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

Filing 90

DECLARATION of DANA M. SESHENS in Support re: 79 MOTION 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 PART 1, # 4 Exhibit C PART 2, # 5 Exhibit D, # 6 Exhibit E, # 7 Exhibit F, # 8 Exhibit G, # 9 Exhibit H, # 10 Exhibit I, # 11 Exhibit J, # 12 Exhibit K, # 13 Exhibit L, # 14 Exhibit M, # 15 Exhibit N, # 16 Exhibit O, # 17 Exhibit P, # 18 Exhibit Q, # 19 Exhibit R, # 20 Exhibit S, # 21 Exhibit T, # 22 Exhibit U, # 23 Exhibit V, # 24 Exhibit W, # 25 Exhibit X, # 26 Exhibit Y, # 27 Exhibit Z, # 28 Exhibit AA)(Seshens, Dana)

EXHIBIT I

1

1

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

2

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
11-CV-03605(JSR)(HBP)

3
4
5

--------------------------------x

6

IRVING H. PICARD, Trustee for
the Liquidation of Bernard L.
Madoff Investment Securities LLC,

7
8

Videotaped
Deposition of:

Plaintiff,
v.

FRED WILPON

9
SAUL B. KATZ, et al.,
10
Defendants.
11
--------------------------------x
12
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

January 10, 2012, commencing at 9:28 a.m.

21
22
23
24
25

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1
2
3

starting up Sterling Stamos?
A.
Q.

I don't recall.
Do you remember having any

4

conversations, prior to the actual formation of

5

Sterling Stamos, with Mr. Madoff about starting

6

Sterling Stamos?

7

A.

8
9
10
11
12

Q.

Before or?
Yeah, let me break that down.

Before

Sterling Stamos started, you know, you're talking to
Mr. Peter Stamos about it, as you described -A.
Q.

Right.
-- did you prior to that sit down

13

with Mr. Madoff and tell him that you were thinking

14

of putting together the Sterling Stamos fund?

15
16
17

A.
Q.
A.

18

Q.

19

Yes.
Do you have any idea when that was?
No.

the formation.

20
21
22
23
24
25

A.
Q.

Other than it was obviously before

Right.

No.

What do you remember about that

conversation with Mr. Madoff about that?
A.

It occurred subsequent to another

conversation which initiated that.
Q.

Okay.
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1
2
3

A.

With Mr. Madoff, when the question

was asked of Mr. Madoff was he going to retire.
Q.

4

Um-hum.

A.

And he said he didn't have any

5

plans to -- my recollection is he said he didn't

6

have any plans to retire, but if he did, he would

7

send us the money back.

8

it in, I think he said U.S. Trust or Treasury, I

9

forget.

10

And he said you can invest

Saul and I were a little taken back

11

by that, and we had a meeting going down the

12

elevator from his office.

13

looked at me, and we said, we better have other

14

alternatives.

15

Q.

16

I looked at him and he

A.

Um-hum.
And that was the initiation of, say,

17

starting a family office or starting Sterling

18

Stamos.

19

It was really to -- to invest just the Stamos family

20

money and our money.

21

Q.

Which was not to be as it turned out to be.

You indicated that conversation that

22

you just described for us took place first and then

23

there was a subsequent conversation, I believe was

24

your testimony, with Mr. Madoff about Sterling

25

Stamos.

Could you tell us now about that subsequent
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1

strategy, then Sterling Stamos might decide to, to

2

stop doing business with that particular investment

3

vehicle.

4

Q.

Was it your understanding that --

5

that the Stamos investment side had concerns about

6

the transparency of Mr. Madoff?

7

A.

He was a -- he was a proprietary

8

investor, didn't want people to understand what

9

his -- how he came to his investments, and therefore

10

that wouldn't be transparent.

11

For example, one of the great

12

investors of the past 40 years is Renaissance,

13

Mr. Simons and his group.

14

It's proprietary investing, and if you choose to

15

invest with him, if you're fortunate to do that, you

16

don't know what he's investing in or how he's

17

investing or how he's determining those investments.

18

Q.

They're not transparent.

Other than transparency, were you

19

aware of any other concerns that Stamos -- don't

20

care if I use that -- is your understanding based on

21

what, your current -- let me rephrase the whole

22

thing.

23

Not doing very well there.
The transparency issue that we've

24

been discussing, do you know what the source of that

25

was, the concern about transparency?
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1
2

A.

I --

Q.

Let me rephrase it.

3

Was it the company policy of Sterling

4

Stamos that you would not invest in a fund that was

5

not transparent?

6

A.

7

That's my understanding.

Q.

Okay.

And other than transparency,

8

were you aware of any other issues that prevented

9

Sterling Stamos from investing in Mr. Madoff?

10

A.

No, not at all.

Because as far as I

11

know, Mr. Madoff had a great reputation in the

12

general field.

