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

Filing 27

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 T, # 2 Exhibit U, # 3 Exhibit V, # 4 Exhibit W, # 5 Exhibit X, # 6 Exhibit Y, # 7 Exhibit Z, # 8 Exhibit AA, # 9 Exhibit BB)(Wagner, Karen)

EXHIBIT V

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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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SECURITIES INVESTOR PROTECTION
CORPORATION,

Videotaped

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Plaintiff-Applicant,
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v.
BERNARD L. MADOFF INVESTMENT
SECURITIES, LLC,

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Rule 2004
Examination of:
DAVID KATZ
(Volume I)

Defendant.
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In Re:

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BERNARD L. MADOFF,
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Debtor.
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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

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triggered that discussion with your father?
A.
Q.

That's enough.
Had you ever before raised the issue

of diversification with your father prior to 2001?
A.
Q.
A.
Q.

Yeah, I'm sure.
Do you recall when?
No, I couldn't pick dates.
Was it in the '80s, when you were

starting at Sterling?
A.

Probably around the '80s, maybe at

the end, I'm guessing, more in the '90s.
Q.

Do you recall actually raising the

issue of diversification in the '90s?
A.

I remember one conversation

specifically and I'm not sure of the year.
Q.

What is that one conversation

specifically that you recall?
A.

That's the one I had with my father

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in his office, where I was trying to get him to

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focus, which isn't easy sometimes, and I asked him,

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you know, if he was dead, he looks down, he'd think

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I'm insane, if he saw me doing this, put all my

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money in one place, he'd think I was insane and he'd

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kill me.

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Q.

Why would he think you are insane?

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A.

Can't have all your money in one

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place.

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and it's not -- doesn't make sense.

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I'm supposed to be taking care of my sisters

Q.

I'm sorry, when do you think this

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conversation was?

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A.

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Q.

Excuse me.
Okay.

'90s.

Prior to that conversation had

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you had any discussions with your father about

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diversification or what he thought about having

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money in one place?
A.
Q.

I don't recall.
No?

So why did you think he'd be

angry or, I'm sorry, what did you say?
A.
Q.
A.

Angry?
Why did you think he'd be insane?
Why did I think he'd -- oh, why did

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he think I would be insane?

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money in one place just doesn't make -- it doesn't

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make any sense.

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every rule there is.

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Q.

Because having all your

Makes no sense.

Okay.

It goes against

Did you have any conversations

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with anyone other than your father that informed

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that opinion?

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MS. SESHENS:
A.

Objection to the form.

No, not that I can think of.

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A.

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Q.

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A.

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Q.

Oh, yeah.

I'm sure.

Did you agree with that decision?
It's not my decision.
Other than the discussion in the '90s

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with your father, between that conversation and the

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discussion you had in '01 with him about

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diversification, did you have any other

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conversations with your father about

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diversification?

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A.

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I'm sure, but for the life of me I

couldn't tell you what, but I'm sure there were.

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Q.

Okay.

And that conversation in the

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'90s, did you talk about Madoff's strategy in any

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way?

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A.
Q.

No.
Did you talk about the amount of

money he had in Madoff, specifically?
A.
Q.

No.
Did you talk about any concerns that

either of you had about Madoff, if any?
A.

Other than there's too much money in

one place?
Q.
A.

Yes.
No.

That was the only thing.

Otherwise we'd take everything out.

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BLMIS?
A.
Q.

What's that?
Sorry.

BLMIS, Bernard L. Madoff

Investment Securities.
A.
Q.

No.
So you would never speak with anyone

there about your accounts at any point?
A.
Q.

No.
I just want to go back for a second

to our discussions about Bernie being a black box.
A.
Q.

Yup.
Can you tell me why, or did you think

that was problematic?
A.
Q.

In what way?
Was there anything about Bernie being

a black box that concerned you?
A.
Q.

No.
But I think you said before that the

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black box meant that you didn't know Bernie's

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strategy, right?

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A.

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Q.

I guess my question is, why would

that be problematic in any way?

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Yes.

MS. SESHENS:
A.

Objection to the form.

Why would it be problematic?

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Q.

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A.

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THE WITNESS:

MS. SESHENS:

MS. ZUNNO:
Q.

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exactly?

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A.

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I think you got

So that's why I was

confused by your question.

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Yeah.

one word backwards.

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I think he said it

wouldn't be problematic?

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I don't know.
MS. SESHENS:

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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

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trading method being secret that you have, that you

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would have concerns about?

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A.
Q.
A.

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

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outstanding citizen.

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SEC writes rules with him.

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Q.

He helped computerize NASDAQ,
A lot of reasons.

I guess putting Bernie aside, just

the black box strategy in general --

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Q.

A.

