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

Filing 31

DECLARATION of Fernando A. Bohorquez, Jr., in Opposition re: 20 MOTION to Dismiss THE AMENDED COMPLAINT OR, IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT.. Document filed by Irving H. Picard. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5, # 6 Exhibit 6, # 7 Exhibit 7, # 8 Exhibit 8, # 9 Exhibit 9, # 10 Exhibit 10, # 11 Exhibit 11, # 12 Errata 12, # 13 Exhibit 13-1, # 14 Exhibit 13-2, # 15 Exhibit 14, # 16 Exhibit 15, # 17 Exhibit 16, # 18 Exhibit 17, # 19 Exhibit 18, # 20 Exhibit 19, # 21 Exhibit 20, # 22 Exhibit 21, # 23 Exhibit 22, # 24 Exhibit 23, # 25 Exhibit 24, # 26 Exhibit 25, # 27 Exhibit 26, # 28 Exhibit 27, # 29 Exhibit 28, # 30 Exhibit 29, # 31 Exhibit 30, # 32 Exhibit 31, # 33 Exhibit 32, # 34 Exhibit 33, # 35 Exhibit 34, # 36 Exhibit 35, # 37 Exhibit 36, # 38 Exhibit 37, # 39 Exhibit 38, # 40 Exhibit 39, # 41 Exhibit 40, # 42 Exhibit 41, # 43 Exhibit 42, # 44 Exhibit 43, # 45 Exhibit 44, # 46 Exhibit 45, # 47 Exhibit 46, # 48 Exhibit 47, # 49 Exhibit 48, # 50 Exhibit 49, # 51 Exhibit 50, # 52 Exhibit 51, # 53 Exhibit 52, # 54 Exhibit 53, # 55 Exhibit 54, # 56 Exhibit 55, # 57 Exhibit 56, # 58 Exhibit 57, # 59 Exhibit 58)(Bohorquez, Fernando)

Exhibit 8

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C O N F I D E N T I A L

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
ADV. PRO. NO. 08-01789 (BRL)

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-------------------------------x
SECURITIES INVESTOR PROTECTION
CORPORATION,

Videotaped

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

DAVID KATZ
(Volume I)

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Rule 2004
Examination of:

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

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

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TRANSCRIPT of testimony as taken by and before

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

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and Notary Public of the States of New York and New

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Jersey, at the offices of Baker & Hostetler, 45

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Rockefeller Plaza, New York, New York on Tuesday,

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August 31, 2010, commencing at 10:10 a.m.

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

DAVID KATZ 8/31/10

CONFIDENTIAL

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for?

10:20:57

A.
Until like five years ago. Maybe
longer, a little bit.
Q.
Do you recall why you stopped?
A.
I was going to say, have you ever
managed buildings?
Q.
That's a no.
A.
Just time to move on.
Q.
In your own words, how would you
describe Sterling's business?
A.
A family-run business that has
diversified assets.
Q.
And what do you mean by diversified
assets?
A.
You want me to just name the assets?
Q.
Sure.
A.
SNY, the Mets, real estate, cash.
Cash.
Q.
So if we take them one at a time.
How would you describe the SNY Mets business?
A.
Describe it?
Q.
Yes. What does it involve?
A.
No idea.
Q.
To the extent you know.
A.
Don't know.

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could help sort of pin down the date?
A. No.
Q.
Did Sterling have partners' meetings?
A. Sure.
Q.
Do you recall when you first started
attending them? Or -- let's leave it at that.
A. No, I couldn't pick a date. I
couldn't tell you.
Q.
Do you recall if you were a partner
before the creation of Sterling Stamos?
A. Before? Yes.
Q.
Okay. Now going back to when you
were on the Mets board -A. Um-hum.
Q.
-- you said you were on the Mets
board when you were a partner?
A. Yes.
Q.
Do you recall the length of time you
were a board member?
A. I believe I still am.
Q.
Oh, you still are, okay. What are
your responsibilities as a board member?
A. Zero.
Q.
Zero?
A. What are my responsibilities there?

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Q.
Did you have any involvement in
the -- is it fair that I call that aspect of the
business the sports and entertainment side of the
business?
A.
I guess.
Q.
Did you have any role at all in that?
A.
No.
Q.
Were you on the Mets board at any
point?
A.
Yup.
Q.
And when were you on the board of the
Mets?
A.
I don't know. I don't know.
Q.
Actually, I'm not sure if I asked you
this already. Do you recall exactly when you became
partner at Sterling?
A.
You didn't ask. No. I couldn't
narrow it down.
Q.
Is there anything you remember about
that time frame? Just trying to get a general idea.
A.
You mean you want me to guess when it
was? Is that what you're saying?
Q.
Your counsel probably wouldn't be
happy about you guessing. But is there anything you
recall going on at Sterling at the time that we

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Very little.
Q.
Very little, okay. Do you attend
board meetings?
A. Yes.
Q.
How often are those board meetings?
A. I don't remember the last time we had
one.
Q.
Okay. Was it this year?
A. I don't think so.
Q.
Was there one last year that you
remember?
A. I'd be guessing.
Q.
You'd be guessing, okay. Don't want
you to guess.
Do you know who else is a member of
the board at the Mets?
A. Sure.
Q.
Sorry, let me rephrase that.
Do you know who else is a board
member of the Mets?
A. Sure.
Q.
Who?
A. My father, Fred, Jeff, Tom, Arthur,
Michael, Richie and Marvin.
Q.
Just to clarify, your father is Saul

