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 J

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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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4
5

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

Videotaped

6
Plaintiff-Applicant,
7
8

v.

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BERNARD L. MADOFF INVESTMENT
SECURITIES, LLC,
Defendant.
-------------------------------x
In Re:

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BERNARD L. MADOFF,

12

Rule 2004
Examination of:

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

9

ARTHUR FRIEDMAN
(Volume I)

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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,

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

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

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A.

Same for the Brooklyn Cyclones.

Q.

Now that's a -- just because I'm not

from here, that's a minor league team?
A.

Yes.

Q.

Single A.

Single A?

A.

Single A, not a full season, they

7

start in June.

8

Q.

9
10
11
12
13
14

A.
Q.
A.
Q.
operations?
A.

Is it affiliated with the Mets?
Oh, yes.

We own the team.

Part of the Fund system?
Yes.
Do the Mets have other minor league
Do they have a double A?
They do, but it's an affiliation.

15

Brooklyn Cyclones is the only one that we own, but

16

we have affiliation with all levels.

17

Q.

And those, you don't have any -- the

18

affiliated minor league operations, you don't have

19

any job responsibilities with respect to those

20

entities?

21

A.

22

Q.

No.

No.

Did you provide -- let me just

23

continue with the last part of the business that you

24

identified.

25

were counting, the third or the fourth business

You identified, depending on how you

72

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grouping for the Sterling entities as the

2

investments.

3

least in my mind, kind of Madoff and then other

4

investments.

5

good time, what were your responsibilities with

6

respect to the investments being made by Sterling

7

partners or Sterling entities with Bernard Madoff?

8
9
10

A.
Q.
A.

Under that you broke out I think, at

So, can you tell me, maybe this is a

With regard to Bernard Madoff?
Yes.
As I said, I was the liaison with the

11

Madoff firm.

12

Madoff was done through me.

13

so that whenever anybody wanted to invest money in

14

Madoff, they would send me the check, or -- it

15

usually was in the form of a check, and I would

16

forward it on to Madoff.

17

wanted to withdraw money, they would notify me,

18

either by email or letter or telephone what they

19

wanted to withdraw, from what account, when, if

20

there was an urgency, and I would, again, transmit

21

that information to Madoff.

22
23

Any dealings with the investment in
That was by design, and

And vice versa, if they

So, in every sense I was the liaison.
Q.

You said that was by design.

24

that the design?

25

A.

Why was

From, to my recollection, from day

107

1
2

Q.

Are you aware of the reasons the

decision was made?

3

A.

I would have to say that the reasons

4

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

5

all of the entities, 200 plus accounts were opened

6

at Madoff, they were all the same reasoning.

7

Q.

8
9

A.

Which was what?
It was deemed to be an excellent

place to invest your money.

The returns were very

10

satisfactory and you could easily get your money out

11

of the investment.

12

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

13

Q.

It was a very liquid investment.

I guess -- it appears to me, from

14

looking at the records, that some of the Sterling

15

entities had accounts with Madoff, and others did

16

not.

17
18

Is that -A.
Q.

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

Some of the Sterling

19

entities opened up accounts with Madoff and put

20

money in, and other Sterling entities did not open

21

up accounts at Madoff.

22

as well?

23
24
25

A.
Q.

Is that your understanding

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

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

108

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invest with a good return and easy to get your money

2

out, why did some entities open accounts at Madoff

3

but not others?

4

A.

Any account -- any entity that had,

5

by its nature of the operation, accumulated funds

6

and had to invest them, they were invested in

7

Madoff.

8

accumulated funds would make a distribution to the

9

partners, who then would, more than likely, invest

10

Most entities that were profitable and

their money in Madoff.

11

So, ultimately, one way or another,

12

it would seem that all of the entities that

13

accumulated any kind of funds, if they were going to

14

invest it any place, there would be a likelihood of

15

it being invested in Madoff.

16

Q.

So what you're telling me, I think,

17

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

18

that entities that by their nature accumulated

19

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

20

revenue, right, that it would be likely that that

21

entity would open an account with Madoff?

22

A.

Are you telling me

If there was a reason for the

23

accumulation, then, yes, and so they therefore

24

wanted to save the money in one place rather than

25

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

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election was made to invest it in Madoff.

