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 H

1

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)

3
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

ARTHUR FRIEDMAN
(Volume I)

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 Tuesday,

20

June 22, 2010, commencing at 10:11 a.m.

21
22
23
24
25

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

2

1

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

2
3
4
5
6
7
8
9

BAKER & HOSTETLER, LLP
3200 National City 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: KATHRYN M. ZUNNO, ESQ.
FERNANDO A. BOHORQUEZ, ESQ.
LAUREN RESNICK, ESQ.
KATHRYN M. HEIM, ESQ.
For Irving Picard, Trustee

10
11
12
13

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

14
15
16
17
18
19
20
21
22
23
24
25

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

39

1
2
3
4
5

Q.

Okay.

So, how many employees does

Sterling Equities Associates employ?
A.

Approximately.

I would say approximately 120,

something like that.
Q.

Now, when you first joined the

6

Sterling group in 1986, was Sterling Equities

7

Associates the company that you hired into, or was

8

it a different company at that time?

9
10
11
12
13
14
15
16

A.

No, that was the company that was

employed, from day one.
Q.
A.

What is your title today?
Partner, for one, and senior vice

president for another.
Q.

When you say partner for one, and

senior, are those two different titles?
A.

It's two different titles.

17

Generally -- it's a partnership, generally there

18

aren't any titles but we have -- it's optional and

19

we do have titles.

20
21
22
23

Q.
A.

What are your job responsibilities?
You have to mention exactly when,

because that's a moving picture.
Q.

Sure.

Why don't we start with, if

24

you remember, when you first started in '86, what

25

were your job responsibilities?

Then I'll give you

40

1

a few more -- we'll kind of walk through, you can

2

tell me how they've changed.

3

A.

My recollection in January of '86

4

was, let's see how this evolves kind of a thing.

5

Let's see, as responsibilities come up we'll see

6

whether or not this is suitable for you, for me,

7

whether I wanted to do this or whether I was good at

8

it, and it was kind of a thing that would evolve.

9

But it amounted to various things.

Again, there was

10

taxes involved, investments, administrative duties.

11

And certainly involvement with Sterling Equities

12

accounting, a varied amount of different type of

13

functions.

14

Q.

Can you -- we'll go through each of

15

those in a minute, kind of your different job duties

16

and you can tell me how they evolved.

17

give me kind of an overview of the Sterling group of

18

companies and what they do, what they're involved in

19

and how they're serviced by Sterling Equities

20

Associates.

21

A.

But can you

The real estate aspect -- Sterling

22

has different aspects to it.

The real estate aspect

23

is broken into each real estate property has its own

24

entity or entities.

25

given property that has two or more entities.

It may be a structure for a
But

43

1

the next part of the business, how were the outside

2

investors attracted to the Sterling American

3

Property's entities or projects?

4

the question?

5

A.

6

Do you understand

Yes.
First of all, Sterling, the Sterling

7

partners had a reputation, a very good, fine

8

reputation, which they still do, and people knew of

9

Sterling Equities as being very astute real estate

10

developers, owners, managers, and so there were and

11

still are people who want to do business with the

12

Sterling entity or partners.

13

particularly with Sterling American Property, the

14

American portion of that, American Securities, was

15

and is a minor portion, owned a minor portion of

16

Sterling American, but they brought in a number

17

of -- in their business they had contact with a

18

great many wealthy families.

19
20
21
22
23

Q.
A.
Q.
A.
Q.

And then we would,

So they would bring in -Yes.
-- outside investors as well?
Yes.
Okay.

You were giving me an overview

24

of the Sterling businesses.

So we had the real

25

estate, generally, and then we had the Sterling

44

1

American Property's real estate.

2

A.

Part of real estate, right.

Owned

3

real estate, Sterling American Property.

4

segment was the baseball, which was the New York

5

Mets and the Brooklyn Cyclones.

6

Q.

A separate

Okay.

7

A.

8

entities.

9

being a separate segment of the Sterling broad

10

We always considered our investments as

picture.

11

Separate businesses, separate

Q.

Okay.

And by investments you'd be

12

including in there the investments with Bernie

13

Madoff?

14

A.

Yes.

15

Q.

16

the business.

17

Describe to me the investment side of

A.

I think, first of all, there were, to

18

a very limited extent, investments that each partner

19

might have had when we first -- before '86, I

20

presume.

21

that anyone had, to my knowledge, were IRA accounts

22

where they might have opened an IRA with a broker,

23

usually.

24

Q.

25

After that, the only other investments

repeat that?

I didn't follow that.

Could you

Prior to '86 some of the partners had

107

1
2

Q.

Are you aware of the reasons the

decision was made?

3

A.

I would have to say that the reasons

4

were the same as why I put my money in Madoff, why

5

all of the entities, 200 plus accounts were opened

6

at Madoff, they were all the same reasoning.

7

Q.

8
9

A.

Which was what?
It was deemed to be an excellent

place to invest your money.

The returns were very

10

satisfactory and you could easily get your money out

11

of the investment.

12

It was, in every sense, a good place to invest.

13

Q.

It was a very liquid investment.

I guess -- it appears to me, from

14

looking at the records, that some of the Sterling

15

entities had accounts with Madoff, and others did

16

not.

17
18

Is that -A.
Q.

Some of the -- when you say -I'm sorry.

Some of the Sterling

19

entities opened up accounts with Madoff and put

20

money in, and other Sterling entities did not open

21

up accounts at Madoff.

22

as well?

23
24
25

A.
Q.

Is that your understanding

Yes.
Why -- and I guess what I'm trying to

understand is why, if it was a good, safe place to

108

1

invest with a good return and easy to get your money

2

out, why did some entities open accounts at Madoff

3

but not others?

4

A.

Any account -- any entity that had,

5

by its nature of the operation, accumulated funds

6

and had to invest them, they were invested in

7

Madoff.

8

accumulated funds would make a distribution to the

9

partners, who then would, more than likely, invest

10

Most entities that were profitable and

their money in Madoff.

11

So, ultimately, one way or another,

12

it would seem that all of the entities that

13

accumulated any kind of funds, if they were going to

14

invest it any place, there would be a likelihood of

15

it being invested in Madoff.

16

Q.

So what you're telling me, I think,

17

is that -- I guess I'm not sure.

18

that entities that by their nature accumulated

19

funds, like a parking garage, they'd have daily

20

revenue, right, that it would be likely that that

21

entity would open an account with Madoff?

22

A.

Are you telling me

If there was a reason for the

23

accumulation, then, yes, and so they therefore

24

wanted to save the money in one place rather than

25

going to the bank on the corner or a broker, the

109

1

election was made to invest it in Madoff.

2

was no need to accumulate a fund, then chances are

3

it would be distributed to the partners.

4
5
6

Q.

If there

And then, as you said, they would

likely put the money back in?
A.

Whatever they did, if they were going

7

to save money, this was the, one of the receptacles

8

of choice, as was any of the other investments that

9

we have touched upon.

We haven't talked about

10

Sterling Stamos, that was an investment opportunity,

11

American Securities, or a partner could elect not to

12

save the money.

13

any boats, but if they wanted -- if that were the

14

case and they were into that...

15
16
17
18
19
20
21
22

Q.
A.
Q.

None of the partners really have

It's their money.
Generally it's their money.
Now, did you view the Madoff

account -- now, we know Madoff was a broker, right?
A.
Q.
A.
Q.

Madoff was?
Was a broker?
Yes.
Did you view him as, not as a

23

brokerage account, or did you view it as a bank

24

account?

25

A.

It was viewed as a brokerage account.

116

1

would be performed in-house?

2

A.

3

Q.

Yes.
By either the accounting department

4

or at some point in time maybe by you yourself,

5

correct?

6
7

A.

of the departments.

8
9

I was never involved in auditing any

Q.

But you were involved in doing

accounting work for some of the entities?

10

A.

11

Q.

Yes.
Are the entities that are 100 percent

12

owned -- is there auditing work -- are they audited

13

as well?

14

A.

To the extent there are bank

15

reconciliations and division of authority, if one

16

person or people prepare bank reconciliation,

17

somebody else would be involved in actual -- it

18

wouldn't be the same people that performed the

19

function that reconciled the bank statement, for

20

example.

21

Q.

22
23
24
25

Okay.

That's a form of an audit

then?
A.
Q.

Yes.
Okay.

Let's talk about the

investments with Madoff.

Now, you arrived at

117

1

Sterling in January of 1986.

2

A.

3

Correct.

Q.

And at that point in time there were

4

already some investments made by the Sterling

5

principals or even Sterling entities with Madoff,

6

correct?

7
8
9

A.

I believe so, yes.

In October of

'85.
Q.

Right.

10

got there.

11

range, correct?

12

A.

Just a few months before you

13

September, October, somewhere in that

Q.

Correct.
Now, I know you weren't with Sterling

14

at the time that those investments were made, but

15

did you know when you joined Sterling in January of

16

'96 or shortly thereafter, did you come to learn how

17

those investments came to be?