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877.404.2193

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A.
Yeah. If even -- I'm not even sure
if I did anything on it.
Q.
What do you remember about SAP II?
A.
I remember not wanting to do it.
Q.
Why?
A.
I can say that, too. I just lost
interest.
Q.
And at that time did you have any
other real estate responsibilities, if you recall?
A.
Yeah, I was still running the
buildings at that time.
Q.
You were still managing the
buildings, okay. So other than managing the
buildings, around -- well, do you recall when SAP II
was formed?
A.
No.
Q.
And then you had no involvement in
SAP III, IV, V?
A.
Correct.
Q.
Now, I think you mentioned cash.
A.
Um-hum.
Q.
As another part of the business.
A.
Um-hum.
Q.
What does that mean to you?
A.
I'm not sure what time period.

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A. Any money that we had made on the
last funds or, you know. Money we made.
Q.
And how did you come to learn about
the cash invested in Madoff?
A. I don't know.
Q.
Did you speak with the partners at
the time about it?
A. Yeah.
Q.
And what do you recall about those
discussions?
A. Nothing in particular. Pretty
mundane.
Q.
Okay. I think you said any money
that we had made on the last funds.
A. Right.
Q.
Was invested with Madoff.
A. I would think so.
Q.
And by last funds, do you mean real
estate funds?
A. SAP I.
Q.
Okay. And was any other cash
invested in Madoff?
A. I don't know.
Q.
Now, did you have any role with
respect to the cash side, aspect of the business?

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Q.
Okay. So let's start with when you
first started at Sterling in 1980 -- well, I think
you thought it was around 1990.
A.
Well, '87 is around '90.
Q.
Okay. Do you recall early on what
the cash aspect of the business was?
A.
No.
Q.
Did there come a time when you became
aware of the cash aspect of the business?
A.
Yes.
Q.
When was that?
A.
I don't know when. I couldn't put a
date on when I realized.
Q.
Okay. Well, do you remember what you
did realize?
A.
Yes. It was in Madoff.
Q.
Okay. And what do you mean by that?
A.
It was invested in Madoff.
Q.
So, can you just describe that a
little more?
MS. SESHENS: Objection to the form.
A.
Other than giving him money, I don't
know how you describe it.
Q.
All right. So what cash was invested
in Madoff?

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A. When?
Q.
Let's start with when you first
started at Sterling.
A. No.
Q.
Did there come a time when you became
involved in the cash aspect of Sterling's business?
A. Yeah.
Q.
Do you recall when?
A. About 2002 maybe.
Q.
What was your role in 2002 with
respect to the cash aspect of Sterling's business?
A. At that point I was screaming for
diversification.
Q.
So when you say you were screaming
for diversification, what do you mean?
A. We had all our liquid investments in
Madoff.
Q.
And how did you come to learn that?
A. I don't remember exactly how I came
to learn that.
Q.
Prior to 2002, was it your
understanding that Sterling had all their liquid
assets in Madoff?
A. Majority.
Q.
And just to go back, when you say

BENDISH REPORTING, INC.
877.404.2193

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diversification, how would you define that? What do
you mean?
A.
Anything other than what money is
invested in that, different manager, different
discipline of investing.
Q.
What do you mean by different
discipline of investing?
A.
Bernie's black box. You go to
somebody who does long-short or equity only or, you
know, different kinds of funds.
Q.
So let's break that down a little.
So, what do you mean by Bernie's black box?
A.
Bernie's is considered to be a black
box. Black box is basically, as I understand it, is
something that you invest in that you're not sure of
the strategy.
Q.
When did you come to learn that
Bernie was a black box?
A.
I don't know.
Q.
Did you know Bernie was a black box
when you first started at Sterling?
A.
Probably not.
Q.
And did you know Bernie was a black
box when you were a partner at Sterling?
A.
Yes.

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Q.
Do you agree sort of with the -- do
you agree with this as a general rule of thumb, that
you shouldn't put any more than 10 percent of your
assets in any one manager?
MS. SESHENS: Objection to the form.
You can answer.
A.
I like that idea.
Q.
And why do you like that idea?
A.
Diversified.
Q.
Going back to the aspects of
Sterling's business, prior to 2002 did you have any
role in the cash aspect of Sterling's business?
A.
No. Excuse me. No.
Q.
Did Sterling invest in any non-real
estate assets during, or since you started at
Sterling?
A.
Yes.
Q.
What were those non-real estate
assets?
A.
American Securities funds.
Q.
Um-hum. Anything else?
A.
Besides SNY and things like that?
Q.
Yes, aside from SNY and the Mets and
American Securities.
A.
Pathogenesis.

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Q.
And was that before 2002?
A.
Yes.
Q.
And do you recall how you came to
learn that?
A.
No.
Q.
Do you recall any discussions with
the partners about that fact?
A.
Yeah.
Q.
Do you recall the subject or the
substance of those discussions?
A.
It was basically me suggesting that
we put our money in other strategies other than a
black box. That's the only context I remember.
Q.
Is it fair to say that's what you
mean by diversification?
A.
Yeah.
Q.
And do you recall the first time you
raised that with the Sterling partners?
A.
No.
Q.
Was it prior to 2002?
A.
Yes.
Q.
And how do you know it was prior to
2002?
A.
Because I know I've been doing it for
a while.