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Q.

A.

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Q.

No.
Going back to Sterling Stamos, I

supposed to invest in black boxes, correct?
A.

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Q.

Right.
So why weren't they supposed to

invest in black boxes?

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-- would you be concerned if an

think you had said that Sterling Stamos wasn't

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Um-hum.

investment manager had a black box strategy?

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-- with a particular investment

manager --

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Um-hum.

A.

We've got enough allocated to black

boxes by being in Bernie.

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Q.

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Okay.
Is it fair to say by the creation of

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Sterling Stamos you were trying to minimize your

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exposure to black boxes?

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A.

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Yeah.

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Q.

Yeah, to black boxes, sure.

place as well.

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No.

And having money just -- having money in one

So, it is fair to say by the creation

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of Sterling Stamos you were trying to minimize your

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exposure to black boxes?

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A.

I really don't remember talking about

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Bernie.

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remember it.

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

Q.

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Okay.

A.

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either.

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Peter.

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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?

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A.

Do I remember them telling us that?

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No, because I remember talking about
Bernie.

That would have -- yeah.

Q.

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meeting, did you -A.
Q.

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Strike all of that.

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

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Yeah.

At any point did you learn that Ivy

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Okay.
Did you at any point, aside from this

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No.

Objection to the form.

I have no idea they did.
Okay.

Fair enough.

Do you know someone named Tim Dick by
any chance?

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A.

No.

I would remember that name.

No,

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I don't.

At least I don't recall, but that's -- no.

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Q.

Do you know if anyone ever acted as a

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consultant to Sterling in connection with their

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investments in Changing World Technologies?

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A.

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Technologies?

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Q.

Investment with Changing World

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A.

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Q.

Um-hum.
No idea.
Do you recall anyone ever -- strike

that.

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Did your father ever tell you that he

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had discussions with anyone who tried to work out

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Bernie's math and it didn't add up?

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A.
Q.
A.
Q.

My father tell me that?
Um-hum.
No.
Did your father ever tell you that he

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had conversations with anyone who told him something

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wasn't right about Madoff?

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A.
Q.

No.
Going back to Sterling Stamos for a

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moment, when Sterling Stamos was first created in

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'02, what role did you play at Sterling Stamos?

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A.

An observer.

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consummate the SNY transaction?

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A.

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Q.

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Do I know why it did not?
Right.
MS. SESHENS:

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A.

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Q.

Objection to the form.

No.
Going back to our discussions about

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insurance that was considered by Sterling related to

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its Madoff investments --

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A.

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Q.

A.

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Q.

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A.

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Q.

A.

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Only that Chuck mentioned it.
Do you know if Chuck recommended it?
I don't know.
Do you know if Sterling insures any

of its other non-real estate investments?

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-- do you know why that was

considered by Sterling?

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Um-hum.

Q.

No.
No, you don't know or, no, it does

not?
A.
Q.

No, I don't know.
Do you know if at any other time

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Sterling considered insuring its Madoff investments

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other than the time that -- other than in June 2001?

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A.
Q.

No.
No, it did not?

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MS. SESHENS:
A.

Objection to the form.

In which type of funds Sterling

Stamos would invest?
Q.
A.

Yeah.
Did I ask them?

I might have

overheard.
Q.
A.

Overheard?
When I was sitting in the meetings I

might have overheard them talking.
Q.

Okay.

I guess, well, if you were

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sitting in on meetings and overheard them talking

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about funds in which to invest, would you voice your

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opinion?

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A.
Q.

I wouldn't talk.
When Sterling Stamos was first

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created, I think you said they weren't supposed to

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invest in black boxes, right?

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A.
Q.

That was my understanding.
Were there any other types of funds

in which they weren't supposed to invest?
A.
Q.

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None that I know of.
Okay.
Would you agree that one of the

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purposes of Sterling Stamos was to diversify away

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from Madoff?

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A.
Q.

Yeah.

Yes.

Would you agree that the fact that

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

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Sterling wanted to diversify away from Madoff?

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MS. SESHENS:

Objection.

Katie, I

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

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like the fourth or fifth time this line of

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questioning has been asked.

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

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and answered and it's captured in the testimony that

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I think has been elicited thus far.

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MS. ZUNNO:

So I just want to note

I note your objection.

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disagree that this was asked and answered.

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ask my question again.

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BY MS. ZUNNO:

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Q.

But I'll

Was the fact that Madoff was a black

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box one of the reasons Sterling wanted to diversify

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away from Madoff?

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A.

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Q.

No.
So other than diversifying away from

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Madoff, are there any other reasons why Sterling

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Stamos was created?

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A.

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family office.

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reason now.

Seemed like a good business, start a
No.

I

I can't think of any other