2

was no need to accumulate a fund, then chances are

3

it would be distributed to the partners.

4
5
6

Q.

If there

And then, as you said, they would

likely put the money back in?
A.

Whatever they did, if they were going

7

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

8

of choice, as was any of the other investments that

9

we have touched upon.

We haven't talked about

10

Sterling Stamos, that was an investment opportunity,

11

American Securities, or a partner could elect not to

12

save the money.

13

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

14

case and they were into that...

15
16
17
18
19
20
21
22

Q.
A.
Q.

None of the partners really have

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

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

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

23

brokerage account, or did you view it as a bank

24

account?

25

A.

It was viewed as a brokerage account.

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It may have been all of the partners in a given

2

situation, or whoever might have been involved in

3

opening the accounts.

4
5

Q.

What would be the subject of

discussion?

6

A.

Might be the names of the accounts,

7

who the partners were, what percentages, if there

8

were more than one partner, if it was a tenant-in-

9

common account, for example, what the percentages

10

were.

11

signing, what Social Security number would be used,

12

again, if it was more than one person.

13

basics of opening the account.

14

And the paperwork involved, who would be

Q.

Just the

Other than the basics of opening the

15

account, what you've just mentioned, were there any

16

other factors or matters that were taken into

17

consideration in deciding whether to open a new

18

account with Bernie Madoff?

19
20
21
22

A.

I wasn't involved, that I can

recollect, in making any kind of determination.
Q.

Did you -- well, let me back up.
Did you have any understanding, when

23

you joined Sterling in January of '86, regarding

24

Madoff's investment strategy?

25

MS. SESHENS:

At the time he joined?

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2

MR. LUCCHESI:
Q.

Yes.

At the time you joined, did you have

3

an understanding of Madoff, Bernie Madoff's

4

investment strategy?

5
6

A.

At that initial time, no.

It was

explained to me very early on what his strategy was.

7

Q.

8

very early on?

9
10
11
12
13

A.
Q.

Okay.

And who explained that to you

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

Mr. Madoff himself?
A.
Q.

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

14

doing any due diligence into Madoff, in connection

15

with investments that were either made or

16

contemplated to be made by the Sterling entities?

17

A.

I did a certain amount of diligence.

18

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

19

extent it was assigned to me, advised, requested,

20

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

21

my own to do due diligence.

22
23
24
25

Q.
A.
Q.

It's hard to say sometimes.
Due diligence.

Got it out.

Do you recall what diligence you did

with respect to Madoff?

124

1

A.

I recall in the very early stages

2

actually tracking market prices.

In other words,

3

when we first were invested, we did not invest in

4

index puts and calls.

5

we bought seven individual stocks, we bought the

6

puts and sold the calls on each individual security.

7

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

8

how long I continued that, but if the statement came

9

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

10

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

11

at specific dollar amounts and the puts and calls at

12

certain specific amounts, I actually went to the

13

newspapers and tracked to see how that fit into

14

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

15

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

16

the middle, the closing price of the range for the

17

day.

We invested in individual, if

That was one thing I did.

18

I can remember other exercises I went

19

through.

They weren't necessarily due diligence,

20

but just from a tracking standpoint, I can remember

21

trying to project a month ahead of time what, based

22

upon the prices, what the maximum gain and the

23

maximum loss might be under the circumstances.

24

then going back and seeing exactly how we did and

25

how that reality measured up to my projections.

And

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2
3
4

That wasn't necessarily due diligence.
Q.

How did your reality match up?

Do

you have a general recollection?
A.

To the best of my recollection, it

5

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

6

what I projected was the maximum that we could gain

7

and the maximum we could loss -- lose.

8

that there was puts and calls, there was a maximum

9

on both sides.

10

between that.

11

Q.

The fact

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

12

of order here, but do you recall any particular,

13

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

14

a loss on the investments that he purportedly made

15

on behalf of Sterling?

16

A.

17

Q.

18

Yes.

being a loss?

19

A.

20

How many times do you recall there

entire --

21
22
23
24
25

Q.
A.
Q.
A.

How many times throughout the

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

don't, without referring to records --

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1

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

2

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

3

and calls -- I was reading your title.