18
19

MS. SESHENS:
January of '86.

20
21
22
23

You said January of '96.
MR. LUCCHESI:

A.
Q.
A.

I think you meant

Okay, I'm sorry.

Yes.
Tell me what you learned.
My best recollection is that there

24

were two accounts established, one under the name of

25

Fred Wilpon, one under the name of Saul Katz.

They

118

1

each put in a certain amount of money and opened an

2

account, an individual account for each of them.

3
4

Q.
in?

5
6

A.

My best recollection was a million

dollars or a million one something.

7

Q.

8

A.

9
10

Do you know how much money they put

Q.

Each?
Yes.
Do you know why they chose to open an

account with Madoff?

11

A.

Why they chose to open an account

12

with Madoff?

13

by people that they knew and who had invested with

14

Madoff for some period of time prior to that.

15
16

Q.

A.

18

20

Do you know who those people were

that recommended Madoff?

17

19

Yes, it had been recommended to them

Q.

I do not recollect, no.
Is that something you knew at one

time?
A.

I'm not even sure if I knew.

I'm not

21

even sure if I knew the people or heard the names

22

mentioned.

23

Q.

Do you know whether Mr. Wilpon or

24

Mr. Katz knew Mr. Madoff prior to the time they

25

invested with, their own funds with him?

123

1
2

MR. LUCCHESI:
Q.

Yes.

At the time you joined, did you have

3

an understanding of Madoff, Bernie Madoff's

4

investment strategy?

5
6

A.

At that initial time, no.

It was

explained to me very early on what his strategy was.

7

Q.

8

very early on?

9
10
11
12
13

A.
Q.

Okay.

And who explained that to you

I don't really recollect who.
Was it someone at Sterling or was it

Mr. Madoff himself?
A.
Q.

No, it was somebody at Sterling.
Were you tasked at any time with

14

doing any due diligence into Madoff, in connection

15

with investments that were either made or

16

contemplated to be made by the Sterling entities?

17

A.

I did a certain amount of diligence.

18

It was a question -- I don't recollect if, to what

19

extent it was assigned to me, advised, requested,

20

suggested or, in some cases where I just did it on

21

my own to do due diligence.

22
23
24
25

Q.
A.
Q.

It's hard to say sometimes.
Due diligence.

Got it out.

Do you recall what diligence you did

with respect to Madoff?

124

1

A.

I recall in the very early stages

2

actually tracking market prices.

In other words,

3

when we first were invested, we did not invest in

4

index puts and calls.

5

we bought seven individual stocks, we bought the

6

puts and sold the calls on each individual security.

7

And I can remember, and I don't remember exactly for

8

how long I continued that, but if the statement came

9

out that we bought this list -- and I'm just using

10

seven as an example, it wasn't necessarily seven --

11

at specific dollar amounts and the puts and calls at

12

certain specific amounts, I actually went to the

13

newspapers and tracked to see how that fit into

14

the -- first of all, did it fit into a range, did it

15

trade at that value, and was it the high, the low,

16

the middle, the closing price of the range for the

17

day.

We invested in individual, if

That was one thing I did.

18

I can remember other exercises I went

19

through.

They weren't necessarily due diligence,

20

but just from a tracking standpoint, I can remember

21

trying to project a month ahead of time what, based

22

upon the prices, what the maximum gain and the

23

maximum loss might be under the circumstances.

24

then going back and seeing exactly how we did and

25

how that reality measured up to my projections.

And

125

1
2
3
4

That wasn't necessarily due diligence.
Q.

How did your reality match up?

Do

you have a general recollection?
A.

To the best of my recollection, it

5

was -- first of all, it did fall within -- again,

6

what I projected was the maximum that we could gain

7

and the maximum we could loss -- lose.

8

that there was puts and calls, there was a maximum

9

on both sides.

10

between that.

11

Q.

The fact

And in all cases it would fall
It wasn't outside that range.
Let me just ask you this, kind of out

12

of order here, but do you recall any particular,

13

let's take month, any month in which Madoff reported

14

a loss on the investments that he purportedly made

15

on behalf of Sterling?

16

A.

17

Q.

18

Yes.

being a loss?

19

A.

20

How many times do you recall there

entire --

21
22
23
24
25

Q.
A.
Q.
A.

How many times throughout the

Yes.
-- 23-year -Yes.
This would be speculation because I

don't, without referring to records --

139

1

1987, in November of 1987, to be the risks of

2

selling puts, as you -- I'm sorry, workings of puts

3

and calls -- I was reading your title.

4

you didn't sell a put, but...

5
6

I thought

Do you recall why, what the risks you
perceived in trading in puts and calls?

7

MS. SESHENS:

8

A.

Objection to the form.

I really don't recollect.

This would

9

seem to follow up the Al Frank memo as opposed to

10

the, again, having anything to do with Mr. Madoff

11

suggesting.

12

Again, it's talking about selling puts.

Q.

The second paragraph begins:

"Assume

13

we tell Bernie Madoff to sell puts that have

14

appreciated dramatically due to a market crash."

15

And then it goes on to describe how that transaction

16

is effectuated.

17
18
19
20

Did you ever tell Bernie to sell
puts?
A.
Q.

No.
Did you ever give Bernie any

21

instruction regarding the investments that he was

22

making on behalf, allegedly making on behalf of the

23

Sterling entities or partners?

24
25

A.
Q.

No.
You indicated before that you, at

140

1

some point in time, did some checking, you said you

2

looked in the newspaper after you got your statement

3

from Mr. Madoff and checked the prices at which his

4

trades, his trades had been effectuated.

5

recall telling me that?

6

A.

7
8

Q.

Do you

Yes.
Do you recall when you did that?

Over what periods of time you checked the prices?

9

A.

I don't have an exact recollection.

10

You mean how long after we got the statement or for

11

how long I continued to do that?

12
13

Q.

How long -- it was the latter one,

how long you continued to do that.

14

A.

15

too long.

16

didn't lead to anything that I would say something's

17

wrong.

18
19
20

Q.

I don't know exactly, but it wasn't
I mean, it was a lot of work and it

Is that the purpose for which you

were doing the checking?
A.

Just -- well, I think it had multi-

21

purpose.

One was just to learn more about the whole

22

procedure and work through it.

23

tried to do the strategy myself to see how I would

24

make out if I did it.

25

learn to track it, to see how it worked and at the

At some point I even

But the purpose was just to

141

1

same time if anything turned up that was not -- that

2

didn't look right.

3
4
5
6

Q.

I take it nothing turned up that

didn't look right when you checked the prices?
A.
Q.

That's correct.
Did you notice if Bernie was

7

consistently selling at the high or selling in the

8

middle or selling at the low?

9

A.

There was no consistency.

It was

10

within the range, whether it was high or low.

It

11

was just in the range, but I didn't see any, that it

12

traded right at the top, bottom or an average in

13

between.

14

Q.

Did you ever look at, when you sold

15

the stock during a particular month, did you ever

16

look at how that stock traded across the whole month

17

to see if he sold it at the top consistently, the

18

highest price for the month?

19

A.

No, I don't remember doing that.

20

just remember when he sold it, on the day that he

21

I

sold it, I looked at that day's transactions.

22
23
24
25

Q.
A.
Q.

Just to see if it was in the range?
Yeah.
Did you ever notice prices that were

not within the range, ever?

142

1
2

A.
Q.

Not that I can recall, no.
If you had noticed a price out of the

3

range on a particular stock, would -- what would

4

your reaction have been?

5
6

MS. SESHENS:
Q.

7
8
9
10
11

What would you have done?
MS. SESHENS:

A.

Objection.

Objection.

I would have brought it to the

attention of the partners and looked for guidance as
to what we would do next.
Q.

Would you have -- would it have been

12

within your range of authority, within the scope of

13

your authority if you'd notice such a discrepancy to

14

call Madoff directly and ask him about that?

15
16
17
18

MS. SESHENS:
A.

Same objection.

I wouldn't have done that without

speaking to the partner.
Q.

19

directly?

20

A.

You wouldn't have called Madoff

21

Q.

No.
Would you have called anyone at

22

Madoff's shop directly without speaking to the

23

partners for something like that?

24
25

A.
the partners.

I don't believe so.

I would speak to

144

1

A.

2

I really don't recollect exactly.

Q.

Did you check all of the trades for

3

all of the accounts at that, whatever time period

4

you were doing it, or did you just pick one account?

5
6

A.

accounts because everything was a mirror image.

7

Q.

8
9

No, I checked -- no, not all of the

Fair enough.

A.

In other words, he would buy seven --

if he bought seven securities, it would be seven

10

securities in each account.

11

account.

12

Q.

13

I wouldn't have done every other account.

A.

14

So I only had to do one

Q.

But you would have done -I would have done every trade, yes.
So, you indicated that you attempted

15

to replicate Madoff's strategy.

16

Tell me.

