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 G

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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.
BERNARD L. MADOFF INVESTMENT
SECURITIES, LLC,

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Rule 2004
Examination of:
DAVID KATZ
(Volume I)

Defendant.
-------------------------------x
In Re:

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BERNARD L. MADOFF,
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Debtor.
-------------------------------x

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TRANSCRIPT of testimony as taken by and before

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NANCY C. BENDISH, Certified Court Reporter, RMR, CRR

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and Notary Public of the States of New York and New

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Jersey, at the offices of Baker & Hostetler, 45

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Rockefeller Plaza, New York, New York on Tuesday,

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August 31, 2010, commencing at 10:10 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
45 Rockefeller Plaza
New York, New York 10111
BY: KATHRYN M. ZUNNO, ESQ.
AMANDA E. FEIN, ESQ.
FERNANDO A. BOHORQUEZ, 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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ALSO PRESENT:
GREGORY NERO, ESQ., Sterling Equities
DANIEL McCLUTCHY, Videographer

103

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2
3
4
5
6
7

A.
Q.
A.
Q.

We don't talk.
You don't talk?
No.
But Sterling is still invested in

Sterling Stamos, right?
A.
Q.

8

A.

9

Correct.
Is there a reason you don't talk?

diverged.

10
11

Q.
A.

Our visions of the world kind of

Okay.

What do you mean by that?

He looks at things differently.

12

still want a smaller office.

13

We

originally wanted.

14

Q.

We want what we

Was there a particular point in time

15

when Sterling Stamos became something other than a

16

family office?

17

A.

Yeah, when they started taking other

18

people's money in more size than just big families,

19

you know what I'm saying.

20

Q.

21

A.

And do you recall when that

happened?

22

Okay.

23
24
25

Q.

No.
Was it prior to Merrill Lynch's

involvement in Sterling Stamos?
A.

Yes.

107

1

A.

As we started doing well and proving

2

ourselves they started to, you know -- proof is in

3

the pudding, right?

4

Q.

5
6
7

Fair enough.
At any time was the purpose of

Sterling Stamos to recreate Madoff-like returns?
A.

It's always -- it was always a hurdle

8

I think in our minds because it's just a natural

9

hurdle because you've seen it for so long.

But

10

personally I didn't want it to be exactly the same

11

because that means you're doing something like that

12

and I wanted to be diversified.

13

in a way, no.

14

Q.

So in a way yes and

What was your understanding prior to

15

the creation of Sterling Stamos about Madoff's

16

returns?

17
18
19

A.
Q.
A.

20

Q.

21

A.

What else can you say?

Anything other than steady?
No.

negative month?

22

Steady.

23
24
25

Q.
A.
Q.

Do you know if Madoff ever had a

Yeah.
How often?
Not a lot.
So, is there a reason why you didn't

146

1

Q.

2

A.

3
4

THE WITNESS:

MS. SESHENS:

MS. ZUNNO:
Q.

11

exactly?

12

A.

13

16

I think you got

So that's why I was

confused by your question.

10

15

Yeah.

one word backwards.

9

14

I think he said it

wouldn't be problematic?

7
8

I don't know.
MS. SESHENS:

5
6

Yeah.

Q.

Let's just start over.

The black box would mean what
What does black box mean to you exactly?
It's a proprietary trading method.
Proprietary trading method meaning

what?
A.
Q.

Meaning it's secret.
And is there anything about the

17

trading method being secret that you have, that you

18

would have concerns about?

19
20
21

A.
Q.
A.

Not in this case, no, absolutely not.
Why not?
Well, I guess Bernie was an

22

outstanding citizen.

23

SEC writes rules with him.

24
25

Q.

He helped computerize NASDAQ,
A lot of reasons.

I guess putting Bernie aside, just

the black box strategy in general --

155

1

A.

I really don't remember talking about

2

Bernie.

3

remember it.

4

Although that's not a surprise, but I don't

Q.

5

Okay.

A.

6

either.

7

Peter.

8
9
10

Or Bank of New York I don't remember
I thought it was somebody that was under

Maybe that's where I'm confused.
Q.

Do you recall if anyone from Ivy told

you and your father and Peter Stamos that they no
longer invested in Madoff?

11

A.

Do I remember them telling us that?

12
13
14

No, because I remember talking about
Bernie.

That would have -- yeah.

Q.

15
16
17
18

meeting, did you -A.
Q.