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Q.
What was Pathogenesis?
A.
Biotech company.
Q.
Did you have any role with respect to
that investment?
A.
No.
Q.
Do you recall an investment in a
company called Changing World Technologies?
A.
Sure, yeah.
Q.
Do you know how that investment came
about?
A.
Yeah.
You've got to say how.
Q.
Sorry. How?
A.
Yeah. A friend of mine had started
that company and told me about it and I got
interested. So we invested.
Q.
Okay. And was that friend Brian
Appel?
A.
Correct.
Q.
How do you know him?
A.
Friend of a friend.
Q.
Did you go to college with him?
A.
No.
Q.
Friend of a friend. Do you recall
who that friend was?

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Q.
A.
fact.
Q.
A.
Q.

When was that?
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Does 1989 jog your memory at all -Now it does.
-- as to when you first invested.
When you first invested, do you
recall what you knew about BLMIS or Madoff?
A. No, I can't recall what I knew.
Q.
Do you recall why you first invested
in Madoff?
A. Yeah, sure.
Q.
Why was that?
A. Because everyone said it was a great
investment.
Q.
And who said it was a great
investment?
A. I couldn't pin it on one person.
Q.
Okay. Did any of the Sterling
partners say it was a good investment?
A. Oh, sure.
Q.
Do you know what informed that
opinion?
A. No.
Q.
Did you know whether any of the other

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11th, '08 you didn't know anything about Madoff's
strategy?
A.
It was a black box -- there were
guesses of what it was. To me it was always a black
box. There's no one could tell me what he does, for
sure. So...
Q.
Who did you ask about Madoff's
strategy?
A.
Who did I ask? I don't think I asked
anyone.
MS. SESHENS: Objection to the form.
Q.
I think you said nobody could tell me
what he does for sure.
A.
Yeah, that was just a -- I didn't
ask. No one could tell me because no one knows.
That's what I meant.
Q.
Okay. At any point prior to December
11th, '08 did you discuss Madoff's strategy in any
way with anyone at Sterling?
A.
Yeah.
Q.
Who?
A.
Probably my father.
Q.
Do you recall when you had those
discussions?
A.
No.

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Sterling partners had accounts with Madoff before
you decided to invest?
A.
Yeah.
Q.
Okay. And which partners?
A.
Oh, God.
Q.
Was it all the partners?
A.
I would imagine.
Q.
Did you discuss investing in Madoff
with your father, Saul?
MS. SESHENS: Prior to opening the
first account?
MS. ZUNNO: Prior to opening the
first account.
A.
Probably.
Q.
Do you recall anything about those
discussions?
A.
No.
Q.
When you first invested in Madoff,
did you know anything about Madoff's strategy?
A.
No.
Q.
Did there come a point in time when
you learned about Madoff's strategy?
A.
I still haven't learned about
Madoff's strategy.
Q.
Okay. So, I guess through December

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Q.
Do you recall the substance of those
discussions?
A. Yeah. It was basically me
suggesting, since we don't know what he does, that
it's time to diversify.
Q.
Other than -- well, let's go back.
When you say we don't know what he does, are you
referring to -A. The black box.
Q.
-- the black box?
A. Yeah, sure.
Q.
And it's time to diversify. Do you
know around when that conversation was?
A. Around when, give you around when.
Q.
Okay.
A. 2001 before we started Sterling
Stamos.
Q.
Did you discuss how you were going to
diversify with your father?
A. We had -- yes.
Q.
What was discussed?
A. Original plan was a family office.
Q.
What do you mean by that?
A. A family office, someone who helps
you with your investments and other things, if you

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want those kinds of returns?
A. Negative?
Q.
At Sterling Stamos. No, no. You
said that Madoff didn't have negative months a lot,
right?
A. Stamos?
Q.
Am I mixing words? Yes, I am. Thank
you.
A. I'm sorry.
Q.
So, Madoff did not have negative
months a lot, correct?
A. Correct.
Q.
I guess what I'm trying -- to cut to
the chase what I'm trying to figure out is why you
didn't want that replicated at Sterling Stamos.
A. Well, I don't want the black box
replicated because we have enough black boxes.
Q.
And by enough black boxes -A. Meaning Bernie.
Q.
Meaning -A. Right.
Q.
So is it fair to say you had enough
money invested in a manager with a black box?
A. Correct.
Q.
Do you know if Sterling Stamos

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company?
Q.
Yeah. I guess when you first created
Sterling Stamos -A.
Right.
Q.
-- did you have to put any funds -A.
Oh, to start the company?
Q.
Yes.
A.
Oh, so start-up money?
Q.
Yes.
A.
It wasn't a lot. It was actually a
little bit.
Q.
Do you recall how much it was?
A.
No. I remember it being lower than I
would have thought.
Q.
Was it less than a million?
A.
That's still not too little. I mean,
that's, you know -- I don't know. I don't know.
Q.
And then -- so other than the initial
start-up cost, did Sterling have to, or did Sterling
put any additional money up -A.
Into the GP?
Q.
-- when Sterling Stamos was first
created?
A.
I don't think in the GP.
Q.
Okay. At any time did Sterling have

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invested in any black boxes?
A. They weren't supposed to.
Q.
How do you know they weren't supposed
to?
A. Because we specifically didn't want
that. That would not fit our main criteria.
Q.
Was that one of the requirements kind
of going in?
A. Um-hum.
Q.
Now, Sterling had both general
partner and limited partner interests in Sterling
Stamos, right?
A. Yeah.
Q.
So, just taking the G -- general
partner interest first, we can call them GP
interest?
A. Sure.
Q.
Do you know how much Sterling had of
the GP interest?
A. 50 percent at the beginning.
Q.
At the beginning it was 50?
A. Right.
Q.
Do you know approximately how much
money that equated to?
A. Oh, how much it was worth, the

