the

2

discussions -- first of all, you never discussed it

3

with Ruth, correct?

4
5
6
7
8
9
10
11

A.
Q.
A.

Absolutely not.
I asked that in a bad way.
I've never discussed any business

with Ruth, including anything in that document.
Q.

The discussions that you had with

Bernie about the $54 million, why don't you tell me
what that was.
A.

Tell me what the discussion was.
Let me put it in context.

The

12

control of our media, of our content, is an

13

exceedingly valuable asset.

14

that we got signed with Cablevision earlier, we had

15

a 30-day window to buy back that content.

16

didn't, Cablevision would own that content -- when I

17

say own it, they'd have control of it, they'd have

18

to pay us for it but they'd have control of the

19

content not only for the next ten years but because

20

of the way that thing read, forever.

21

continuing, potentially forever.

So we had a 30-day

22

window to buy that content back.

We were able to

23

start a network once we got the content, which we

24

did, which is SNY.

25

Because of the document

If we

It was a

We made a deal with the banks, two

198

1

banks to lend us each $27 million for the $54

2

million.

3

going to deliver the money.

4

very valuable, worth substantially more than the $54

5

million.

We were satisfied that the two banks were

6

Because the content was

Banks being what banks are were

7

crossing the T's and dotting the I's, and we were

8

running out of time and we could not take the chance

9

that there would be a blip.

Because if we didn't

10

pay by May 31st, we'd lose that opportunity, a

11

one-time opportunity, 30 days.

12

So I remember being in a car with

13

Fred, Marvin and we were coming into the City and we

14

were trying to figure out what to do.

15

just can't wait any longer.

16

close one of our accounts or two of our accounts or

17

whatever it takes and get us $54 million, even if

18

it's in the middle of a cycle.

19

I said, we

Let's call Bernie,

So we called Bernie, told Bernie

20

where we were and he says, why break it, I'll wire

21

you $54 million and either you'll pay me back in a

22

couple of days when you get the money from the bank

23

or at the end of the cycle on June 30th, when we

24

unwind whatever we have to unwind, you'll pay me

25

back the money.

199

1

We thanked him profusely, hung up the

2

phone.

I never talked to him about it again.

3

was the extent of the conversation we had with

4

Bernie.

Never talked to Ruth.

5
6

That

The money came the next day.
Q.

7

Bernie's money?

A.

Bernie's money came the next day.

8

The same day the bank put the money in the bank.

9

The banker called me and said, what is going on

10

here, I got $54 million just came into the account

11

and I just put 54 million in.

12

closed?

13

Bernie back his money, and we shipped Bernie back

14

his money the next day.

15
16
17
18

Yes.

Q.
A.
Q.
A.

I said, the deal

We got our money?

Yes.

Okay, send

Who did you give that instruction to?
The bank.
You gave it directly to the bank?
Whether some pieces of paper had to

19

be sent to them, wire instructions, I don't know,

20

but the conversation took place between me and the

21

banker that the thing was completed.

22

was very important that I was on top of closing that

23

deal to make sure we got the money in the bank to

24

send to Cablevision.

25

Q.

Because this

Do you recall who the banker was that

215

1

(Recess taken.)

2

THE VIDEOGRAPHER:

3

record.

4

BY MR. LUCCHESI:

5

The time is 4:19.

We're back on the

Q.

This is tape number 5.

Mr. Katz, what was the benefit to

6

Sterling Stamos -- I'm sorry, the Sterling

7

organization to administering the accounts of the

8

friends and family?

9

MS. SESHENS:

10

A.

11

Q.

12

A.

13

Q.

14

A.

15

Q.

16

A.

17
18

Q.
that.

Objection to the form.

What was the benefit?
Was there a benefit?
No.

It cost us money to do so.

Why did you do it?
'Cause we're good guys.
Any other reason?
None.
You said it cost you money to do

What are you referring to?

19

A.

That some of our employees are

20

spending time on doing things gratis for friends and

21

family.