23

Strike all of that.

Asset Management no longer invested in Madoff?
MS. SESHENS:
A.
Q.

24
25

Yeah.

At any point did you learn that Ivy

21
22

Okay.
Did you at any point, aside from this

19
20

No.

Objection to the form.

I have no idea they did.
Okay.

Fair enough.

Do you know someone named Tim Dick by
any chance?

157

1
2

Q.
A.

What do you mean by that?
No official capacity.

I was just

3

there watching, and not all the time, either.

4

certain things, they were in our space and so

5

sometimes I'd go in meetings with them or something.

6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

Q.

When you say they were in our space,

you're talking about 575 -A.
Q.
A.
Q.

Yeah.
Fifth, right?
Um-hum.
You managed a fund at one point at

Sterling Stamos, right?
A.
Q.

No.
You don't recall managing a fund

called SP Trading?
A.
Q.

SP Trading?

No.

Did you have any day-to-day

responsibilities for Sterling Stamos?
A.
Q.

No.
At any point did you have any

day-to-day responsibilities?
A.

No.

23

MS. ZUNNO:

24

(Exhibit DK-4 marked for

25

Just

identification.)

Mark this Exhibit 4.

165

1

that's where I totally left.

2

Q.

3

A.

4
5

Q.

8
9
10
11
12
13
14
15
16
17
18

When -I'm sorry, go ahead.
When did Sterling Stamos become

registered?

6
7

I don't remember.

A.

I was just thinking that.

I don't

know.
Q.

When I say registered, I mean

registered investment advisor, just to clarify.
A.
Q.
A.
Q.

Yeah.
You don't recall when?
(Witness shakes head.)
Do you recall if it was shortly after

the fund, the company was up and running?
A.
Q.

It wasn't too long.
Do you recall why Sterling Stamos

registered?
A.

I believe there were different

19

regulations for the amount of people maybe in the

20

fund that you could have without being registered.

21

Q.

Did you have any concerns about

22

Sterling Stamos registering as an investment

23

advisor?

24
25

A.
Q.

Concerns?
Um-hum.

173

1

Ashok's, whoever that was at the time, and maybe

2

Peter's brother.

3

Q.

4
5
6
7
8
9
10

A.

What was Peter's brother's name?
Well, there was a bunch.

There was

Chris.
Q.
A.

Basil?
Chris and Basil.

Basil wasn't around

a lot; Chris was around more.
Q.
A.

Okay.
Maybe Chris and actually maybe his

11

father, because his father was at the Long Island

12

Investors one, too.

13
14
15
16
17
18
19

Q.

And that's all I remember.

I think you also mentioned being

present at some internal meetings?
A.
Q.
A.
Q.
A.

Um.
At Sterling Stamos?
Correct.
What internal meetings were those?
It would range, you know, depending

20

on when I walked in.

21

closed, I would always stick my head in, probably

22

unwanted, you know, and sit down.

23

You know, it'd be rude if they didn't ask me, so...

24
25

Q.

If I saw the conference door

Or asked to be.

Would you say that prior to Sterling

Stamos registering as an investment advisor that you

174

1

were involved in the investment decisions of

2

Sterling Stamos?

3

A.

4

Q.

Not even close.
Would you say that you were on the

5

senior investment team at Sterling Stamos prior to

6

registering?

7
8

A.

That would defeat the whole purpose

of having Sterling Stamos.

9

Q.

10

What do you mean?

A.

If we were going to do it, we'd do it

11

ourselves, we'd do it.

12

brain.

13

Q.

Right?

We wanted Peter's

Do you know, aside from Peter, who

14

else was involved in the investment decisions of

15

Sterling Stamos?

16

A.

Yeah.

Depending on who you asked.

17

If finances, but it was Peter and Ashok and I guess

18

depending on who -- there's a few other people

19

floating around the office.

20

names.

21

I don't remember their

They're probably not there anymore.
Q.

Prior to Sterling Stamos registering

22

as an investment advisor, did your father, Saul

23

Katz, have any involvement in the investment

24

decisions at Sterling Stamos?

25

A.

About the same I did.

Nothing.

175

1
2
3

Except he went to less meetings, I'm sure.
Q.

which investment managers the funds would invest in?