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to fund its GP interest?
A. I don't think so.
Q.
And do you know how Sterling funded
the start-up funds for Sterling Stamos?
A. Where the money came from?
Q.
Yes.
A. I'm not sure. I would hope it would
be from Bernie, but I don't know.
Q.
Do you know if there are any
documents we could look at to see if it came from
Bernie?
A. There's got to be a trail. No, I
don't know of anything specific.
Q.
And what about the LP interest, the
limited partner interest? Can you explain to me
what that means?
A. I think I can. I think that was your
limited partner interest in each fund.
Q.
Okay. And did Sterling, as a whole,
invest in any of those funds?
A. As a whole? Sometimes through the
GP. The GP would invest sometimes into the LP.
Q.
Okay.
A. But my father and Fred would usually
start putting money into the little funds to get

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Q.
I guess what I'm asking is, if there
was a non-Sterling person who wanted to open a
Madoff account -A.
Right.
Q.
-- through Sterling -A.
Right.
Q.
-- was there anyone at Sterling who
had to give approval?
A.
Thumbs up?
Q.
Yeah.
A.
No.
Q.
For that account to be opened?
A.
No.
Q.
Do you know approximately how many
accounts for non-Sterling individuals were opened
through Sterling?
A.
No.
Q.
Do you know if it was more than ten?
A.
Yeah, more than ten.
Q.
More than a hundred?
A.
I don't know.
Q.
At any point in time did you think
Sterling received any benefit for doing that?
A.
No.
Q.
Did you ever speak with anyone at

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Yeah.

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A.

I don't know.

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It's a proprietary trading method.

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Proprietary trading method meaning

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what?

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A.

Meaning it's secret.

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And is there anything about the

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would have concerns about?

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A.

Not in this case, no, absolutely not.

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Why not?

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A.

Well, I guess Bernie was an

01:51:21

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25

MS. SESHENS: I think he said it
THE WITNESS: Yeah. I think you got

BLMIS?
A.
What's that?
Q.
Sorry. BLMIS, Bernard L. Madoff
Investment Securities.
A.
No.
Q.
So you would never speak with anyone
there about your accounts at any point?
A.
No.
Q.
I just want to go back for a second
to our discussions about Bernie being a black box.
A.
Yup.
Q.
Can you tell me why, or did you think
that was problematic?
A.
In what way?
Q.
Was there anything about Bernie being
a black box that concerned you?
A.
No.
Q.
But I think you said before that the
black box meant that you didn't know Bernie's
strategy, right?
A.
Yes.
Q.
I guess my question is, why would
that be problematic in any way?
MS. SESHENS: Objection to the form.
A.
Why would it be problematic?

01:50:40
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one word backwards.
MS. SESHENS: So that's why I was

01:50:43
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confused by your question.
MS. ZUNNO: Let's just start over.

01:50:46

The black box would mean what

01:50:49

exactly? What does black box mean to you exactly?

01:50:53

Q.

01:51:03

outstanding citizen. He helped computerize NASDAQ, 01:51:24
SEC writes rules with him. A lot of reasons.
01:51:31
Q.

I guess putting Bernie aside, just

the black box strategy in general --

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A. Um-hum.
Q.
-- with a particular investment
manager -A. Um-hum.
Q.
-- would you be concerned if an
investment manager had a black box strategy?
A. No.
Q.
Going back to Sterling Stamos, I
think you had said that Sterling Stamos wasn't
supposed to invest in black boxes, correct?
A. Right.
Q.
So why weren't they supposed to
invest in black boxes?
A. We've got enough allocated to black
boxes by being in Bernie.
Q.
Okay.
Is it fair to say by the creation of
Sterling Stamos you were trying to minimize your
exposure to black boxes?
A. No. Yeah, to black boxes, sure.
Yeah. And having money just -- having money in one
place as well.
Q.
So, it is fair to say by the creation
of Sterling Stamos you were trying to minimize your
exposure to black boxes?

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A.

Correct.
MS. ZUNNO: Let's mark this as
Exhibit 2.
(Exhibit DK-2 marked for
identification.)
Q.
Just take a minute to review that,
Mr. Katz. Let me know when you're ready.
A.
Okay.
Q.
My first question is whether you've
ever seen this memo before?
A.
No.
Q.
Do you recall any of the contents of
this memo being discussed at any partners' meetings?
A.
I do not.
Q.
Do you recall discussing anything
raised in this memo with any particular partner?
A.
Any part of it? Yeah.
Q.
Okay. Which parts?
A.
The part that they were upset about
how little he did that month.
Q.
I think that was in -- so putting the
document aside, I think that was in December of '03?
A.
Whenever this is.
Q.
What do you recall about that time
frame, in terms of Bernie's returns?

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A.
Just that it was down. Other than
that, I don't know.
Q.
Do you recall Arthur Friedman telling
you that he had spoken with Bernie?
A.
I don't remember if he told me that,
but I remember knowing about it.
Q.
Okay. And do you know what Bernie's
reaction was?
A.
Talking to Frank or Bernie? Which
one?
Q.
Let's talk about Bernie first.
A.
I don't remember him talking to
Bernie. I remember him talking to Frank.
Q.
Do you remember anything about that
conversation?
A.
No.
Q.
At some point did you learn that
Arthur had spoken with Bernie?
A.
Just now.
Q.
Fair enough.
Do you recall the existence of an
executive committee at Madoff ever being discussed
amongst the partners?
A.
Never, never thought there was one,
no.