4

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

5
6

I thought

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

7

MS. SESHENS:

8

A.

Objection to the form.

I really don't recollect.

This would

9

seem to follow up the Al Frank memo as opposed to

10

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

11

suggesting.

12

Again, it's talking about selling puts.

Q.

The second paragraph begins:

"Assume

13

we tell Bernie Madoff to sell puts that have

14

appreciated dramatically due to a market crash."

15

And then it goes on to describe how that transaction

16

is effectuated.

17
18
19
20

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

No.
Did you ever give Bernie any

21

instruction regarding the investments that he was

22

making on behalf, allegedly making on behalf of the

23

Sterling entities or partners?

24
25

A.
Q.

No.
You indicated before that you, at

140

1

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

2

looked in the newspaper after you got your statement

3

from Mr. Madoff and checked the prices at which his

4

trades, his trades had been effectuated.

5

recall telling me that?

6

A.

7
8

Q.

Do you

Yes.
Do you recall when you did that?

Over what periods of time you checked the prices?

9

A.

I don't have an exact recollection.

10

You mean how long after we got the statement or for

11

how long I continued to do that?

12
13

Q.

How long -- it was the latter one,

how long you continued to do that.

14

A.

15

too long.

16

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

17

wrong.

18
19
20

Q.

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

Is that the purpose for which you

were doing the checking?
A.

Just -- well, I think it had multi-

21

purpose.

One was just to learn more about the whole

22

procedure and work through it.

23

tried to do the strategy myself to see how I would

24

make out if I did it.

25

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

At some point I even

But the purpose was just to

141

1

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

2

didn't look right.

3
4
5
6

Q.

I take it nothing turned up that

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

That's correct.
Did you notice if Bernie was

7

consistently selling at the high or selling in the

8

middle or selling at the low?

9

A.

There was no consistency.

It was

10

within the range, whether it was high or low.

It

11

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

12

traded right at the top, bottom or an average in

13

between.

14

Q.

Did you ever look at, when you sold

15

the stock during a particular month, did you ever

16

look at how that stock traded across the whole month

17

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

18

highest price for the month?

19

A.

No, I don't remember doing that.

20

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

21

I

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

22
23
24
25

Q.
A.
Q.

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

not within the range, ever?

142

1
2

A.
Q.

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

3

range on a particular stock, would -- what would

4

your reaction have been?

5
6

MS. SESHENS:
Q.

7
8
9
10
11

What would you have done?
MS. SESHENS:

A.

Objection.

Objection.

I would have brought it to the

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

Would you have -- would it have been

12

within your range of authority, within the scope of

13

your authority if you'd notice such a discrepancy to

14

call Madoff directly and ask him about that?

15
16
17
18

MS. SESHENS:
A.

Same objection.

I wouldn't have done that without

speaking to the partner.
Q.

19

directly?

20

A.

You wouldn't have called Madoff

21

Q.

No.
Would you have called anyone at

22

Madoff's shop directly without speaking to the

23

partners for something like that?

24
25

A.
the partners.

I don't believe so.

I would speak to

144

1

A.

2

I really don't recollect exactly.

Q.

Did you check all of the trades for

3

all of the accounts at that, whatever time period

4

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

5
6

A.

accounts because everything was a mirror image.

7

Q.

8
9

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

Fair enough.

A.

In other words, he would buy seven --

if he bought seven securities, it would be seven

10

securities in each account.

11

account.

12

Q.

13

I wouldn't have done every other account.

A.

14

So I only had to do one

Q.

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

15

to replicate Madoff's strategy.

16

Tell me.

17
18

A.

What did you do?

Trying to recollect exactly what I

did.

19

I would take the stocks that he

20

purchased, and I believe what I did was to follow

21

the strategy.

22

testing what he did that he's giving us accurate

23

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

24

when I got the slips that said this is what he

25

bought, I would take that information and then try

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

145

1

to enact it on my own account.

2

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

3

take what to buy, but I would always be lagging

4

behind him.

5

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

6

say 15 percent.

7

made a profit.

8

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

9

that it worked for him.

10

Different

Just to get a general idea of how I

I did more like six percent.

I

I determined in my own mind that the

One of the major reasons was the

11

commission.