17
18

A.

What did you do?

Trying to recollect exactly what I

did.

19

I would take the stocks that he

20

purchased, and I believe what I did was to follow

21

the strategy.

22

testing what he did that he's giving us accurate

23

numbers, but if I utilize his strategy, let's say

24

when I got the slips that said this is what he

25

bought, I would take that information and then try

What I'd want to see is I wasn't

145

1

to enact it on my own account.

2

quantities, didn't matter the quantity, but just to

3

take what to buy, but I would always be lagging

4

behind him.

5

would do, and I found that he did, I'm making up,

6

say 15 percent.

7

made a profit.

8

strategy was good, it worked, but not to the extent

9

that it worked for him.

10

Different

Just to get a general idea of how I

I did more like six percent.

I

I determined in my own mind that the

One of the major reasons was the

11

commission.

12

somehow what the commission would be, what I'd have

13

to pay if I did this on my own.

14

little or no commission, and that made a big

15

difference when you're dealing with, just looking to

16

try to make one percent a month, that made a

17

difference.

18

Q.

When I did the strategy I determined

Whereas he had

So your understanding was that the

19

difference between the -- I know you made these

20

numbers up, but your six percent return that you

21

were able to accomplish and his 14 or 16, whatever

22

you said, was primarily driven by the absence of

23

commission costs?

24
25

MS. SESHENS:
A.

Objection to the form.

That was one of --

146

1

MS. SESHENS:

2

A.

Sorry.

Go ahead.

That was one major factor.

It could

3

also -- again, I'm doing it after the fact, just

4

using his information, that could change my result

5

either way.

6

later using his strategy the market -- I was able to

7

make a better purchase than he did, then, you know,

8

it could have gone either way.

9

Q.

I mean, if the next day or two days

If Madoff wasn't charging a

10

commission, is that what you told me?

11

understanding was he wasn't charging you a

12

commission?

13

A.

Your

My understanding was that he was

14

making a market in some or all of these stocks and

15

he was making money but he determined the price.

16

he could buy it at one and sell it to us, in effect,

17

at one-and-1/16th, but the one-and-1/16th was

18

certainly a fair price and certainly it traded

19

during the day well above one-and-1/16th -- these

20

are all examples, of course -- he was making a

21

commission or a substitute for commission, the

22

1/16th.

23

at whatever price, one-and-1/16th, and then pay a

24

commission on top of that.

25

Q.

If

But I would actually have to go and buy it

If you bought it from someone other

150

1
2

MS. SESHENS:
periods of time?

3
4

You mean at later

MR. LUCCHESI:
A.

At any period of time.

I don't remember ever questioning it.

5

I know from the beginning of time we never, we never

6

got it electronically.

7

Q.

Did you deal, in your work with

8

Sterling or individually, did you dealing with other

9

brokerage firms?

10

A.

11
12
13
14
15
16
17
18
19
20
21
22

Q.

Yes.
That traded equities on behalf of

Sterling entities or Sterling partners?
A.

Sterling partners, certainly my own

personal account, yes.
Q.

Okay.

Those other brokers, did you

receive electronic confirmation?
A.
Q.

No.
Did you get your, access to your

account information electronically?
A.

No, I don't remember getting it

electronically, no.
Q.

Going back to the confirm slips that

23

you indicated you'd get, they'd come in the mail, as

24

you indicated I think several days, a few days after

25

a trade, either a buy or a sell had taken place?

151

1
2

A.

Yeah, it could be a couple of days,

could be a day or two.

3

Q.

What would you do with those -- first

4

of all, who would receive those at Sterling?

5

those come directly to you?

6

A.

7

Q.

8

A.

9

Q.

Would

Yes.
Or to someone who worked for you?
Well, usually my assistant.
I noticed on the organization chart

10

you have your assistant underneath you, which at one

11

point was Cynthia Bernstein.

12

people that worked directly for you that were direct

13

reports up to you or through Cynthia Bernstein to

14

you?

15
16
17
18

A.
Q.
A.

Did you have other

No.
Or was she your only direct report?
No, it was just my assistant and

myself on this aspect of what I did.

19

Q.

20

the Madoff --

21
22
23
24
25

A.
Q.
A.
Q.

Right.

I'm just talking about this,

Yes.
-- aspect.
Only the two of us.
What would be done -- what would you

do with the confirm slips when you received them?

152

1

A.

In the earlier periods we held on to

2

them for quite a bit.

There wasn't any -- I don't

3

think there was any procedure that we actually did

4

with them.

5

as they came in to see if they indicated real

6

movement.

7

large volume, depending on how many accounts we had.

8

So, the fact that they came in I'd want to know was

9

it something I didn't know, did he just go into the

I mean, I would glance at them as soon

First of all, they'd come in in very

10

market, did he just come out of the market.

11

told me that.

12

would be the information.

13

So that

If I hadn't known to that point, that

After that, they would just be kept

14

in a drawer.

15

long time and then we realized there was no need to

16

do that.

17

or a little more than a month.

18

statement in, the monthly statement, we disposed of

19

them.

20

In the early periods we kept them a

So we used to keep them maybe just a month

Q.

Once we got the

When you received the statement,

21

would there be some effort made to tick and tie the

22

confirmation slip evidence to the statement, or the

23

transactions reported on the confirmation slip to

24

the statement?

25

A.

No.

We never saw any reason to do

153

1

that.

2

confirmation was something like if dividends -- if,

3

I'm sorry, not dividends, but if a particular

4

account said they want to get a withdrawal every

5

month, X amount of dollars, we might look for that

6

confirmation to make sure that they received -- that

7

that money was taken out of their accounts.

8
9

The only thing we might tick and tie in

Q.

Because certain accounts had kind of

automatic monthly withdrawals?

10

A.

11

Q.

Yes.
Going back for a minute to the

12

discussion about Madoff being in the market versus

13

Madoff being out of the market, you said you could

14

tell from, when you got trade or confirmation slips

15

that he was either in the market or out of the

16

market, perhaps --

17

A.

18

Q.

Right.
But that you'd also sometimes make

19

calls to Frank DiPascali to ask him if Madoff is in

20

or Madoff's out or if he's getting in or getting

21

out?

22

A.

More the latter, what the intention

23

was.

Sometimes to my surprise I'd say, do you

24

expect to go into the market and he'd say, yeah, we

25

just went in yesterday.

So maybe I didn't get the

163

1

Q.

You told me a little while ago that

2

you attempted to replicate Madoff's strategy, and

3

you used the confirm slips so you were a few days

4

behind in making your transactions.

5

to the partners, the Sterling partners, the results

6

of your exercise?

7

A.

8
9
10

Q.

Did you report

Yes.
And what was the discussion; do you

recall?
A.

I don't recall.

Obviously not

11

startling, the reaction, but I don't recall exactly

12

what it was, if there was any kind of discussion

13

that followed.

14

Q.

Do you -- were you satisfied at that

15

time that the difference in results, I think in your

16

example, your six percent versus Madoff's 14 or 15

17

percent, were the result of the market timing issue,

18

as well as the commission issue?

19

issues that you felt explained the difference?

20
21

A.
Q.

Is that the two

Yes.
Do you recall seeing articles, either

22

in the late '90s or the early 2000s, questioning

23

Madoff's success?

24

A.

25

Q.

Yes.
What do you recall about that?

164

1

A.

I recall a myriad of articles, some

2

questioning how he does it, and some lauding for

3

being a genius.

4

called suspicious or wondering how he's so

5

consistent, but others saying it's amazing, he's

6

terrific, or it's no wonder so many people invest

7

with him or want to invest with him, that he's

8

great.

9
10
11

Q.

So, they ran the gamut from being

How did these articles come to your

attention?
A.

Some articles were in the paper for

12

everybody to see, some articles were sent to me from

13

partners, some from outside people that knew we were

14

invested in Madoff.

15
16
17
18
19

Q.

So, it's various ways.

Were any of the articles the subject

of discussion among the partners?
A.

Usually there was some kind of

discussion, usually.
Q.

Did any of the articles that

20

questioned Madoff or, I think you used the word

21

suspicions or suspicious of Madoff, did they cause

22

you on behalf of the partners or to your knowledge

23

any of the other partners to do any investigation or

24

questioning of Mr. Madoff about his trading

25

strategy?

165

1

A.

There might have been, but it always

2

seemed that every time there was a real, call it a

3

suspicion, where somebody questioned the

4

transparency or had some problem with Madoff, like

5

Markopolos, it always seemed to be an SEC

6

investigation, either an investigation was called

7

for and we said, well, we'll see what happens here.

8

Or it was just publicized that the SEC went in and

9

gave him a clean bill of health.

10

So, any time that we sort of sat on

11

the tip of our chair and raised an eyebrow, the SEC

12

was always there to bring the comfort and say this

13

man is great, he's perfect, no problem, and we went

14

into relax mode.

15
16
17
18

Q.

How many times are you aware that the

SEC looked at or investigated Madoff?
A.