13

regard for Bernie, Bernie Madoff and his -- his

14

abilities as an investor.

15

the case.

16

funds from the sale of one of his companies, or a

17

company that he had, more limited than Sterling's

18

funds, was an investor for many years in Bernie

19

Madoff.

20
21
22

And Peter Stamos had a very high

So I don't think that was

He and his family, with more limited

Q.
A.
Q.

23

Do you know if Mr. -Before Sterling Stamos.
I understand.
Do you know whether or not the Stamos

24

family redeemed its money out of Madoff at some

25

point in time?
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their exposure.

2

don't say it, but I think it referred to the

3

doubling-up concept.

4
5
6

Q.

I think it referred -- the words

Okay.

Just for the record, could you

tell us what the doubling-up concept is.
A.

Where a bank would loan money to an

7

individual to buy -- to invest in Madoff, and the

8

interest rate of that loan would be less than the

9

return that Madoff was returning on a yearly basis.

10
11

Q.
A.

Um-hum.
And that they would -- so they would

12

owe the bank that money.

13

Madoff account, and they would make the

14

differential, what they call a spread or

15

differential.

16

Q.

17
18
19
20

A.
Q.
A.

The collateral was the

Right.
Pardon me?
Right, I said.

Yeah, I understand.

And -- better than I do.
And I think that that's what people

21

were doing, and so someone must have said, well,

22

check your individual accounts.

23

I assume at this time we were already investing in

24

Sterling Stamos.

25

in Sterling Stamos.

Oh, yeah, sure.

We were already --

We were investing

A lot of the new funds that

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were coming in, new liquidity was being invested in

2

Sterling Stamos, as well as -- as well as Madoff,

3

but we were trying to balance.

4

Q.

When you say individuals would borrow

5

money from a bank and put it into Mr. Madoff, would

6

the individual deal directly with Mr. Madoff?

7
8
9
10
11
12
13
14
15

A.

No.

I think they probably would deal

through Arthur Friedman.
Q.

And would all the Sterling equity

partners participate in the double-ups?
A.
Q.

No.
How was it determined who would

participate?
A.
Q.

The individual partner would decide.
Okay.

And did all the individual

16

partners then deal through Mr. Friedman with

17

Mr. Madoff?

18
19

A.
Q.

I believe so.
All right.

And when those numbers

20

were reported, double-up numbers, were they reported

21

in the aggregate or by individual?

22
23

A.
Q.

I don't recall.
Okay.

When -- the phrase "exposure

24

with Mr. Madoff," does that suggest to you that

25

there's any risk involved?
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A.

We never -- we never felt exposure.

2

We always felt that Bernie Madoff was a low-risk

3

type of investment that we had been investing with

4

for 25 years.

5

Q.

So, how -- how would each partner go

6

about -- your understanding -- analyzing their

7

exposure to Mr. Madoff?

8
9
10
11

A.

Well, they were -- they were

borrowing money from a bank.
Q.
A.

Right.
The bank allowed that to happen

12

because the bank did their investigation of Madoff

13

and allowed that to be used as collateral.

14
15

Q.
A.

Um-hum.
And there were several banks that

16

allowed that.

17

What -- what would happen if Bernie Madoff's returns

18

in a year didn't match interest rate?

You'd have

19

a -- you'd have a reverse situation.

So, they were

20

saying, we'll look at that.

21

there was an exposure to Bernie, in terms of

22

Bernie -- but there was certainly a -- Bernie did

23

not always produce the same returns.

24

produce X one year and X minus five the next year.

25

Q.

And so they were borrowing money.

Not that -- not that

He might

Do you recall anything specific that
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with regard to Mr. Madoff and how his business

2

operated that would have spawned this comment?

3
4

A.
Q.

None.

None that I know of.

Okay.

Was there, at or about this

5

time, we're going to talk more about this later, but

6

do you recall any conversations about Mr. Madoff

7

registering as an investment adviser?

8
9
10
11
12
13
14

A.

I believe he told us he was

registering as an investment adviser when the -- I
think the law changed?
Q.
A.
Q.
A.

Um-hum.
Or a new law came in?
Right.
And I think he told us he was -- he

15

was, in addition to being a broker-dealer, whatever,

16

NASDAQ and whatever you have to be as a

17

broker-dealer, he was -- he was registered as an

18

investment adviser.

19

Q.

Okay.

20

Do you see this?

21

Do you see that?

22

A.

I want to take a look at D.

23

Q.

It says, "Net Madoff balances."

Yes.
Okay.

What does anything -- if

24

anything, does that mean to you, that entry in the

25

minutes?
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registration.

2

counsel, Davis Polk, to tell us what the rulings

3

were.")

4

Q.

And I remember that we contacted

Focusing on just this portion of your

5

answer, and that is, is where you testified that

6

Sterling Equities did not need to be part of that

7

registration or should not be part of it.