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A. Just remember it wasn't what we were
expecting.
Q.
Do you have any idea why?
A. No.
Q.
What is it about the returns that
weren't what you were expecting?
A. It was lower than what we were
expecting.
Q.
Had Bernie ever before returned -well, strike that.
Would Bernie give you anticipated
returns in advance?
A. No way.
Q.
Do you recall any conversations that
the Sterling partners -- that any Sterling partner
had with Bernie about the returns in this time
period?
A. No.
Q.
Do you recall Arthur ever talking
about any discussion he had with anyone at BLMIS
about the returns in 2003?
A. I know Arthur spoke to Frank but I
don't remember anything other than that.
Q.
Do you know what he spoke to Frank
about in 2003, I'm talking about?

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Q.
Do you recall it being discussed,
though, amongst the partners?
A. Not that I know.
Q.
Do you know if your father Saul ever
said that nobody understands how Bernie does it?
A. If he said that?
Q.
Um-hum.
A. I don't recall him specifically
saying that.
Q.
Do you recall him saying anything
similar to that statement?
A. No. Nobody knows how he does it? I
know he didn't know how he did it but, no, I don't
remember him saying that.
Q.
Did you have an understanding of how
Bernie, quote, did it or generated the returns he
did?
A. Black box.
Q.
That was your explanation?
A. Yeah.
Q.
Did you ever talk to Arthur Friedman
about Bernie's black box?
A. I'm sure. I'm sure.
Q.
Do you recall any specific
conversations?

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is. Just taken off of -Q.
I think it's the London Interbank
Offered Rate. Just for clarification.
A. The London Interbank -- okay.
Q.
Is it your understanding it was a
rate of some sort?
A. Yeah, I guess so.
Q.
Do you -A. I don't know in 2003 if I knew that,
but I know it now.
Q.
And why do you know that now?
Looking at the document?
A. Getting old.
Q.
Do you know why Madoff's returns
would in any way be related to the prime or LIBOR
rates?
MS. SESHENS: Objection.
A. I don't know how it works.
Q.
If at all.
A. If I knew how it works, you know,
wouldn't be sitting here.
Q.
Do you know if anyone at Sterling
looked into that?
MS. SESHENS: What do you mean,
looked into --

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04:11:32

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A.

I'm shocked.

04:14:41

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Q.

I can't represent to you that it was

04:14:41

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did come from Sterling.

04:14:43

created by Sterling.
MS. SESHENS: Thank you.
A.

I was going to say, I'm shocked.

Q.
I'm sorry, looked into whether Madoff
returns were related to the LIBOR and prime rates.
Do you know if anyone at Sterling looked into that?
A. I vaguely remember Arthur maybe doing
something.
Q.
Let me see if I can show you
something related to that.
A. Are we done with this one?
Q.
Yeah. You can put it to the side.
(Exhibit DK-10 marked for
identification.)
Q.
Just take a moment to review what's
been marked as Exhibit 10 and let me know when
you're finished.
A. Okay. I think I'm with you.
Q.
Do you recall ever seeing these
documents or this document before?
A. No.
Q.
Do you have any knowledge as to who
at Sterling may have been involved -A. In this?
Q.
-- in constructing these?
A. You're saying this came from
Sterling?
Q.
Yes, I can represent to you that it

04:14:45

8

When this was done, this was way advanced, having a 04:14:50
graph like this. I'm serious. So, someone else had
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to have -- but anyway, so what do you want to know?

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I'm sorry. You're questioning.

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Do you have any idea whether there

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was someone outside of Sterling that may have

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prepared this?

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be. It had to be. But, listen, I've been surprised

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before.

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Q.

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took an interest in any correlation, possible

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correlation between Madoff returns and the rates

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reflected here?

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Q.

A.

A.

I'm telling you something, it had to

Do you know if anyone at Sterling

I don't know if it -- I know Arthur

Q.

Do you know if Arthur had any

explanation as to whether there was a correlation?
A.

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was into that stuff.

Did he? I don't know. He never had

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a eureka moment, I don't think.
Q.
If you'd turn to the second page,
Bates labeled 179.
A. Yup.
Q.
The top says, "Estimated Average
Madoff Annual Returns."
A. Um-hum.
Q.
Do you know how those returns were
calculated?
A. No. Also wondering why it says
estimated. How they got figured out?
Q.
Yeah.
A. I have no idea what they took to put
into this.
Q.
If you look on this page, the year
2000, the percentage listed there is 14.1 percent.
A. Correct.
Q.
And in 1999 it's 22.2 percent.
A. Um-hum.
Q.
Do you recall that there was a
decline in Madoff's -A. I do.
Q.
-- rate of returns between 2000 -I'm sorry, 1999 and 2000?
A. I don't remember when it was but I

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C O N F I D E N T I A L

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
ADV. PRO. NO. 08-01789 (BRL)

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-------------------------------x
SECURITIES INVESTOR PROTECTION
CORPORATION,

Videotaped

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Plaintiff-Applicant,
7
8

v.
BERNARD L. MADOFF INVESTMENT
SECURITIES, LLC,

DAVID KATZ
(Volume II)

9
10

Rule 2004
Examination of:

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

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BERNARD L. MADOFF,
12
13

Debtor.
-------------------------------x

14
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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

18

Jersey, at the offices of Baker & Hostetler, 45

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Rockefeller Plaza, New York, New York on Wednesday,

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September 1, 2010, commencing at 10:08 a.m.