In my own mind I thought there was

anywhere up to four times.

19

Q.

20

in your mind?

21

A.

22

Q.

Between 2000 and 2006, in that

general area.

23

When did those investigations occur,

24
25

Are you aware of any SEC

investigations before 2000?
A.

No.

188

1

borrowing?

2

A.

It was just the financing of the

3

Mets, just to -- not specifically, I don't remember

4

what the money was used for, but it wasn't to, just

5

to turn some of the investment into cash to put more

6

money in Madoff.

7

Q.

That wasn't my recollection.

I guess I was asking, my thought

8

process was was there some connection between

9

Travelers loaning money to the Mets and Travelers

10

wanting to understand, perhaps Travelers wanting to

11

understand Madoff's investment strategy?

12

connection between those two things in your mind?

13

A.

Is there a

Well, if they're going to lend us

14

money, and we have a great deal of money, to see

15

what kind of risk we are, if we have a great deal of

16

money invested in Madoff, I think the more they know

17

about that investment, the more comfort or concern

18

they would have, one way or another.

19

Q.

In 1990, September of 1990, did you

20

have or did Sterling group of companies have a

21

substantial amount of money with Madoff, to use your

22

words?

23

A.

I don't know the amount but, as I

24

said, any money that we had, any liquid cash, we

25

would generally invest it in Madoff.

189

1

Q.

2
3
4
5

A.

Q.

Okay.

Didn't you have some

investments with Prudential?
A.
Q.

8
9

Yeah, because I cannot think of any

other place where we put liquid funds.

6
7

Even as early as 1990?

A.

Prudential?
Yeah.
The only investments we had in

Prudential were perhaps Saul Katz having had some

10

personal investments there, not from a company

11

standpoint.

12

Q.

Okay.

I mean, I've seen and we're

13

going to look at some point at a few spreadsheets

14

where it looks like you have listed all of the

15

investments of the Sterling entities, and just doing

16

some rough math it looks like 90 percent, just a

17

round number, 90 percent of your investment activity

18

was with Madoff.

19

understanding?

20
21
22
23
24
25

A.
Q.

Is that a pretty correct

That's not surprising to me.
Just to go back to Exhibit 5 for a

minute.
A.
Q.

Sure.
You have no recollection of Barry

Gonder or Travelers looking at Madoff and summing up

223

1

Q.

2

A.

3

Q.

From Madoff, yes.
Yes.
Did you have -- what was your

4

understanding, in May of 2004, regarding what that

5

wire transfer was?

6

A.

My understanding was that it was an

7

advance and if it was -- it was at the time that we

8

were exercising an option to buy out of the

9

Cablevision agreement for $54 million.

And to make

10

certain -- we were awaiting a loan from Chase

11

Manhattan Bank, Chase -- JPMorgan Chase in that

12

amount.

13

nervousness that if the Chase loan wasn't

14

forthcoming while we had the opportunity, while a

15

window was open to exercise the option to buy out,

16

we were prepared to close certain Madoff accounts to

17

take out money out of investments to raise the $54

18

million.

19

Just in case, there was a little

My understanding was that Bernie

20

Madoff sent the money saying if the -- and this was

21

like the day that it was supposed to happen or the

22

day before, if the money wasn't forthcoming from

23

JPMorgan Chase, then he would close the respective

24

accounts and the $54 million would be returned to

25

him.

If it was forthcoming from JPMorgan Chase,

224

1

then again the $54 million would be returned to him.

2

So, my understanding was that he was

3

just making an advance for perhaps a day.

4

either way it would be returned in a day or two, and

5

either the JPMorgan Chase loan would be used to

6

exercise this window of opportunity, or the sale of

7

securities, closing, taking, withdrawing money from

8

certain Madoff accounts.

9

Q.

And

That was my understanding.

Let me walk through that because I

10

understood it up until kind of the middle or last

11

third.

12

it down.

Let me see if I understand.

13

Just to break

One of your entities had an option to

14

buy out of a Cablevision agreement.

15

far?

16

A.

17

Q.

18

Am I right so

Yes.

million?

19
20
21
22
23
24
25

A.
Q.
A.
Q.
A.
Q.

And to exercise that option cost $54

Yes.
Which was needed by a date certain?
Yes.
In or around May, end of May 2004?
Correct.
In order to come up with the $54

million, Sterling applied, some Sterling entity or

226

1

withdrawn?

2

MS. SESHENS:

3

Q.

4

Is that true?

A.

5

Object to the form.

That's my understanding, yes.

Q.

Do you have an understanding as to

6

who had that conversation with Mr. Madoff.

7

Mr. Saul Katz?

8

A.

9
10

Q.

Was it

Yes.
And that's your understanding because

Saul Katz told you that or for some other reason?

11

MS. SESHENS:

12

A.

13

Q.

14

A.

15

Q.

Objection to the form.

Yes.
Saul Katz told you that?
Yes.
Okay.

Now, your understanding is

16

that when Saul Katz told Bernie, I need to withdraw,

17

may need to withdraw 54 million, Bernie came up with

18

a -- this is where I lost you -- an alternative

19

proposal?

20

A.

21

Am I right so far?
Yes.
MS. SESHENS:

22

Q.

Object to the form.

And the alternative proposal was

23

what?

24

proposed solution?

25

Restate it for me.

A.

What was Mr. Madoff's

My understanding was he was advancing

227

1

the $54 million and if the JPMorgan Chase loan did

2

not come through on time which, again, was a day

3

away, my recollection is, then the money would be

4

withdrawn from the accounts, as requested by

5

Mr. Katz.

6

Q.

Okay.

That's what I misunderstood,

7

because I'm not sure that's what you said before, at

8

least that's not what I heard.

9

make a loan, essentially?

10
11

So he was going to

Mr. Madoff was going to

make a loan?
A.

He was going to loan it -- well, I

12

don't know what the terms of the conversation were.

13

I just knew that he was advancing the funds and it

14

should be just for a day.

15
16
17

Q.

Okay.

And if the loan didn't come

through -A.

If the loan from JPMorgan didn't come

18

through, the funds would be withdrawn from the

19

Madoff accounts.

20
21

Q.

Okay.

And if the loan did come

through, what then?

22

A.

Then his money would be returned to

23

him immediately.

24

returned, this advance would be returned to

25

Mr. Madoff and either, what would be used to buy out

So either way the money would be

228

1

of the Cablevision agreement was either the loan

2

money from JPMorgan Chase or the money withdrawn

3

from the Madoff accounts.

4

Q.

Okay.

And I think you told me this,

5

you had no discussions with Mr. Madoff or anyone at

6

Madoff about this particular transaction, correct?

7

A.

The only communication I had was with

8

Mr. DiPascali regarding the wiring of the money to

9

us and the wiring of the money back to them.

10

Q.

Okay.

And the money -- do you know

11

what account the money came from at Madoff?

12

you ever privy to that information?

13

A.

I may have been.

Were

I mean, there was

14

correspondence that were faxed and it may -- that

15

information may be on the correspondence.

16

Q.

Okay.

Do you -- is my understanding

17

correct that the JPMorgan Chase loan did come

18

through?

19
20

A.
Q.

Yes, it did.
And so essentially you returned the

21

money to Madoff?

22

A.

23

Q.

Yes.
Are you aware -- I mean, this letter

24

talks about -- frankly, doesn't talk about any of

25

the stuff that you just mentioned.

This letter

250

1

not joint ownership of the account.

2

specifically designated what percent each of the

3

tenant owns in that account.

4

Q.

Okay.

It is

So if you and I had an account

5

that you were going to call a tenant-in-common

6

account and we could each have a 50 percent

7

interest, we would each put in 500 bucks --

8

A.

9

Q.

10

dollar account?

11

A.

Okay.

12
13
14

Q.

-- and that would be a thousand

Right.
And then was it your job to keep

track of our respective interests in that account?
A.

Yes.

We would keep track.

Usually,

15

it would be -- Well, whether it was partners or

16

outside people that were one of the tenants, we

17

prepared a monthly sheet and the respective

18

percentage interest, the actual interest, would be

19

reflected on that --

20
21
22
23
24
25

Q.
A.
Q.
A.
Q.
A.

On that sheet?
Yes.
That was a monthly -Yes.
Did that sheet have a name?
We called it the hell sheet.

255

1
2
3

A.
Q.
A.

Yes.
Tell me about that.
There was a jet that was -- a jet

4

that for a while only Mr. Wilpon owned, and then

5

Mr. Katz purchased 50 percent, and that still exists

6

today that they are 50/50 partners on a jet

7

aircraft.

8

Q.

9

aircraft?

10

A.

So together they own the whole

11
12
13
14

Q.
A.

Yes.
And it's a particular aircraft -Yes.

It's a G4.

Yes, it's a

particular aircraft.
Q.

Do you know whether Mr. Madoff has

15

ever been flown anywhere in the G4 or any prior

16

aircraft that Sterling partners owned?