4
5

So he had no involvement in deciding

A.
Q.

Not that I know, not that I know of.
Do you know if any meetings were

6

scheduled with Madoff and Mr. Stamos as well as some

7

Sterling partners to discuss the issue of Sterling

8

Stamos registering as an investment advisor?

9
10

A.
Q.

11

A.

Wouldn't surprise me.
Why wouldn't it surprise you?
Madoff was registered.

12

friend, give maybe the ins and outs.

13

He's a close

choice.

14
15
16
17

Q.

Logical

Do you recall learning of any

meetings with Madoff?
A.
Q.

No.
Let me just make sure I have that

18

question formed as an actual question.

19

recall learning of any meetings that took place with

20

Madoff regarding the subject of Sterling Stamos'

21

registration?

22
23
24
25

A.
Q.
A.
Q.

Do you

No.
Do you know Ezra Merkin?
Yeah.
How do you know Ezra Merkin?

195

1

that?

2

A.

3

Q.

Not that I recall.
In 2002 when Sterling Stamos was

4

first created, in its beginning stages, what's your

5

understanding of the diligence process that Sterling

6

Stamos used to consider investments?

7

A.

8
9

Q.

A.

Q.

I know they did something.

At any point in time did you gain an

understanding of Sterling Stamos' diligence process?

14

A.

15
16

Nothing.

I don't remember what they actively did.

12
13

Do you recall anything about the

diligence process at Sterling Stamos at that time?

10
11

I don't recall.

Q.

No.

No.

Now, you had money invested in

Sterling Stamos, right?

17

A.

18

Q.

Right.
Is there a reason why you wouldn't

19

ask anyone at Sterling Stamos about that diligence

20

process?

21

A.

22

Q.

23
24
25

A.

Why I wouldn't ask?
Um-hum.
I'd ask them a lot of things, I

guess.
Q.

Did you think they had a good

196

1

diligence process at Sterling Stamos?

2

MS. SESHENS:

3

A.

4
5

Q.

Objection to the form.

I don't know.

That would be a guess.

So you would know nothing about

Sterling Stamos' diligence process?

6

A.

7

Q.

No.

Not that I remember, anyway.

Do you know if -- let me backtrack.

8

Do you know when Kevin Barcelona retired at Sterling

9

Stamos?

10

A.

11

Q.

12
13

A.

The date?
Yeah.

Around when.

If I remember correctly it was early

on.

14

Q.

15

A.

Close in time to 2002?
Oh, no, that's not true.

No, because

16

he was someplace else, no, he was somewhere else and

17

they wanted him and I think he had to do the right

18

thing to come over.

19

though.

20
21

Q.

What type of interaction, if any, did

you have with Kevin Barcelona?

22

A.

23

Q.

24
25

I couldn't tell you the date,

A.
on.

You mean in the office?
Yeah.
Walking by, say, hey, what's going

197

1
2

Q.

tasks he was performing for Sterling Stamos?

3
4

Did you ever discuss with him any

A.

No.

Q.

Do you know if Sterling Stamos'

5

diligence process changed at all after the Bayou

6

incident?

7

A.

8

No.

Q.

Do you know if in connection with

9

becoming a partial owner of Sterling Stamos whether

10

Merrill Lynch imposed any requirements on Sterling

11

Stamos' diligence process?

12
13
14

A.

I'm sure there was, but I don't know.

Q.

Did you ever discuss Sterling Stamos'

diligence process with your father, Saul Katz?

15

A.

No.

16
17

MS. ZUNNO:

Let's go off the record.

Take a break for a couple minutes.

18
19

Not that I remember.

THE VIDEOGRAPHER:

Going off the

record, the time is 3:16.

20

(Recess taken.)

21

THE VIDEOGRAPHER:

22

record.

23

BY MS. ZUNNO:

24

Q.

We're back on the

25

The time is 3:27.

Going back to the Bayou matter,

Mr. Katz, did there come a point in time when you

240

1

But when I stopped talking at all to Peter was

2

probably, if I had to guess, it was around the

3

Merrill thing.

4

of.

5

Q.

That's the only thing I can think

At any point in time after the

6

creation of Sterling Stamos did you question why

7

Sterling Stamos could not replicate or do as well as

8

Madoff's returns?

9

A.

10

I didn't necessarily want them -MS. SESHENS:

11

A.

Objection to form.

I didn't necessarily want them to do

12

as well.

13

to do.

14

make that, they'll make three percent, and that's

15

okay.