12

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

13

to pay if I did this on my own.

14

little or no commission, and that made a big

15

difference when you're dealing with, just looking to

16

try to make one percent a month, that made a

17

difference.

18

Q.

When I did the strategy I determined

Whereas he had

So your understanding was that the

19

difference between the -- I know you made these

20

numbers up, but your six percent return that you

21

were able to accomplish and his 14 or 16, whatever

22

you said, was primarily driven by the absence of

23

commission costs?

24
25

MS. SESHENS:
A.

Objection to the form.

That was one of --

249

1

Right?

Correct?

2
3
4
5
6
7
8
9
10

MS. SESHENS:
A.
Q.
A.
Q.
A.
Q.

Object to the form.

Yes.
You managed the accounts?
Yes.
You set up many of the accounts?
What does it mean, "set up"?
You did the paperwork to open the

accounts with Madoff?
A.

I had the paperwork prepared and

11

necessary signatures and submitted them to the

12

Madoff firm, yes.

13
14

Q.

of the accounts --

15
16
17

MR. LUCCHESI:
Q.

20
21
22
23
24
25

Well, strike that.

Did you purposely set up many of the

accounts as tenants in common?

18
19

Was it your understanding that many

MS. SESHENS:
A.
Q.

Objection.

Yes.
Do you understand what "tenants in

common" -A.
Q.
A.

Yes.
What is that?

What is that?

Tenants in common are an account of

more than one person, two or more, whereby there's

351

1

about year-end, this would be utilized for the

2

financial statements, so --

3

Q.

Right.

Maybe I didn't ask the

4

question very well.

5

a total.

6

mean, it seems you're actually calling out Madoff

7

separately from the other investments to show what's

8

in Madoff versus what's everywhere else.

9

was that the intent here?

10

I mean, you could have had just

You could have had a total, 123, but, I

A.

I mean,

It was just an itemization, not --

11

each -- each place.

12

miscellaneous, but just to show where all money was

13

invested.

14

Q.

There was a combination of

Was there a concern at any point that

15

your divestment -- your investments -- Because you

16

had, as you told me yesterday, some substantial

17

portion of your investments with Madoff.

18

mean yours personally.

19

Was there some concern that you weren't diversified

20

enough?

21

I don't

I mean the Sterling group.

Did anybody ever voice that?
A.

We certainly took cognizance of being

22

diversified, and the point would be brought up on

23

occasion, but everybody felt so very comfortable

24

with Madoff.

25

other than in a bull market where the returns in

The returns were generally better

352

1

Prudential might have been even higher than Madoff.

2

There was just total satisfaction and comfort with

3

having money invested with Madoff.

4

Q.

Who would -- If there was one

5

particular individual or more than one, who were the

6

person or persons that were within your group that

7

raised concerns about diversification or lack of

8

diversification of your investments?

9

A.

I don't know why I feel this question

10

was asked before, but, in any event, one I could

11

always point to would be David Katz, Saul Katz's

12

son.

13

Q.

14

these people.

15

background research.

16

today?

17
18

A.
Q.

Okay.

And how -- I don't know any of

I probably should have done more
But how old is David Katz

Today he is 46.
Okay.

So in the nineties,

19

mid-nineties he would have been -- would have been

20

in his early thirties.

21

get some range of ages here.

22

first raising the issue of diversification?

23
24
25

A.

When -- I'm just trying to
When do you recall him

Probably not as early as 1994.

More

into the 2000 and above.
Q.

Okay.

So what was the reaction --

353

1

First of all, what do you recall him saying other

2

than, We ought to diversify?

3

saying anything more than that?

4

A.

Do you recall him

It was just -- no warning about

5

Madoff or any uneasy feeling about Madoff.

6

just a good idea which nobody disagreed with, to

7

spread money to more than one place.

8
9
10
11

Q.

Okay.

It's

And then was that generally

agreed with, that we -- that you should spread the
money to more than one place?
A.

I think the point was made, and maybe

12

some heads were nodded.

13

anything like that, but everybody understood the

14

concept of diversifying and respected it and thought

15

it was the right thing.

16
17
18

Q.

There wasn't a vote or

What steps were taken, if any, to

diversify?
A.