17

A.

18

Q.

I don't remember

offhand.

19

I don't know.

Going back to the accounts and the

20

different people owning different percentages of the

21

accounts, I noticed that on many of the Sterling

22

entity accounts that were opened in the name of

23

Sterling entities, there are also individuals that

24

are listed as -- the phrase, I think, you used in

25

some of your documents is "tenants in common."

Am I

256

1

correct?

2

A.

3

accounts, yes.

4

Q.

There were several tenants-in-common

5

And often, you are one of the tenants

in common when it's a Sterling entity account?

6

A.

7

Q.

Yes.
And also your percentage interest as

8

a percentage is a relatively small number; you know,

9

1 percent, 5 percent, a fraction of 1 percent.

10

that correct?

11

A.

12
13

Is

Q.
the account?

14

A.

That's correct.
How did you obtain that interest in
Do you understand my question?
Yes.

There are different types of

15

accounts, two that I could think of immediately.

16

One, if the tenant-in-common account was as a result

17

of a business arrangement, the money in the account,

18

whatever was set forth in the account, was divided

19

according to the interest in whatever business it

20

was.

21

percentage interest was that we owned.

22
23
24
25

If it was Sterling Equities, whatever our

Q.

Pursuant to the partner agreement or

business agreement?
A.
Q.

Yes.
It would be mirrored on the account.

257

1

A.

Yes.

Then there were several

2

accounts that were set up -- would have been

3

referred to as leveraged accounts.

4
5

Q.
A.

Okay.
Which we opened, we started,

6

initiated, periodically when there was excess funds

7

that we wanted to invest in Madoff, and with those,

8

there were -- whether it was a leveraged account or

9

not, if there were funds that we were just going to

10

open a new account and somebody would say, We're

11

opening a new account.

12

announcement to the other partners, If you have any

13

money that you wanted to invest, this is an

14

opportunity.

15

And there would be a memo,

So whatever money I or any of the

16

other partners happened to have, wherever it was --

17

I may have accumulated money in Sterling Equities

18

funding, for example, wherever there might be or

19

there was a distribution.

20

whatever anybody had would be put in that account

21

and, therefore, the percentages would be determined

22

by how much money everybody put in, so that would be

23

different than any other account we had.

24
25

Q.

Okay.

So everybody had cash,

So your -- Your point is that

the percentages in those accounts reflected the

272

1

with you?

2

A.

No.

It was rather confusing,

3

particularly since Mr. Katz' other partners belonged

4

to country clubs which Mr. Katz never has.

5

seemed strange that you singled him out and

6

mentioned his country club cronies when that was

7

nonexistent --

8

Q.

9
10
11
12
13

So it

Saul Katz doesn't belong to country

clubs?
A.
Q.

No.
Did you ever hear Mr. Katz, Mr. Saul

Katz, say he didn't understand how Bernie did it?
A.

I heard him say that there's a lot of

14

people that don't know how he does it.

15

kidded me that I -- when I said I understood his

16

strategy, that he said, I was the only one that

17

really -- you know, it was almost a standing joke.

18
19
20
21

Q.

He always

That you were the only one who

understood the strategy?
A.
Q.

Right.
Did the other partners, the other

22

Sterling partners, to your knowledge, share Saul

23

Katz's view that they didn't understand the strategy

24

and that you were the only one that --

25

MS. SESHENS:

Objection.

273

1

A.

Everybody understood the strategy

2

because it is not really -- The basic strategy is

3

not that complex.

4

didn't know about it that they felt that nobody or

5

very few people knew about it.

6

But were there things that we

As far as I was concerned, I knew

7

that he had great technology and that the technology

8

supplied all of this other information that made

9

this much less -- It supplied the transparency, as

10

far as I was concerned.

11

Q.

12
13

A.
system.

14
15
16
17

But you never saw the technology?
No.

I knew they had a computer

I never --

Q.

You knew that because you were told

that?
A.
Q.

18

A.

19

Yes.
As opposed to going and seeing --

always --

20

Q.

21
22
23
24
25

I read about the technology and

Go ahead.
MS. SESHENS:

I don't think he was

finished.
Q.

I was starting to say something.

realized you weren't done.
You said that you read about the

I

298

1

that each would be insured for 500,000 as opposed to

2

the possibility existing, if we had one account,

3

that there would only be $500,000 in coverage.

4

Q.

So the purpose then in dividing the

5

monies the way you did was to stay at or under that

6

cap that you understood as coverage -- And I'll use

7

that word in quotes. -- from SIPC?

8
9

A.
Q.

That's correct.
Did you -- As you sit here today, do

10

you believe that dividing the money up in this

11

manner that's reflected in this memo, Exhibit 10,

12

was an appropriate way to insure -- and I'll use the

13

word "coverage" again because you've used it.

14

from -- by SIPC with respect to the accounts you

15

were opening at Madoff?

16

A.

I do.

--

I do believe that the total

17

maximum coverage in this case was a million dollars

18

or, you know, 910,000, the full amount, at least

19

initially.

20

Q.

Okay.

So after you divided the money

21

up in this manner, was it your job to keep track of

22

the parties' respective interests in these two

23

accounts?

24

A.

25

In administering the accounts with

all of the other Madoff accounts -- They were the

299

1

allocated portion of any tenant-in-common account or

2

joint account.

3

them and make sure that that was reported

4

appropriately.

5

Q.

-- I -- it was my job to account for

Okay.

So with regard to Sterling

6

Third Associates, after you opened an account in

7

1986 for -- with Madoff, that $430 -- that $430,000

8

was allocated how?

9
10
11

A.

The 430 was allocated 100 percent to

Sterling Third Associates.
Q.

Okay.

And was there a -- Was there a

12

portion of that that was allocated to -- of that

13

$430,000 that was allocated to Fred Wilpon and a

14

portion that was allocated to Saul Katz?

15

A.

Not in that account.

Not in that

16

account per se, but in the profit-sharing plan, all

17

of its assets --

18

Q.

Time out.

19

want to go the wrong way.

20

profit-sharing plan.

21

I just -- I just don't

Third --

22
23
24
25

A.
Q.
A.

Oh.

I'm not talking about the

I'm talking about the Sterling

I'm sorry.

Sterling Third?

Yes.
Yes.

That was -- That would be --

Each would own 50 percent of --

358

1

A.

Just to have more information.

2

There's certain analysis that we did -- we did not

3

include the Mets.

4

separated.

5

Q.

Just we have the figures

Okay.

So was the decision to back

6

the Mets out just random -- We'll just back out the

7

Mets.

8

out the Mets from the analysis?

9

-- or was there a business reason for backing

A.

No business reason.

The Mets numbers

10

were varied more than others.

When they needed

11

money, they withdrew money out of Madoff.

12

had extra money, certain times during the year,

13

generally, when season ticket holders purchased

14

their tickets, there would be large sums of money.

15

Towards the end of the season, the balances would be

16

smaller.

17

It was just to identify.

18

significant number.

When they

So they changed a lot more than others.

Okay.

The Mets certainly were a

19

Q.

So if I could kind of reword

20

what you said.

21

out -- I think what you're telling me is because --

22

because of the variation in the Mets account, it

23

could skew the numbers one way or the other, make a

24

comparison from month to month or time period to

25

time period, not necessarily representative of what

Was it -- the Mets were backed

360

1

I know a lot of the others because I can recognize

2

the names or a couple of them you identified were

3

relatives or, you know, relatives through marriage

4

of one or more of the Sterling partners.

5
6
7
8
9
10
11
12
13
14

A.

Yes.

very close friends.
Q.
A.
Q.
A.
Q.

They were relatives.

Correct?
They were

They were --

Some of them were friends?
Business acquaintances.
Business acquaintances?
Yes.
Was there a limit on who could be,

you know, referred to Madoff or -A.
Q.

There were -Let me ask it a different way.

Was

15

there a limit -- let me actually ask a totally

16

different question, and then I'll come to the limit

17

question.

18

My understanding is that you managed

19

the accounts for these others that are listed on

20

these reports in the same manner that you managed --

21
22
23
24
25

A.

When you say "manage," are you

talking about from an administrative point of view?
Q.

Yes, to be fair, from an

administrator's standpoint.
A.

Yes.

361

1
2

Q.

And you were the -- You were the

contact for these others --

3

A.

4

Q.

5

Yes.

liaison?

6
7

-- with respect to Madoff, the

A.

That's correct.

Q.

Was there a -- any limitations on the

8

persons or the types of persons for whom you would

9

serve that function?

10

A.

Yes.

The criteria varied according

11

to time.

At different times, the criteria may have

12

changed.

For one thing, Mr. Madoff imposed certain

13

criteria later, at more recent times.

14
15
16

Q.

You mean like a minimum dollar

amount?
A.

Yeah.

Like he said, no, he won't

17

take accounts under a million dollars.

18

became $2 million.