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

DAVID KATZ 9/1/10

CONFIDENTIAL

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Bernie, if anything?
A. I actually didn't remember he was on
an 11-man committee.
Q.
Okay. And do you have any idea why
Bernie voting for trading halts one way or the other
had any particular interest to you?
A. No idea.
Q.
Okay. You can put that aside.
(Exhibit DK-13 marked for
identification.)
Q.
Just take a moment to review Exhibit
13.
A. Read it all or just peruse?
Q.
Whatever you feel comfortable with.
I'll tell you my question is whether you recall
receiving and reviewing the document -- the article.
A. Okay. Is there another one? No.
Okay.
Q.
Mr. Katz, do you recall receiving
this document?
A. No.
Q.
Do you see your initials at all
written in handwriting on the cover page?
A. No.
Q.
Do you see where it says JSW on the

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Q.
Okay, Mr. Katz. Do you recall
receiving this article?
A. Nope.
Q.
Do you recall reviewing this article?
A. No. Not in particular, no.
Q.
In general, do you recall any
discussions with anyone regarding any articles about
Madoff that raise any concerns about Madoff in those
articles?
A. The only ones that I remember talking
about were all positive.
Q.
Were all positive, okay. You can put
that document aside.
And putting aside the articles that
we marked as exhibits, do you recall ever hearing
that there were experts in the industry that tried
to duplicate Madoff's returns but they were unable
to do so?
A. I vaguely remember that, yeah.
Q.
What do you remember about that?
A. Just what you said.
Q.
Okay. Is there any particular reason
why you vaguely remember that? Do you recall any
conversations?
A. I'm sure. I'm sure it was a

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bottom?
A.
Right.
Q.
Do you know whose initials those are
right above that?
A.
DL.
Q.
DL. Was there a DL who worked at
Sterling?
A.
I don't think so.
Q.
Do you have any recollection as to
whether you were a partner in April of 2001?
A.
Yeah.
Q.
You were, okay. But you have no
recollection of receiving this document?
A.
No.
Q.
Do you recall any discussions with
the partners about an article in Mar Hedge entitled
"Madoff Tops Charts; Skeptics Ask How"?
A.
No.
Q.
You can put that document aside.
A.
Done?
Q.
Yes.
(Exhibit DK-14 marked for
identification.)
Q.
Take a moment to review Exhibit 14.
A.
Okay.

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conversation but I couldn't tell you who was there
or what it was totally about.
Q.
Do you recall that -- do you recall
having -- sorry, strike that.
Do you recall hearing that there were
experts in the industry that tried to duplicate
Madoff's returns but they were unable to do so prior
to December 11, 2008?
A. I'm sure.
Q.
And did that raise any concerns for
you?
A. No.
Q.
And do you recall any particular
discussions that you had with anyone about that
fact?
A. Not in particular, no.
Q.
Generally?
A. It might have, it might have come up.
Q.
With whom, to the extent you
remember?
A. I don't remember, but...
Q.
And do you recall ever hearing,
Mr. Katz, that Madoff was possibly using his
market-making business to subsidize his investment
advisory side of the business?

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A. I remember hearing that.
Q.
And do you recall when you heard
that?
A. No.
Q.
Did hearing that raise any concerns
for you at all?
A. I think it was dispelled, if I
remember.
Q.
What was dispelled, that
particular -A. I remember it being not true.
Q.
Do you know why you remember that
being not true?
A. I couldn't tell you.
Q.
Do you recall any discussions that
you may have had with anyone about Madoff possibly
subsidizing his investment advisory side of the
business with market-making funds?
A. I'd be guessing.
Q.
What's your understanding, generally,
about how Madoff made money off of his investment
advisory side of the business?
A. All I know is he traded an enormous
amount of stock and he got paid for it. The sheer
volume was big numbers.

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transactions that he conducted on behalf of his
clients on the investment advisory side?
A.
I guess that's how he made money.
Q.
And do you recall any -- do you
recall hearing that he did not charge enough to his
investment advisory clients?
A.
No.
MS. SESHENS: Objection to the form.
Q.
Did you ever hear that Madoff
requested secrecy with respect to his investment
strategy or anything about his business?
A.
Yeah.
Q.
Do you recall what you heard?
A.
No, just at the beginning I
remember -- whenever the beginning was, it was like
a, you know, it was a quiet -- you weren't supposed
to tell anyone you were invested. You know, you
know, that faded over time.
Q.
Do you have any understanding why it
faded over time?
A.
So many investors that it was silly
to try.
Q.
On what do you base the understanding
that at some point you weren't supposed to tell
anyone you were invested in Madoff?

