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

Filing 3

DECLARATION of Karen E. Wagner in Support re: 1 MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 10-5287A, 08-1789 (BRL).. 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, Wilpon 2002 Descendants' Trust, Robin Wilpon Wachtler, Bruce N. Wilpon, Daniel Wilpon, Debra Wilpon, Fred Wilpon, Jeffrey Wilpon, Jessica Wilpon, Judith Wilpon, Richard Wilpon, Scott Wilpon, Valerie Wilpon. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Exhibit C, # 4 Exhibit D, # 5 Exhibit E, # 6 Exhibit F)(bkar) Modified on 5/27/2011 (kkc).

EXHIBIT F

IMPORTANT MESSAGE ON CREDITOR CLAIMS
On January 13, 2011, a hearing was held before the United States Bankruptcy Court for the
Southern District of New York seeking approval of the settlement between Irving H. Picard, the
Trustee for the liquidation of BLMIS (“Trustee”), and the estate of Jeffry Picower.
At that hearing, certain objections were raised by counsel opposing the settlement. The objectors
stated that the Trustee's efforts in recovering assets would only benefit “net losers” whose claims
have been allowed by the Trustee. They also questioned why the Trustee has brought suits
against various defendants for amounts that exceed the amount of allowed claims, which are
currently valued at approximately $6.86 billion. These same objectors have now appealed the
order approving the settlement by the Bankruptcy Court to the District Court.
These objections and appeals are factually and legally incorrect, and misleading. The Trustee
represents all customers and creditors of Bernard L. Madoff Investment Securities LLC
(“BLMIS”).
The liquidation proceeding of BLMIS is that of a failed, bankrupt brokerage house. As is the
case in any bankruptcy, the law provides for an orderly process whereby claims are submitted,
assets are recovered, and creditors are paid from the estate in accordance with the hierarchy set
forth in the governing statute.
In this case, the Securities Investor Protection Act ("SIPA") provides the legal framework that
defines eligibility of claims and the hierarchy of creditors. Under SIPA, priority is given to
customers with valid net equity claims, who will be paid from the fund of customer property
(“Customer Fund”) assembled by the Trustee. General creditors will be paid from the general
estate (“General Estate”), also assembled by the Trustee.
BLMIS was a Ponzi scheme engineered by Bernard Madoff and others in which virtually no
investments were made on behalf of BLMIS customers. Money deposited in BLMIS was stolen
from some customers and paid to other customers. Thus, no “profits” were made and distributed
to customers—the only thing anyone received was other people’s money.
When the Ponzi scheme collapsed, there were two large classes of investors. Both invested
principal in the scheme, and both received fraudulent statements showing that those funds were
invested. One class, however – the “net winners” – has not only already recovered all of their
principal through withdrawals, but also received some amount of the fictitious profits shown on
their statements. Because there were no profits, this money came from other investors. The
second class deposited principal but had not received all or even some of it back as of the day of
the collapse. This class – the “net losers” – is the one that funded payments to the first class.
This class has valid net equity claims.
As defined by SIPA, BLMIS customers with valid net equity claims – “net losers” – have a
preferred status and will be paid from the Customer Fund first. If the Trustee is able to satisfy all
claims of the preferred customer class, that will represent the first time that all customers of

BLMIS will stand equal in terms of their losses from BLMIS and their status as creditors of the
General Estate.
All BLMIS creditors could potentially receive distributions from the General Estate. In addition
to the customers of BLMIS, the creditors of the General Estate would include individuals and
companies who provided services to BLMIS and are owed money for these services, all of whom
have claims against the BLMIS estate for misrepresentation, fraud, and breach of contract.
Thus, those claimants whose customer claims were denied because they withdrew more money
from BLMIS than they deposited, would be eligible along with all other customers of BLMIS to
receive a distribution on their general creditor claims for fraud.
Distributions from the General Estate can only occur after objections and appeals to the Trustee’s
methodology are completed and if and when the Trustee recovers more than the final amount of
allowed customer claims asserted against the BLMIS estate.
The Trustee represents all of the customers and creditors of BLMIS. In his capacity as Trustee
of the BLMIS estate, the Trustee is seeking to assemble the largest sum of money possible for
the benefit of all customers and creditors of BLMIS, not just for “net losers” at the expense of
“net winners” and other general creditors.
Although statute requires him to make customers with valid net equity claims whole first, he has
also asserted actions for damages against individuals and institutions that participated in,
perpetuated, or otherwise supported the Ponzi scheme by their conduct and/or inaction, so that all
of those damaged by the fraud may receive some recompense. In performing his duties to the
estate under the SIPA statute and the Bankruptcy Code, the Trustee is ensuring that all customers
and creditors receive equal treatment under each.
NOTE: Any individuals or entities that filed customer claims prior to July 2, 2009 need not file
any additional claim form with the Trustee to be eligible for a general creditor distribution.
All properly filed customer claims will be treated as general creditor claims once all of the net
equity claimants with allowed claims have been paid from the Customer Fund.