19

At other times when we were getting too many other

20

accounts, a rule was imposed that Saul Katz would

21

have -- You have to get his approval before you open

22

an account.

23

Q.

Then it

And so he set certain criteria.

You said there were too many other --

24

others accounts.

Too many according to whom, to you

25

or according to the Sterling people or according to

378

1
2
3
4
5

Q.

Okay.

A.

His name was Cantor.

Q.

C-A-N-T-O-R?

A.

Yes.

Q.

6

What was his first name, if you

remember?

7

Who was this individual?

A.

8

I almost said Eddie Cantor, but -- I

can't think of a -- He had a plumbing business.

9

Q.

10

account.

11
12
13
14

Okay.

We can find him -- or find his

Is he still alive, if you know?

A.
Q.

Yes.
And how often would you and

Mr. Cantor discuss this topic?
A.

It would be irregular.

I might not

15

hear from him for more than a year, and he would

16

just call me.

17

Q.

Was -- With respect to the outsiders

18

for whom you got an account open at Madoff, was

19

there any compensation received by you or by the

20

Sterling group from the outsider for being able to

21

accomplish the task?

22
23
24
25

A.
Q.

Nothing.
Was -- Were you compensated in any

way by Madoff for bringing others into the -A.

No.

379

1

Q.

-- business?

Were -- Did you ever

2

have the feeling or the understanding that your

3

returns on your existing Sterling group of accounts

4

were enhanced or modified as a result of having

5

brought others in to invest in Madoff?

6
7

A.
Q.

No.
Were you ever either told directly or

8

indirectly by Madoff not to tell people generally

9

about your investment in Madoff or investments

10

through Madoff?

11

A.

12

Q.

No.
Did you feel that the fact that you

13

were invested in Madoff -- invested through Madoff

14

in the market was something that you could discuss

15

publically?

16
17

A.
Q.

Yes.
When Madoff -- You told me that he

18

had kind of a minimum account threshold which, at

19

some point, was a million dollars and then went up

20

to $2 million.

21

why there was a threshold?

22
23
24
25

A.

Was any reason given to you as to

No.

I don't recall giving any

reason, no.
Q.

Did you have any -- Did you form an

understanding in your own mind at the time as to why

380

1
2

there were these minimum thresholds?
A.

Just the natural thought was that he

3

just wanted to limit the -- how many accounts.

It

4

would be just as easy for him to handle an account

5

for $20 million as it would for a thousand dollars,

6

so why exert the energy on a thousand dollar

7

account?

8

Q.

Did -- When those thresholds came

9

into place, did you ever take two or more outsiders

10

that wanted to invest and combine them into a single

11

tenant-in-common account for the purpose of meeting

12

the minimum threshold?

13

A.

14
15
16
17

I believe we did.
Did you say -- I'm sorry.

Did you

say to outsiders?
Q.
A.

To outsiders, yes.
Oh, I'm sorry.

I don't -- I don't

18

believe we did that.

That would be -- I don't

19

believe we did that.

To partners perhaps, just to

20

make sure -- or relatives, but not --

21

Q.

Okay.

Well, for -- Would you

22

sometimes pair up an outsider with a Sterling

23

partner for the purpose of meeting a minimum

24

threshold?

25

A.

I don't recall that we did it when --

430

1

you.

2
3
4
5
6
7

So Exhibit 22 then are the notes you
took at the meeting with Mr. Duran?
A.
Q.

Either at or immediately thereafter.
Okay.

are in your handwriting?
A.

8

Q.

9

Yes, they are.

beginning part.

10
11
12
13

And all the notes on this page

The first -- let's just read the
What does that say?

what does that say?
A.
Q.
A.

That heading,

Bond, is it bond coverage?

Looks like bond coverage.
Do you know what that refers to?
No.

I don't know why I would have

14

written bond.

15

margin, perhaps it doesn't -- perhaps I started to

16

write something.

17

written bond.

I can understand coverage, but...

18

Q.

Do you understand the beginning of

19
20
21
22
23
24
25

The fact that it's outside the

I don't know why I would have

your notes to be describing the scope of coverage?
A.
Q.

Yes.
And this was based on the discussion

that took place in June of 2001?
A.
Q.
fidelity"?

Yes.
And the first line says, "Fraud or

431

1

A.

2

Q.

3

And then in parens it says "Ponzi"?

A.

4
5

Correct.

Yes.

Q.

What was the conversation that

surrounded those notes?

6

A.

This, to some extent I'm guessing,

7

but that, he mentioned, I have some recollection of

8

him giving examples of what types of fraud, and

9

Ponzi was one of them.

10

quite sure how to spell Ponzi.

11

Q.

12
13

I see.

A.

I'm not sure how I wound up

ultimately, either.

14
15

You can see I wasn't even

Q.

It's hard to read.

Looks like you've got an E on the

end.

16

A.

I think so, too.

17

Q.

18

at that time?

19
20
21

A.

I don't think I did.

Q.

Was there any discussion of Madoff in

particular during the course of this meeting?

22
23

Did you know what a Ponzi scheme was

A.

No.

Q.

Did you discuss your investments with

24

Madoff?

Other than the fact that you had

25

investments.

Well, let me ask that.

Did you

434

1
2
3

Q.

What was the reason insurance was not

purchased?
A.

4

was very high.

5

Q.

We didn't see any need and the cost

6
7
8
9

A.

Do you know who the SKCG Group is?
It's an insurance company that we

work with now, one of the insurance companies.
Q.

What type -- do they provide any

insurance -- what type of insurance does SKCG Group

10

provide to you?

11

A.

12
13
14
15
16

Provide property insurance for the

various properties that we own or manage.
Q.

That insurance wouldn't cover your

Madoff losses, correct?
A.
Q.

No.
Do you recall from time to time that

17

Madoff would offer, I'll call them special deals for

18

investment?

19
20
21

A.
Q.
A.

I recall one such time.
What do you recall?

Only one.

Tell me.

I recall that it was reported to us,

22

and I don't remember by whom or how they got the

23

information, that he was offering a special return.

24

He felt that there was something he could do to

25

increase the normal return we were getting by up to,

435

1

I have a recollection of something like 50 percent

2

was an estimate.

3

guarantee.

4

investment.

5
6

There was nothing fixed, no

And it would be relatively short-term

Q.

So the 50 percent, was that the

return or was that --

7

A.

8

Q.

No.
-- the increase on what you were --

9

A.

10

earned up to 18.

11
12
13

Q.

If we were earning 12, we might have

And you recall only one instance of

that?
A.

14

Q.

15

Yes.

the deal was?

16
17
18
19

A.
$22 million.
Q.
A.

Do you recall the specifics?

What

I recall that we did invest, in fact,
What other information do you want?
I didn't know -- were you done?
Well, that was my first initial

20

recollection, that we did get involved, we did set

21

aside 22 million, we did set up a separate

22

tenant-in-common account for the 22 million dollar

23

account.

24
25

(Exhibit AF-23 marked for
identification.)

447

1
2

MR. LUCCHESI:

Let's take a

short break.

3
4

Okay.

THE VIDEOGRAPHER:
record, the time is 10:57.

Going off the

This ends tape number 1.

5

(Recess taken.)

6

THE VIDEOGRAPHER:

7

record.

8

BY MR. LUCCHESI:

9

A.

10
11

The time is 11:15.

We're back on the

Q.
A.

This is tape number 2.

Are you through with this last memo?
Yes, I am.
I'd just like to make one additional

12

comment because maybe I didn't quite comprehend when

13

you said do you have recollections regarding the

14

returns.

15

Q.

16
17

Okay.

Just for the record, you're

looking at Exhibit 23, correct?
A.

That's correct.

What I was thinking

18

of in terms of beforehand, the projected returns,

19

not -- I wasn't thinking in terms of the actual,

20

what followed in the next number of months.

21
22

Q.
A.

Okay.
Because I do recollect the fact that

23

the returns were different for a period of time.

24

Not -- maybe a maximum of about a year, but probably

25

a shorter period of time that he, in this special

448

1

account, end quote, did things a little differently

2

that generated additional profit.

3

reached a point, perhaps as it says here, from

4

January '07 on, maybe even before that, it was

5

identical.

6

accounts that he did in the regular accounts.

7

Whatever was done in the regular accounts was done

8

in the special accounts from that point on.

9

it.

10

And then it

He didn't do anything in the special

Q.

Okay.

That's

What caused you to remember

11

that?

12

something or hear something?

13

I know we took a break.

A.

Did you look at

Well, in the break I said I'm sure

14

he's going to get back to this because he didn't ask

15

me any questions with regard to how did it actually

16

turn out or what was the result, and it was pointed

17

out to me that, when the question was do you

18

recollect anything regarding returns, that's what

19

you were referring to, so I mis -- you know, I

20

didn't really interpret the question properly.

21

Q.

22

clarification.

23

I'd asked, that the way it turned out and the

24

results are what's written here.

25

A.

Okay.

I appreciate the

I guess I had assumed, and I thought

That's true.