8

recall that?

9
10
11

A.
Q.
A.

Do you

(Witness nods.)
Okay.

What did you mean by that?

We were not, as I've testified to

12

you, we at Sterling Equities were not involved in

13

the -- in the investment process at Sterling Stamos.

14

We were involved only in the management of the

15

company, that they were going to take space at 450

16

Park Avenue or 270 Lex or things of that nature.

17

And, therefore, we are a private

18

company, a private family company, and it wasn't

19

required that all of our businesses be registered on

20

whatever that, whatever they had to register under.

21

Q.

Do you have any understanding of what

22

the implications of registration might be for

23

Sterling Equities as a -- let me just stop there.

24

A.

Well, it was a lot of paperwork, a

25

lot of reporting.

As I understood it, it's
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tantamount to being a publicly held company, which

2

is something we did not want to be.

3

Q.

Did -- did Sterling Equities'

4

investments in Madoff have any influence or any

5

impact on your concerns about registering as part of

6

the Sterling Stamos investment advisory

7

registration?

8
9
10

A.

I don't recall that being part of

that.
Q.

Did you have any conversations --

11

just you, personally, have any conversations with

12

Bernie Madoff about the fact that Sterling Stamos

13

was considering registering as an investment

14

adviser?

15

A.

Only what I testified to in that --

16

that meeting that we had with Bernie Madoff.

17

don't remember at that time whether he was already

18

an investment adviser --

19
20
21
22

Q.
A.
Q.
A.

I

Who, Mr. Madoff?
Mr. Madoff.
Okay.
-- or he was saying -- or it was at a

23

time when they both were going to become investment

24

advisers, that Sterling Stamos was going to become

25

an investment adviser, under the law or new law or
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requirement.

2

And as I testified, he said something

3

about, I don't think you guys want to be investment

4

advisers for your real estate, your media business,

5

your oil business, whatever businesses you're in.

6

Q.

7
8

A.

(Comments off the record.)

10

12

That's the -- I have a vague

recollection of that conversation.

9

11

Um-hum.

(Exhibit Trustee 331, Meeting Notice,
Bates SE_T673935, marked for identification.)
Q.

I'm showing you what has been marked

13

as Exhibit 331 for identification, and it appears to

14

be another one of those meeting notices, whatever.

15

Do you see that?

16

A.

17

Q.

18
19
20

A.
Q.

Have you seen this prior to today?
No.
Okay.

I note for the record that the

date of this is July 15th, 2004.

21
22

Yes.

A.
Q.

Do you see that?

Yes.
And I would also note that the prior

23

exhibit that we were looking at was 330, was dated

24

July 14, 2004.

25

before.

Do you see that?

The one just

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2

A.
Q.

No.
And the personal friends who had

3

invested with Mr. Madoff that you've spoken of but

4

haven't named, but I'm not asking you for their

5

names, would you consider any of them to be

6

investment advisers?

7

A.

8

Q.

Not -- not personal friends that

I can recall.

9

No.

10

Mr. Madoff?

11
12

Did Mr. Levitt actually invest with

A.
Q.

I don't know.
Okay.

Did you know whether

13

Mr. Levitt ever -- you know, I know you've spoken of

14

his high opinion of Mr. Madoff, but do you know if

15

he ever did an analysis of Mr. Madoff's investment

16

strategy?

17

A.

18

Q.

No, I couldn't tell you that.
Okay.

Other than what you've just

19

described for us, Howard Squadron, Arthur Levitt and

20

your friends, was there any other due diligence that

21

you did with regard to investing in Mr. Madoff?

22
23
24
25

A.

Well, it wasn't something that was

static.
Q.
A.

Right.
It started, I'd say '75, heard a lot
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about it.

2

investments with the individuals, partners made some

3

investments with Madoff.

4

a constant kind of thing, that we were constantly

5

hearing, thinking, you know, observing how Bernie

6

Madoff performed, how others performed, and so it

7

was -- it was a sort of, if I may use, it was a

8

motion picture, you know, in terms of a learning

9

process.

10

Q.

11

In '85 we decided to make some

And as time went on it was

Right.

A.

And there was a time when, I don't

12

know the year, but the stock market went down

13

significantly.

14

investments came through that.

15

when some Florida investors were sanctioned or

16

something by the SEC.

17

lawyers at Squadron at the time, he was the

18

former -- I think he was the former head of the SEC

19

in New York.

20

And it was, Bernie Madoff was -- his
There was a time

Ike Sorkin was one of the

Something -- someone we knew.
And I remember being at their offices

21

that day and describing what happened, that the SEC

22

came and -- and did an analysis of that particular

23

situation.

24

particular situation.

25

people in Florida, and they said that the Madoff

I don't know how far they went, but that
And they sanctioned the two

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operation was perfectly fine.