22

Q.

Is that a business practice that was

23

carried over with respect to Sterling Stamos

24

business?

25

MS. SESHENS:

Objection to the form.

216

1

A.

If people were similar to the same

2

people who were in Madoff, invested in Sterling

3

Stamos, they paid full fees at Sterling Stamos as

4

any other limited partner would have paid, the same

5

as I paid as a limited partner, I paid fees to

6

Sterling Stamos.

7

Q.

So there's not this concept of one

8

side of the business introducing people and then

9

paying their freight, so to speak, with the Sterling

10
11

Stamos funds?
A.

12
13

Right.
MS. SESHENS:

Q.

Objection to the form.

Did -- on the Sterling side, with

14

respect to the investments in Madoff, at any time

15

did the partners consider not providing that

16

service, the administrative service that's been

17

provided to the friends and family, or did they

18

consider charging for it?

19

discussion?

20

A.

Was it ever a topic of

There was a topic of discussion where

21

we talked about charging something in the area of

22

ten basis points, which would have covered costs,

23

but chose not to do so.

24

wanted to do with friends.

25

charging them anything, it didn't feel right, so we

It was not something we
To think that we were

217

1

didn't do it, but we did discuss it.

2
3

Q.

When, approximately when was that

discussion?

4

A.

5

Q.

I can't recall.
Was there a circumstance or a

6

particular event that caused that discussion to take

7

place?

8

A.

No.

Sometimes we look at our

9

overhead and say, you know, how do we cut down our

10

overhead a little bit, what we were doing, and this

11

was a discussion.

12

Q.

Are you able to tell me, as you sit

13

here today, approximately what the amount of

14

overhead investment or cost was that was associated

15

with administrating the friends and family accounts?

16

A.

Talking about minimal.

Minimal.

17

Talking about ten basis points.

18

of potential revenue we were going to get from it,

19

chose not to do so.

20
21

Q.
A.

Hundred to $200,000

That was the potential revenue?
Yeah.

The cost may have been the

22

same because I don't know how much time the office

23

spent on it, if he had one person or two people.

24

Whether it's helping them with their tax returns and

25

giving them information, whatever we had to do, we'd

CONFIDENTIAL

22

18

36

4

45

13

46

17

77

9

77

25

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Saul Katz
EXHIBIT A
REDACTED

partners' money or the Sterling partners' money or the Sterling
entity's money into
entities' money into
REDACTED
Fred's son-in-law is Wachler.
world of derivatives that are
going on, the answer
against the company, lends me
money. Brokerage

Fred's son-in-law is Wachtler.
world of the derivatives that are
going on, the answer
against, the company lends me
money. Brokerage
REDACTED

system work when you were
focusing more on the
25 years, if there were 15
social events over 15

system work, when you were
focusing more on the
25 years, if there were 15 social
events over 25
REDACTED

1

Grammatical error
Transcription error
Grammatical error
Grammatical error;
Transcription error

Grammatical error
Transcription error

CONFIDENTIAL

108

16

119

22

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Saul Katz
EXHIBIT A
REDACTED

worry about. The
nontransparent is when he went worry about. The nontransparency is
in
when he went in
Grammatical error
REDACTED

about this friends and family
that you may have

about the friends and family that
you may have
REDACTED

2

Grammatical error

CONFIDENTIAL

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Saul Katz

REDACTED

10

why you have so much money
in one place. Because

why do you have so much money in
one place. Because
Transcription error
REDACTED

198

13

Fred, Marvin and we were
coming into the City and we

Fred and Marvin, and we were
coming into the City and we
REDACTED

216

1

If people were similar to
the same

If people were similar to, the
same

158

3

Grammatical error

Grammatical error

CONFIDENTIAL

216

2

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Saul Katz
EXHIBIT A
people who were in Madoff,
people who were in Madoff
invested in Sterling
invested in Sterling
REDACTED

4

Grammatical error