Correct?

449

1

Q.

And you were just explaining to me

2

what same -- same, actually I had interpreted it to

3

mean 17 percent for the period of January '07

4

through June of '07.

5

means --

6

A.

You're telling me same

The same, what he did was identical.

7

He didn't do anything different.

8

beginning he did things different.

9

Q.

10
11
12

A.

15

What did he do differently?

Well, he did more option trading than

he did in the regular, normal account.
Q.

13
14

Okay.

Whereas in the

A.

How do you know that?
I went back -- this I tracked

immediately, month by month.
Q.

16

A.

Because it was a special deal?
It was special, I wanted to see what

17

made it special and how he went about earning more

18

income.

19
20
21

Q.

When you say you tracked it, what did

you do?
A.

I mean, I looked at this account 4,

22

which is -- I looked at the entire statement.

23

Nothing was different other than the dash 4 which

24

was the options.

25

Q.

Dash 4 was your options account,

475

1
2

Q.

Everybody would get their pro rata

share of the taxing?

3

A.

4

you understand?

5

continue a Madoff account if one person, for

6

example, withdraws.

7

given percentages it's an account and take one

8

person out, you have to break that and set up a new

9

account.

10

Q.

11
12
13
14
15
16

Yeah, it would break the account.

Do

You can't continue, you couldn't

It was set, once it's set with

So the new accounts that were set up

in the name of each partner were the TR designation?
A.
Q.

Correct.
Were those set up at Madoff or were

they set up somewhere else?
A.
Q.

17

A.

What was Sterling Brunswick?

What

was that?

18

No, they were set up at Madoff.

That was, I just referred to the

19

property in New Jersey that Michael Simon was

20

involved in managing.

21

in New Jersey.

22

Q.

23
24
25

That was a property we owned

It was a warehouse property.
Okay.

Let's talk about, little bit

about double-up accounts.
A.
Q.

Um-hum.
I think we talked yesterday just a

476

1

little bit about them.

2

a double-up account is?

3

A.

Could you explain to me what

Taking -- at a time, once we started

4

to get into doubling-up or leveraged accounts, if we

5

wanted to set up a new account and one of the

6

reasons was when one or more partners had excess

7

funds that they wanted to invest in Madoff, we might

8

take that as an opportunity to leverage the account

9

by borrowing an equivalent amount that we were going

10

to put into the account.

11

As an example, let's say, we'll take

12

Sterling 30.

13

wherever they got it from, could have been from

14

another Madoff account, wherever they got $30

15

million, if they wanted they could double up.

16

of the reasons was, it was understandably going to

17

stay longer term than if they had money in their own

18

account, they could take it out tomorrow.

19

doubling up there was a certain commitment to leave

20

it in there longer.

21
22

Q.
A.

If the partners assembled $30 million,

One

But in

Commitment to whom?
Commitment by any of the partners to

23

the doubling-up account.

There was an

24

understanding -- no written commitment, an

25

understanding that anything that you put into a

537

1

or the companies themselves.

2

description.

3

Q.

Okay.

I didn't write the

Did you review them before

4

they were put in a document to be shown to your

5

employees?

6
7
8
9
10
11

A.

I looked at them and I didn't test

them for accuracy, no.
Q.

Do you recall whether you edited or

suggested any changes to the description of the
other investment opportunities?
A.

The people that drew them up,

12

supplied them, wrote up the description and history

13

were the experts that I was relying on to supply the

14

options and a description of the options.

15

generally accepted their description.

16

Q.

So, I

Both of these draft documents,

17

Exhibit 33 and 34, indicate that the Madoff option

18

is a sophisticated investment strategy.

19

suggests, which requires further explanation; and 34

20

suggests, which employees will be given an

21

opportunity to ask questions.

22

the opportunity to ask questions about the Madoff

23

investment strategy?

24
25

A.
Q.

33

Were employees given

Yes.
How was that done?

538

1

A.

There were meetings held with M & T

2

and anybody who had knowledge of all of the other

3

options and representatives from Sterling that knew

4

more about the Madoff option and answered any

5

questions at the same time.

6
7
8
9
10

Q.

Who were the representatives from

Sterling that met with the employees?
A.

I believe Michael Katz and myself

were two, but I don't remember exactly who, if any
other partners were present.

11

Q.

12

present?

13
14

A.
Q.

Was anyone from Madoff's office

No.
Whose idea was it to offer the

15

401(k), as part of the 401(k) plan the option to

16

invest with Madoff?

17

A.

I think that was all of the partners.

18

Somebody advanced it and all of the partners

19

endorsed the idea, to give all of the employees an

20

opportunity, whereas generally they didn't have that

21

opportunity to invest in Madoff.

22

were in Madoff some 11 years, were extremely happy

23

with the returns.

24

anybody -- for retirement funds in particular to

25

grow tax deferred, good rate of return, the chance

We at that point

It seemed like an ideal place if

539

1

of loss was very, very small.

2

as I said, a great place to put retirement funds and

3

we were happy about being able to offer that

4

alternative to employees.

5

Q.

It just seemed like,

Did anyone from Sterling talk to

6

Madoff about this before you offered it to the

7

employees?

8
9

A.

No, I'm sure

they didn't or else I would have known.

10
11

Not that I know of.

Q.

So -- that answer, frankly, surprised

me.

12

If I understand you correctly, nobody

13

raised with Madoff in advance of creating this

14

401(k) investment option for your employees the fact

15

that perhaps there would be a new account being

16

opened, you'd like to open an account, a 401(k)

17

account for employees, no one discussed that with

18

Madoff?

19
20
21
22
23
24
25

A.
Q.
A.
Q.

Opening a 401(k) plan with Madoff?
Yes.
Yes.

That was discussed.

Before you offered it to the

employees?
A.
Q.

Absolutely.
That's what I was asking.

540

1

A.

2

question.

3

Q.

4
5

Are you talking the

Madoff firm or Mr. Madoff?
MR. LUCCHESI:

I mean the firm

generally.

8
9

Who had that discussion with Madoff?
MS. SESHENS:

6
7

Oh, I'm sorry, I misinterpreted your

A.

I don't recall whether I spoke to him

or I spoke to Mr. DiPascali or it was one of the

10

other partners that spoke to Mr. Madoff.

11

recall.

12
13
14

Q.

I don't

Do you recall what that, what the

general substance of the conversation was?
A.

That we were contemplating starting a

15

401(k) plan and we wanted to offer an option to

16

invest in his firm.

17

Q.

Do you recall Madoff or anyone from

18

his firm voicing any concern about that?

19

resisting to it, resistance to it in any way?

20
21

A.
Q.

Or

No.
Do you recall whether it was Madoff's

22

idea to offer this investment option or whether it

23

was someone from the Sterling side who had the idea

24

to offer Madoff as an investment option?

25

A.

It was clearly Sterling's idea.

561

1

Q.

Okay.

But then the second point then

2

is then trustee -- you're talking about the issues

3

that arise if it's trustee directed?

4
5

A.
Q.

Yes.
What does "all to Madoff," dash, "no

6

choice" refer to?

7

A.

I interpret that to mean that we were

8

directed, if we wanted them to, it could be we say

9

everything has to go into Madoff and they have no

10

choice.

11

invested in Madoff.

12
13
14
15

If they want to be in the plan, it's all

Q.

Okay.

So obviously that's not --

this is not the route you chose to follow, correct?
A.
Q.

That's correct.
And one of the reasons, I guess now I

16

understand your notes, it's less popular to have a

17

trustee-directed fund?

18
19
20
21
22
23
24
25

A.
Q.

Is that the point?

Yes.
Because if things go south, then you

get blamed and you get sued.
A.
Q.

Right.
But it is cheaper to administer, that

was your next point?
A.
Q.

Yes.
And someone must have explained that

600

1
2

Q.
A.

Okay.
It would either be Mr. Fred Wilpon or

3

Mr. Saul Katz, or both, that would have some sort of

4

a meeting with Mr. Madoff and discussions.

5

Q.

If such a meeting occurred, would you

6

have expected the results of that meeting or the

7

fact of that meeting to have been reported to you,

8

either directly or, you know, as part of a partners'

9

meeting or some other regularly conducted business

10

meeting of the Sterling partners?

11
12
13
14
15
16

MS. SESHENS:
A.
Q.

Objection to the form.

Generally, yes.
And you don't recall any such

discussion?
A.
Q.

I do not.
You mentioned the portfolio

17

management reports.

18

the other day, and I want to make sure I have kind

19

of a more complete understanding than I think I do

20

at this point.

21

I know I covered some of this

The portfolio management reports were

22

received for each account on a quarterly basis,

23

correct?

24
25

A.
Q.

Yes.
And those were received directly from

601

1
2
3
4
5
6
7
8

Madoff?
A.
Q.

That's correct.
And those were -- were those

addressed to you or to someone else at Sterling?
A.
Q.