16

I wanted them to do what they're supposed
There's some disciplines that they don't

Q.

Were Madoff and Stamos returns ever

17

compared on like a pre- and post-tax basis?

18

that sound familiar?

19
20
21

A.
Q.

Does

I'm sure.
Do you have any understanding why

that comparison was done?

22

A.

23

post-tax.

24
25

Q.
post-tax?

To see which one's better pre- and

Why would one be better pre- and

304

1

January of '08.

2

Q.

Do you recall any particular decision

3

that was made at the meeting in January '08 related

4

to portfolio planning?

5

A.

6
7

Q.

A decision?

I don't recall.

Mr. Katz, this document was in your

hard copy files at Sterling.

8

A.

Okay.

9

Q.

10

counsel.

11

agendas relating to meetings with anyone at Sterling

12

Stamos in that file?

13
14
15

A.

18

Q.

If you didn't get them, I don't have

Okay.

Fair enough.

(Exhibit DK-19 marked for
identification.)
Q.

19
20

Do you know if there are similar meeting

them.

16
17

That was represented to us by your

A.
Q.

Are you done reviewing Exhibit 19?
Think so.
Mr. Katz, this was also in your hard

21

copy files and produced to us by your counsel on

22

Monday.

23
24
25

A.
Q.

Um-hum.
Can you explain to me how this

document is used?

329

1
2
3
4
5
6
7

A.
Q.

Possibly.
Do you know if Brendan sent

information like this on a regular basis to you?
A.
Q.
A.
Q.

I don't think so.
What about to your father?
I don't know.
Is it your understanding that

8

Security Fund, Endow Master, Endow-Enhan,

9

Sec-Select, Equity Select and Endow Select, is it

10
11

your understanding those are Stamos funds?
A.

12
13

Are we done with this?
Q.

14
15
16
17

Correct.

Yes.
Just some follow-ups from yesterday.

A.
Q.

Sure.
You told me about Merrill Lynch's

involvement in Sterling Stamos.

18

MS. SESHENS:

19

speak for whatever he told you about that.

20
21
22
23
24
25

MS. ZUNNO:
Q.

I think the record will

Point taken.

Do you know why Sterling sold a

percentage of its interest to Merrill Lynch?
A.
Q.
A.

Sure.
Why?
It wasn't the vehicle we originally

330

1

wanted to make.

2

office, a family office, not an investment fund.

3

just happened to go that way.

4

Q.

We wanted to make an office, an
It

Do you know if Sterling at any point

5

had any plan to sell all of its interest in Sterling

6

Stamos?

7
8
9
10
11
12

A.

Q.

17

As of today, is there a plan to sell

any -- to sell the rest of -A.
Q.

Sterling Stamos.
-- interest in Sterling Stamos?
MS. SESHENS:

A.

15
16

We're not going to be there

forever, if that's what you're saying.

13
14

Sure.

Objection, relevant.

And I didn't wait.
I'm sure if somebody came up with the

right number, we'd sell.
Q.

Was anyone at Sterling opposed to the

18

sale of a portion of its interest in Sterling Stamos

19

to Merrill Lynch?

20

A.

21
22
23

Q.
A.
Q.

Opposed?
Um-hum.
I don't think so.
Do you know if Merrill Lynch ever

24

requested any information about Sterling before

25

purchasing an interest in Sterling Stamos?

347

1
2

A.
Q.

Yeah.

Yes.

Would you agree that the fact that

3

Madoff was a black box, was that one of the reasons

4

Sterling wanted to diversify away from Madoff?

5

MS. SESHENS:

Objection.

Katie, I

6

know we've given a lot of leeway on this, this is

7

like the fourth or fifth time this line of

8

questioning has been asked.

9

my objection, we've gone over this, it's been asked

10

and answered and it's captured in the testimony that

11

I think has been elicited thus far.

12

MS. ZUNNO:

So I just want to note

I note your objection.

13

disagree that this was asked and answered.

14

ask my question again.

15

BY MS. ZUNNO:

16

Q.

But I'll

Was the fact that Madoff was a black

17

box one of the reasons Sterling wanted to diversify

18

away from Madoff?

19

A.

20

Q.

No.
So other than diversifying away from

21

Madoff, are there any other reasons why Sterling

22

Stamos was created?

23

A.

24

family office.

25

reason now.

Seemed like a good business, start a
No.

I

I can't think of any other