2

Q.

3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19

A.

Okay.
I don't know whether those were the

words.
Q.

No, I understand.

your understanding of it?
A.
Q.

That's my...
Yeah, exactly.

The -- just a moment

here, I lost my train of thought.

I was listening

to you there and I lost it, you know.
A.
Q.
A.
Q.
A.

Join the club.
First one to admit that.
Join the club.
But -- exactly.
That's why when you're asking me

things like years, I say -Q.
A.
Q.

I understand completely.
What did I have for lunch yesterday?
I've had that experience as well.

20

MR. WISE:

21

MR. SHEEHAN:

22

I assume that's

Q.

Those senior moments.
Indeed.

The -- but let me try to get back

23

into the context of it.

24

in a different direction.

25

The -- let me jump-start it

where I want to go.

This might get me back to

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than once, they suggest Saberhagen and Glavine?

2

you see that, down the bottom?

3

A.

4

Yes.

Q.

5

Do

All right.

A.

Is that accurate?

That we -- that we did defer -- that

6

we invested monies in Bernie and that it was

7

deferred payments --

8

Q.

9
10

Yes.

A.

-- for Saberhagen and Glavine?

I

believe that's correct.

11

Q.

Okay, fine.

Is -- is the reason you

12

went with Mr. Madoff is because of the consistency

13

of his returns?

14

A.

I think the acceptability of his

15

returns.

16

years.

17

when Arthur Friedman would report it was not meeting

18

projections.

19

He had -- he had very good returns over 25
There were times when it was not meeting --

Q.

Right.

20

A.

21

a very big dip.

22

out-performing treasuries or investments like that.

23

Q.

There was one or two years there was
But overall he was -- he was

Okay.

I want to go back to

24

exhibit -- the other exhibit that you have in front

25

of you.

It's the financial outlook, capital
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this email?

2

A.

3

Q.

I did not.
Did you ever have a conversation with

4

anyone at Sterling Stamos about the contents of this

5

email?

6
7
8
9
10
11

A.
Q.

I did not.
Or anyone else at the bank other than

Mr. Kenny?
A.

This is the first time I've ever seen

this email.
Q.

12

Okay, all right.
This is a somewhat unrelated

13

question, but it's still in the area of banks.

14

Earlier you were talking about double-ups; do you

15

remember that?

16
17

A.
Q.

Yes.
And you talked about the fact that

18

the bank itself would do some due diligence; do you

19

remember that --

20

A.

21

Q.

22
23
24
25

Yes.
-- with regard to that?
Could you describe for me what you

understand the banks did?
A.

My understanding is that if -- if

Sterling Equities partners or any of the partners
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wanted to borrow money against an account they had

2

at Bernie Madoff --

3
4

Q.
A.

Right.
-- using collateral of the Bernie

5

Madoff account, the bank would then determine

6

whether they thought that was appropriate

7

collateral.

8
9

Q.
A.

Um-hum.
And so the bank would then do -- I'm

10

probably going to use wrong words, you know, as I

11

say an investigation, I don't know what the words

12

are, but --

13
14

Q.
A.

All right.

We understand.

-- they would do -- they would look

15

into whether Bernie Madoff Securities was something

16

that the bank could, could keep as collateral for

17

a -- for a borrower.

18

the bank did all that investigation or work, came

19

back and said that Bernie Madoff is fine, we -- we

20

would lend you on Bernie Madoff.

21

Q.

And my understanding is that

Do you have any knowledge what the

22

bank actually did to, to borrow your word,

23

investigate Mr. Madoff?

24
25

A.
Q.

I have no idea.
Did they ever share any of that
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PICARD v. KATZ, et al.

CONFIDENTIAL

FRED WILPON 1/10/12
206

1

said something, he used some words, clean bill of

2

health or something like that, with respect to that.

3

And I remember that the newspapers reported and --

4

that they had sent the money back.

5

Q.

6
7
8

A.

Okay.
That Bernie Madoff had sent the money

back.
Q.

Using that as a point in time,

9

whether it's '92 or some other year, using that as a

10

point in time, did there come a time after that when

11

you became aware of any other SEC investigation of

12

Mr. Madoff?

13

A.

Now, I'm -- I would answer yes, but

14

I'm going to give you a qualification, that I'm not

15

sure I remember when -- when I knew of this versus

16

what I've read afterwards.

17

publicity that's been about this.

18

that Madoff was, I thought the word "regularly,"

19

maybe regularly like everybody else, but regularly

20

was -- was, I'm going to use the word "monitored," I

21

don't know if that's the right word, by the -- by

22

certain regulatory bodies, like NASDAQ or the SEC or

23

other government agencies.

24
25

Q.

Because there's so much
But I did know

When you said that -- is that an

assumption on your part, that that happened on a
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