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Q.
Do you know how he got paid; were
there fees involved with those trades?
A. I have no idea.
Q.
Did you ever speak with anyone at
Sterling about that?
A. Probably.
Q.
Do you recall who?
A. Probably, if I did, it was my father.
Q.
Do you remember any particular
discussions with your father -A. No.
Q.
-- about how Bernie got paid?
A. No.
Q.
Do you recall ever hearing that
Bernie not charging particular fees didn't make
sense?
MS. SESHENS: Objection to the form.
Q.
Let me, actually, rephrase that.
Is it your understanding that Bernie
received commissions on trades that he made for his
investment advisory clients?
A. I'm not sure exactly what you're
saying.
Q.
Okay. Is it your understanding that
Bernie received fees for any of the, for any of the

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A.
You're asking why were we told that
or asked that?
Q.
Yes, let's actually go back.
Do you recall when you had that
understanding?
A.
No.
Q.
Do you recall having any discussions
with anyone at Sterling about that, about Madoff
requesting -A.
Not specifically.
Q.
-- that at some point you weren't
suppose to tell anyone you were invested?
MS. SESHENS: Objection to the form.
A.
Not specifically.
Q.
And did it raise any concerns for
you that -A.
No.
MS. SESHENS: One second.
Q.
Did it raise any concerns for you
that at some point you weren't supposed to tell
anyone you were invested in Madoff?
A.
Contrary.
Q.
What do you mean by contrary?
A.
It was a black box. He was a proven
great investor. That's part of being in the few.

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(Exhibit DK-15 marked for
identification.)
Q.
Take a moment to review Exhibit 15
and let me know when you're done.
A. Okay.
Q.
Okay, Mr. Katz. Do you recall
receiving this memo?
A. I don't recall it.
Q.
Do you recall whether you were a
partner on June 13th, 2008?
A. I think I was.
MS. SESHENS: I think you meant 2001.
MS. ZUNNO: I'm sorry. Thank you,
Dana.
Q.
2001.
A. There, too.
Q.
Putting aside the memo, do you recall
whether there was ever a point in time when Sterling
considered taking out insurance to cover its Madoff
investments?
A. Yes.
Q.
Tell me generally what you remember
about that?
MS. SESHENS: Objection to the form.
A. What do I remember about that? I

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A.
Correct.
Q.
Okay. And is it your understanding
that around the time that this was being considered
Sterling had more than 100 million invested in
Madoff?
A.
I would believe so.
Q.
And do you think or do you know if
that was why Sterling did not pursue insurance any
further?
A.
That may be one of the reasons.
Q.
Do you recall any other reasons?
A.
No.
Q.
Do you recall any conversations that
you had with Chuck Klein about insurance, if any?
A.
No.
Q.
Do you know if Chuck Klein took out
insurance to cover the Madoff accounts at American
Securities?
A.
No.
Q.
I think that was a very poorly worded
question, so let me go back.
Is it your understanding that
American Securities took out insurance to cover its
Madoff investments?
A.
No.

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think it was Chuck Klein mentioned it to my father,
and I think we looked at it and I think it was silly
because we couldn't get anywhere near the amount we
needed to cover it. It was silly, a waste of time.
Didn't do it.
Q.
Do you recall -- when you say that
you think we looked at it and I think it was silly
because we couldn't get anywhere near the amount we
needed to cover it -A. Correct.
Q.
Can you just explain that?
A. The amount of money, I think the
amount you could -- I believe the amount you could
take out in insurance was low per account compared
to what we had invested.
Q.
Okay. And if you turn back to what
we marked at Exhibit 15, if you look at the last
sentence.
A. Um-hum.
Q.
"They will be limited to a maximum of
100 million in total and probably they would limit
coverage to accounts greater than 10 million."
A. Right.
Q.
Is that what you are referring to as
the limit on coverage?

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Q.
And do you know if your father, Saul
Katz, ever spoke with Chuck Klein about -A.
I believe so.
Q.
Let me just go back and finish.
Sorry. I know you're anticipating my question and I
do a bad job of cutting you off sometimes, too, so
I'll try to -A.
We'll both try.
Q.
Yes, thank you.
Do you know if your father, Saul
Katz, ever spoke with Chuck Klein about possibly
taking out insurance to cover Sterling's Madoff
investments?
A.
I'm pretty sure they talked.
Q.
Do you know anything about those
conversations?
A.
No.
Q.
Were you present at any of those
conversations?
A.
I don't think so.
Q.
Mr. Katz, did there come a time in
2004 when Sterling wanted to exercise an option to
buy out of its contract with Cablevision?
A.
I'm not sure of the year, but yeah.
Q.
What do you know about this

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of Madoff?
MS. SESHENS: Objection to the form.
A. I would hope so.
Q.
Do you recall that being discussed at
the meeting?
A. I don't remember if we discussed it
but I'd be shocked if it weren't.
Q.
Do you know around January 2008 how
much money Sterling and the Sterling partners had
invested in Madoff?
A. I'd be guessing.
Q.
Do you know if it was greater than
$100 million?
A. Yes.
Q.
Do you know if at this meeting there
were any discussions related to withdrawing any of
the funds in Madoff at that time gradually?
A. Perhaps, depending on the partner.
Q.
Do you remember how -- I mean, do you
remember how you felt about portfolio planning as of
January '08?
MS. SESHENS: Objection to the form.
A. Well, I would have personally liked
to leave 10 percent or so in Bernie, in my
portfolio, and move the rest in other places.

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only 10 percent of the trust assets were invested in
Madoff?
A.
I don't think so.
Q.
Do you know why?
A.
Because we were moving slower than I
wanted.
Q.
Do you know why -- and by "you" do
you mean you and your father, do you mean Sterling
as a whole?
MS. SESHENS: Objection to the form.
A.
In my opinion everyone was moving too
slow.
Q.
Do you know why?
A.
They were moving slow?
Q.
Yeah.
MS. SESHENS: Objection to the form.
A.
They enjoyed the investment. They
liked it.
Q.
Do you recall when -- or should I
say, was it a goal of yours to only have 10 percent
of your assets invested in Madoff?
A.
Maybe even less. But, yes, it was a
goal.
Q.
Why do you say maybe even less?
A.
I'd have to think about a black box.