At one point, Saul Katz decided that

19

we should -- diversification -- He wanted to

20

diversify, and his thought was a fund of funds would

21

be a good place to diversify funds.

22

conservative.

23

That's how Sterling Stamos was born.

24
25

Q.

Relatively

The returns were purportedly good.

Before Sterling Stamos was born, you

had discussions with IV Management?

358

1

A.

Just to have more information.

2

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

3

include the Mets.

4

separated.

5

Q.

Just we have the figures

Okay.

So was the decision to back

6

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

7

Mets.

8

out the Mets from the analysis?

9

-- or was there a business reason for backing

A.

No business reason.

The Mets numbers

10

were varied more than others.

When they needed

11

money, they withdrew money out of Madoff.

12

had extra money, certain times during the year,

13

generally, when season ticket holders purchased

14

their tickets, there would be large sums of money.

15

Towards the end of the season, the balances would be

16

smaller.

17

It was just to identify.

18

significant number.

When they

So they changed a lot more than others.

Okay.

The Mets certainly were a

19

Q.

So if I could kind of reword

20

what you said.

21

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

22

because of the variation in the Mets account, it

23

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

24

comparison from month to month or time period to

25

time period, not necessarily representative of what

Was it -- the Mets were backed

422

1
2

conversation, no, I don't know.
Q.

Do you know why American Securities

3

may have purchased insurance to cover its Madoff

4

investments?

5
6
7
8
9
10
11
12

A.
Q.

What did you do after learning of the

existence of this insurance or potential insurance?
A.

As I said, I did make some contact

and got details on what the insurance was about and
the cost of the insurance.
Q.

Okay.

And do you have a -- well,

strike that.

13
14

I don't know.

Who did you contact?
A.

I'm fairly certain I reported that,

15

when I made the contact, the gentleman's name, the

16

company he worked for and the other details of the

17

meeting.

18

met with some individual from an insurance company.

19
20
21
22

Q.

I believe it was Michael Katz and I both

Okay.

And did you have more than one

meeting with the insurance company person?
A.

I don't recollect if there was more.

Tend to think there was only one meeting.

23

Q.

24

meeting?

25

A.

And did you take notes at that

Yes.

I usually do and I assume I

429

1

Q.

I've handed you another handwritten

2

document we've marked as Exhibit 22.

3

appear to be your handwriting?

4

A.

5

Q.

6
7

A.

Yes, it is.
Do you recall taking those notes?
I don't actually recall taking them,

but there's no question that I took them.

8
9

Does that

Q.

Can you tell from, either because you

remember and know or because something in the

10

document shows you, the circumstances under which

11

you wrote these notes?

12

A.

I would say they were taken at the

13

time that I met with Mr. Duran or immediately

14

thereafter.

15

Q.

Okay.

Then what -- can you tell me,

16

the other notes that we looked at that were part of

17

Exhibit 20, when were those taken?

18
19

A.

Those were taken sometime shortly

after February 26.

20

Q.

Including the second page of Exhibit

21

20?

22

20 the notes that you took in order to write the

23

memo?

24
25

Let me ask this:

A.
Q.

Is the second page of Exhibit

Yes.
Okay, I didn't realize that.

Thank

430

1

you.

2
3
4
5
6
7

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

Either at or immediately thereafter.
Okay.

are in your handwriting?
A.

8

Q.

9

Yes, they are.

beginning part.

10
11
12
13

And all the notes on this page

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

what does that say?
A.
Q.
A.

That heading,

Bond, is it bond coverage?

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

I don't know why I would have

14

written bond.

15

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

16

write something.

17

written bond.

I can understand coverage, but...

18

Q.

Do you understand the beginning of

19
20
21
22
23
24
25

The fact that it's outside the

I don't know why I would have

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

Yes.
And this was based on the discussion

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

Yes.
And the first line says, "Fraud or

431

1

A.

2

Q.

3

And then in parens it says "Ponzi"?

A.

4
5

Correct.

Yes.

Q.

What was the conversation that

surrounded those notes?

6

A.

This, to some extent I'm guessing,

7

but that, he mentioned, I have some recollection of

8

him giving examples of what types of fraud, and

9

Ponzi was one of them.

10

quite sure how to spell Ponzi.