They were addressed to me.
And that's for all of the accounts

that you were administering?
A.

9

Q.

10

Yes.

as well?

11

A.

12

of all of them.

13

receive a copy.

14

Q.

And that would include the outsiders

15
16
17
18
19
20

Yes.

But I must say, that's a copy

The account holder would also

And so the account holder would get a

copy and you would get a copy?
A.
Q.

Yes.
If the account holder was a Sterling

entity, would that be true?
A.
Q.

Generally, not.
So if the account holder were an

21

individual, one of the Sterling partners, for

22

example, would that be true, that they would get a

23

copy and you would get a copy?

24
25

A.

I'm not, I'm not sure.

I don't

remember any partner discussing the -- I'm not sure.

602

1

Q.

So, was your comment that the account

2

holder would get a copy, as well as you, was that a

3

reference only to the, what you call the outsiders?

4
5
6

A.

Clearly the outsiders got a copy of

the report.
Q.

To your knowledge was anyone else,

7

other than the outsiders within the group of people

8

that would be getting direct mailing of the, I'll

9

call them PMRs, portfolio management reports?

10
11
12
13

A.
Q.

Yeah.
Anyone other than outsiders within

that group?
A.

That's what I'm not sure, if the

14

partners and individual accounts received a copy

15

personally.

16

Q.

Okay.

We talked about other

17

documents you received from Madoff, we talked about

18

the account statements, correct?

19
20
21
22
23

A.
Q.
A.
Q.
A.

Right.
Those were received monthly?
Yes.
And were those sent to you as well?
Same thing, that I would get a copy

24

and there would be another copy that went to,

25

certainly to all outsiders.

And, again, I don't

603

1
2

recollect that partners got a copy of that.
Q.

Okay.

What about -- what other --

3

I'm looking for all of the information that you

4

would have received directly from Madoff with

5

respect to the accounts that you administered on a

6

regular basis.

7

reports, the account statements.

8

documents or information did you receive directly

9

from Madoff relative to the accounts?

10
11

A.
Q.

12
13
14

A.
Q.

What other

Confirmation slips.
And those were sent to you?
Yes.
Did the account holders get, directly

receive those as well?

15
16

So we have the portfolio management

A.
Q.

17

A.

Yes.
How do you know that?
I would commonly get the question

18

what should I do with all of these piles of slips

19

that come to me.

20
21
22

Q.

And what would you instruct or

advise?
A.

I told them what we do internally,

23

and after a period of -- we used to keep them for a

24

long period of time, and then we decided that we'd

25

keep them only for a month.

Once we got the monthly

610

1

issue with receiving trade confirmation tickets on a

2

timely basis from Madoff?

3
4
5

A.

No, I have no recollection that that

was ever a problem.
Q.

Now, you mentioned, in response to

6

some previous questions, about what you would check,

7

you said I would check, we would check special

8

requests, to see if special requests or withdrawals

9

were reflected.

I wrote down, you said special

10

requests for withdrawals.

11

do you remember what you were referring to when you

12

said that?

13

A.

What were you referring,

I was referring to somebody -- if we

14

wrote a letter to Frank, Mr. DiPascali, and said

15

kindly withdraw X amount of dollars from X account,

16

either now or as soon as you get out of the market,

17

that would be a special request and we would check

18

the confirmation with that list that we maintained.

19
20
21

Q.

The phrase "special request," is that

to distinguish it from other types of withdrawals?
A.

To distinguish it between a regular

22

monthly withdrawal.

23

different, it was unusual.

24
25

Q.
withdrawals.

This was special, it was

So you had regular monthly
Was there a particular reason for

662

1

conversation or correspondence wherein I asked him

2

for, supply some of the information that was asked

3

for by the Attorney General's Office.

4

Q.

Okay.

Well, let's look at what

5

they're asking for.

6

asking for some information, and the first thing,

7

after noting that there's a high volume of

8

securities trading they ask, the AG's office asks:

9

"Who makes the Foundation's investment decisions?"

10
11
12

In the middle paragraph they're

You see that?
A.
Q.

Yes.
What's the -- do you know the answer

13

to that question?

14

A.

15
16
17
18
19

Q.

It would have -- yes.
Who makes the Foundation's investment

decisions?
A.

Either Saul or Iris Katz.

Presumably

Saul Katz.
Q.

And what -- how do you know that Saul

20

or Iris Katz makes the Foundation's investment

21

decisions?

22
23
24
25

A.
Q.

I know that as a matter of fact.
What investment decisions do they

make with respect to the funds?
A.

Where to invest the funds of the

663

1
2
3

Foundation.
Q.
A.

And where did they invest them?
Well, they did have at least one

4

Madoff account, perhaps more.

5

funds invested elsewhere.

6
7
8
9
10
11
12
13

Q.

I believe they had

Where else did the Foundation have

funds invested in 2000?
A.

I would really have to check the

records, but they had other investments.
have been involved in partnerships.
Q.

They might

It may be...

Was the majority or the bulk of the

Foundation's investments made with Madoff?
A.

Again, I would have to check.

14

Perhaps liquid investments, but I don't know about

15

the magnitude of investable dollars.

16

Q.

With respect to the investments that

17

were made in Madoff, did you consider the decision

18

to give Madoff the money to be the investment

19

decision that this letter was seeking information

20

on -- about?

21
22
23

A.
Q.
A.

I'm not certain at this moment.
Well, let me ask it different.
It could be, could be just an

24

investment decision to give the money to Madoff to

25

invest, or it could be that they're referring to the

CONFIDENTIAL
PAGE

LINE

ORIGINAL

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Arthur Friedman
EXHIBIT A
CHANGE

REASON

REDACTED

39
39
40

No, that was the company that
9 was
senior, are those two different
15 titles?
is broken into each real estate
23 property has its own

Grammatical error;
No, that was the company where I was Transcription error
senior vice president. Are those two
different titles?
Transcription error
is broken into - each real estate property
has its own
Grammatical error

REDACTED
43

Sterling entity or partners. And
12 then we would,

Sterling entities or partners. And then
we would,

REDACTED

1

Grammatical error

CONFIDENTIAL
PAGE

LINE

ORIGINAL

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Arthur Friedman
EXHIBIT A
CHANGE

REASON

REDACTED

116

person or people prepare bank
16 reconciliation,

person or people prepare bank
reconciliations,

Grammatical error

REDACTED

142

17 speaking to the partner.

speaking to the partners.

Grammatical error

REDACTED

150

Sterling or individually, did you
dealing with other brokerage
8 firms?

Sterling or individually, did you deal with
other brokerage firms?
Transcription error

REDACTED
164

questioning how he does it, and
2 some lauding for

questioning how he does it, and some
lauding him for

REDACTED

2

Transcription error

CONFIDENTIAL
PAGE

LINE

ORIGINAL

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Arthur Friedman
EXHIBIT A
CHANGE

REASON

REDACTED

254
254
257
257
257
257

Wilpons and the Madoffs
6 vacations together?
talking about their personal
23 assets. -- do the
initiated, periodically when there
6 was excess funds
open a new account and
10 somebody would say, We're
opening a new account. And
11 there would be a memo
funding, for example, wherever
18 there might be or

Wilpons and the Madoffs vacation
together?
talking about their personal assets. Do
the
initiated, periodically when there were
excess funds
open a new account and somebody
would say, "we're
opening a new account." And there
would be a memo
Funding, for example, wherever there
might be or

Grammatical error
Grammatical error
Grammatical error
Grammatical error
Grammatical error
Grammatical error

REDACTED

272
272

Particularly since Mr. Katz' other
3 partners belonged
seemed strange that you singled
5 him out

Particularly since some of Mr. Katz's
other partners belonged

Transciption error;
Grammatical error

seemed strange that he singled him out

Transcription error

REDACTED

3

CONFIDENTIAL
PAGE

LINE

ORIGINAL

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Arthur Friedman
EXHIBIT A
CHANGE

REASON

REDACTED

358
358

There's certain analysis that we
2 did -- we did not
Mets. -- or was there a business
7 reason for backing

There's certain analyses that we did -we did not
Mets -- or was there a business reason
for backing

Grammatical error
Grammatical error

REDACTED

380
380
380

15 say to outsiders?
16 To outsiders, yes.
believe we did that. To partners
19 perhaps, just to

say two outsiders?
Two outsiders, yes.
believe we did that. Two partners
perhaps, just to

REDACTED

4

Grammatical error
Grammatical error
Grammatical error

CONFIDENTIAL
PAGE

LINE

ORIGINAL

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Arthur Friedman
EXHIBIT A
CHANGE

REASON

REDACTED

434

11 Provide property insurance for the They provide property insurance for the

REDACTED

5

Transcription error

CONFIDENTIAL
PAGE

LINE
540

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Arthur Friedman
EXHIBIT A

ORIGINAL
resisting to it, resistance to it in
19 any way?

CHANGE

REASON

resisting it, resistance to it in any way?

Transcription error

REDACTED

6