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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1
C O N F I D E N T I A L
2
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
ADV. PRO. NO. 08-01789 (BRL)
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4
5
-------------------------------x
SECURITIES INVESTOR PROTECTION
CORPORATION,
Videotaped
6
Plaintiff-Applicant,
7
8
v.
10
BERNARD L. MADOFF INVESTMENT
SECURITIES, LLC,
Defendant.
-------------------------------x
In Re:
11
BERNARD L. MADOFF,
12
Rule 2004
Examination of:
Debtor.
-------------------------------x
9
SAUL B. KATZ
13
14
15
TRANSCRIPT of testimony as taken by and before
16
NANCY C. BENDISH, Certified Court Reporter, RMR, CRR
17
and Notary Public of the States of New York and New
18
Jersey, at the offices of Baker & Hostetler, 45
19
Rockefeller Plaza, New York, New York on Wednesday,
20
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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10
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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
25
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
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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
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16
119
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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