11

Q.

12
13

I see.

A.

I'm not sure how I wound up

ultimately, either.

14
15

You can see I wasn't even

Q.

It's hard to read.

Looks like you've got an E on the

end.

16

A.

I think so, too.

17

Q.

18

at that time?

19
20
21

A.

I don't think I did.

Q.

Was there any discussion of Madoff in

particular during the course of this meeting?

22
23

Did you know what a Ponzi scheme was

A.

No.

Q.

Did you discuss your investments with

24

Madoff?

Other than the fact that you had

25

investments.

Well, let me ask that.

Did you

433

1

SIPC, S-I-P-C, dash, only insolvency.

2

that refer to?

3
4
5

A.

What does

I'm only interpreting what I think it

means, is that SIPC only covers insolvency.
Q.

And then below that it says, "Limited

6

to 100 million," dash, and then in parentheses it

7

says 300,000.

8

to 20 million per account."

9

to, what was being discussed at that point?

10

A.

Then below that, "probably 10 million
What does that refer

The maximum amount of coverage that

11

would be available would be 100 million.

12

would be 300,000, and he probably indicated or I

13

summarized that the maximum coverage for any one

14

account would be somewhere between 10 and 20

15

million.

16

Q.

17
18
19
20
21
22

The cost

So, was this insurance ever

purchased?
A.
Q.

No.
Was any similar insurance ever

purchased?
A.
Q.

No.
By similar I mean other insurance to

23

cover investments made with Madoff against fraud or

24

infidelity.

25

A.

No.

434

1
2
3

Q.

What was the reason insurance was not

purchased?
A.

4

was very high.

5

Q.

We didn't see any need and the cost

6
7
8
9

A.

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

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

What type -- do they provide any

insurance -- what type of insurance does SKCG Group

10

provide to you?

11

A.

12
13
14
15
16

Provide property insurance for the

various properties that we own or manage.
Q.

That insurance wouldn't cover your

Madoff losses, correct?
A.
Q.

No.
Do you recall from time to time that

17

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

18

investment?

19
20
21

A.
Q.
A.

I recall one such time.
What do you recall?

Only one.

Tell me.

I recall that it was reported to us,

22

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

23

information, that he was offering a special return.

24

He felt that there was something he could do to

25

increase the normal return we were getting by up to,

484

1

A.

Well, as I indicated, perhaps it was

2

yesterday, I gave an example that David Katz was one

3

who preached more diversification and certainly he

4

would start, if he said we're putting too much on

5

Madoff, in Madoff, he would start by the doubling up

6

accounts.

7

felt we should diversify more and not keep anything

8

in one place, that is doubling up what you're

9

putting in.

10
11

Q.

That's putting even more.

So anybody who

It's a tremendous amount of risk, in

comparison to not doubling up?

12

A.

13

Q.

A tremendous amount of what?
Risk.

14

A.

15

if we felt risk.

16

comfortable with investing money with the Madoff

17

firm.

18

just an opportunity to increase the return on the

19

investment we made.

We didn't see, we didn't

20

understand any risk.

You could term that, by

21

hindsight you could put a lot of titles on that, but

22

that was a fact.

23

Sterling partners are people who would generally

24

take risks.

25

We didn't -- we wouldn't have done it
We didn't see risk.

We were very

We put more and more money in and this was

Q.

We were not -- none of the

So generally you would classify your,

485

1

or describe the Sterling partners' investment

2

strategy as risk adverse?

3
4

MS. SESHENS:
A.

Object to the form.

To some extent, yes.

The fact that

5

the strategy employed by Madoff used puts to protect

6

you on the downside, to that extent, yes.

7

didn't have any risk, you weren't at risk in the

8

stock market.

9

Q.

You

You mentioned yesterday, or maybe the

10

day before, Sterling Pathogenesis.

11

a -- was that also a double-up account or leveraged

12

account?

13

A.

I don't believe so.

That was also

I'm not

14

absolutely certain, but I don't think so.

15

have been.

16
17

Could

(Exhibit AF-28 marked for
identification.)

18

MR. LUCCHESI:

Dana, I think you'll

19

recognize your letter.

20

thought this was the easiest way to do this.

21

trying to make you a witness or anything.