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Q.
And do you know if any of the other
Sterling partners agreed with that?
A.
Maybe not on the exact percentage.
That's why they would pull out differently and also
people have different needs as far as cash flow and
stuff. So, yeah, close to that, I would imagine.
Q.
Did there come a time with respect to
your own Madoff investments that you had only 10
percent of your assets invested in Madoff?
A.
I look at my assets differently
than -- in my mind I count part of my father's trust
as part of my assets. So I don't know if it was
exactly 10 percent. That was all part of what I
wanted to change.
Q.
What was all part of what you wanted
to change?
A.
The trust had money. It was probably
lopsided and that's one of the things I wanted to
change.
Q.
And by lopsided you mean -A.
Too much in Bernie.
Q.
Do you know if that ever did change
at any point?
A.
I'm sure it changed a little bit.
Q.
Did it ever change to the point where

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One black box, should you have 10 percent in there?
I don't know. I'd have to think about it.
Q.
Did you ever talk to anyone at
Sterling Stamos about whether you should have less
than 10 percent invested in black boxes?
A.
I don't recall.
Q.
And do you recall when, when you
thought that you should have 10 percent or maybe
even less invested in Madoff?
A.
When I thought that?
Q.
Yes.
A.
I couldn't pin down the date.
Q.
Do you recall if it was prior to
2005?
A.
I would think so.
Q.
Do you recall if it was shortly after
Sterling Stamos was formed?
A.
It was before Sterling, that's why we
started Sterling Stamos.
Q.
So before Sterling Stamos was formed,
was it your goal to have 10 percent or possibly less
invested in Madoff?
A.
Correct.
Q.
Is there anyone at Sterling who
shared that goal?

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877.404.2193

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16 (Pages 296 to 299)

DAVID KATZ 9/1/10

CONFIDENTIAL

SIPC v. BLMIS

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phone.
Q.
What would you talk on the phone
about?
A.
I think he was just buttering,
buttering us up because he wanted to do the SSP
thing.
Q.
How or what conversation did you have
with Peter Stamos about KRB?
A.
How's it doing, what are you doing,
how's it today, you know, that kind of thing.
Q.
Did you ever give Peter Stamos money
to invest in KRB specifically?
A.
No.
Q.
Did it ever work the other way
around, did Peter ever give you money to invest in
KRB?
A.
If he did it was a little bit. I
don't remember it.
Q.
You also mentioned that as part of
the creation of Sterling Stamos you didn't -Sterling Stamos wasn't supposed to invest in black
boxes.
A.
Yeah. At the beginning.
Q.
At the beginning. Was there a time
that that changed?

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MS. SESHENS: Objection to the form.
A.
In which type of funds Sterling
Stamos would invest?
Q.
Yeah.
A.
Did I ask them? I might have
overheard.
Q.
Overheard?
A.
When I was sitting in the meetings I
might have overheard them talking.
Q.
Okay. I guess, well, if you were
sitting in on meetings and overheard them talking
about funds in which to invest, would you voice your
opinion?
A.
I wouldn't talk.
Q.
When Sterling Stamos was first
created, I think you said they weren't supposed to
invest in black boxes, right?
A.
That was my understanding.
Q.
Were there any other types of funds
in which they weren't supposed to invest?
A.
None that I know of.
Q.
Okay.
Would you agree that one of the
purposes of Sterling Stamos was to diversify away
from Madoff?

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A. I think when we started getting -when they started getting bigger, I think -- I don't
remember talking about it and I wouldn't be
surprised if they did, that's all.
Q.
You wouldn't be surprised if Sterling
Stamos did invest in black boxes?
A. Later on, yeah.
Q.
I mean, what informs that opinion?
A. There's a lot of funds.
Q.
That Sterling Stamos was invested in
a lot of funds?
A. Yeah.
Q.
At any point did you ever ask Peter
Stamos or anyone at Sterling Stamos if they were
invested in black boxes?
A. I'm sure at the beginning.
Q.
At the beginning. And later on when
there were a number of funds, did you ever, when
there were more funds did you ever ask?
A. I might have.
Q.
You don't recall any specifics?
A. No.
Q.
Do you recall making any other
requests to Sterling Stamos when it was first formed
related to in which types of funds it would invest?

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A.
Yeah. Yes.
Q.
Would you agree that the fact that
Madoff was a black box, was that one of the reasons
Sterling wanted to diversify away from Madoff?
MS. SESHENS: Objection. Katie, I
know we've given a lot of leeway on this, this is
like the fourth or fifth time this line of
questioning has been asked. So I just want to note
my objection, we've gone over this, it's been asked
and answered and it's captured in the testimony that
I think has been elicited thus far.
MS. ZUNNO: I note your objection. I
disagree that this was asked and answered. But I'll
ask my question again.
BY MS. ZUNNO:
Q.
Was the fact that Madoff was a black
box one of the reasons Sterling wanted to diversify
away from Madoff?
A.
No.
Q.
So other than diversifying away from
Madoff, are there any other reasons why Sterling
Stamos was created?
A.
Seemed like a good business, start a
family office. No. I can't think of any other
reason now.

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