22

MS. SESHENS:

23

Q.

Just so I don't have to -- I
Not

That is okay.

Exhibit 28 is a June 3rd, 2002 letter

24

from your counsel, Dana Seshens, to Baker &

25

Hostetler.

And attached to it is an Exhibit A,

487

1
2

page of the chart.
A.

Okay.

If it was levered, you know, I

3

didn't think so, but it's not a great surprise that

4

it was a levered or doubling-up account.

5
6

Q.

Okay.

All right.

Okay, that's all I

have for that right now.

7

Was the decision to do this

8

leveraging by borrowing money from a bank for

9

deposit into accounts at Madoff, was that the

10

subject of discussion among the partners prior to

11

doing it?

12

A.

13

Yes, it was.

Q.

Yes.

Did anyone, did any of the partners

14

disagree that this was an appropriate or a wise

15

investment strategy?

16
17
18
19

MS. SESHENS:
A.

Object to the form.

I don't recollect anybody

disagreeing.
Q.

Was there a separate discussion about

20

doubling-up accounts with respect to each time it

21

was done?

22

for Sterling 30, a separate discussion at the time

23

you did Sterling 10, et cetera?

24
25

A.

In other words, was there a discussion

The only discussion was we are

opening a Sterling 20.

If anybody wants to put any

488

1

money in Sterling 20, it's open now, we intend to go

2

ahead and close it on X date.

3

the only discussion because there was a voluntary

4

thing with all of those accounts, Sterling 20 and so

5

forth.

6

that any individual partner put in any money.

7

That virtually was

It wasn't mandatory that you put in any --

Q.

The money that went into the

8

double-up accounts, was there any restriction on

9

where that money, or limitation on where that money

10

could come from?

11

A.

There was an understood restriction

12

that you just couldn't borrow it from Sterling

13

Equities Funding to put it in leverage and put it

14

into Madoff.

That was understood.

15

Q.

16

Madoff account?

17

A.

18
19
20
21
22
23
24
25

Q.

Could you take it out of an existing

Yes.
Did anyone do that, to your

knowledge?
A.
Q.
A.

Yes.
Who did that?
I for one did it.

I think almost

every partner did it.
Q.

Okay.

So Madoff didn't impose any

restrictions on where the money could come from?

538

1

A.

There were meetings held with M & T

2

and anybody who had knowledge of all of the other

3

options and representatives from Sterling that knew

4

more about the Madoff option and answered any

5

questions at the same time.

6
7
8
9
10

Q.

Who were the representatives from

Sterling that met with the employees?
A.

I believe Michael Katz and myself

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

11

Q.

12

present?

13
14

A.
Q.

Was anyone from Madoff's office

No.
Whose idea was it to offer the

15

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

16

invest with Madoff?

17

A.

I think that was all of the partners.

18

Somebody advanced it and all of the partners

19

endorsed the idea, to give all of the employees an

20

opportunity, whereas generally they didn't have that

21

opportunity to invest in Madoff.

22

were in Madoff some 11 years, were extremely happy

23

with the returns.

24

anybody -- for retirement funds in particular to

25

grow tax deferred, good rate of return, the chance

We at that point

It seemed like an ideal place if

539

1

of loss was very, very small.

2

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

3

we were happy about being able to offer that

4

alternative to employees.

5

Q.

It just seemed like,

Did anyone from Sterling talk to

6

Madoff about this before you offered it to the

7

employees?

8
9

A.

No, I'm sure

they didn't or else I would have known.

10
11

Not that I know of.

Q.

So -- that answer, frankly, surprised

me.

12

If I understand you correctly, nobody

13

raised with Madoff in advance of creating this

14

401(k) investment option for your employees the fact

15

that perhaps there would be a new account being

16

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

17

account for employees, no one discussed that with

18

Madoff?

19
20
21
22
23
24
25

A.
Q.
A.
Q.

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

That was discussed.

Before you offered it to the

employees?
A.
Q.

Absolutely.
That's what I was asking.

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just a good idea which nobody
6 disagreed with, to

just a good idea, which nobody
disagreed with, to

Grammatical error

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Mets. -- or was there a business
7 reason for backing

Mets -- or was there a business reason
for backing

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Grammatical error

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