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 L

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.

SAUL B. KATZ

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 Friday,

20

January 13, 2012, commencing at

21
22
23
24
25

9:32 a.m.

PICARD v. KATZ, et al.

CONFIDENTIAL

SAUL B. KATZ 1/13/12
13

1
2
3

Could you tell me what you were
referring to by virtue of that testimony?
A.

I was referring to the fact

4

that there really was no company at that time, but

5

that Sterling itself oversaw its own liquidity.

6

it helped people who wanted to do the same thing we

7

did, put money into Bernie Madoff at that time.

8
9
10
11
12
13
14
15

Q.

Okay.

And

So when you're talking about

managing liquidity, you're talking about managing
liquidity in Bernie Madoff?
A.

No, managing liquidity in our office.

Q.

Right.

A.

We had a lot of money.

Q.

Right.

A.

And I looked at it as an area -- it

16

was an area that we managed the assets, we managed

17

real estate, we managed other assets.

18

at the, that sector, that silo of our company, it

19

was a lot of liquidity.

20

liquidity.

21
22

Q.

And looking

So we oversaw that

And how did Mr. Madoff interact, if

at all, with that liquidity?

23

A.

He was one of the people we sent the

24

money to.

25

other brokers.

We sent money to him.

We sent money to

I sent money to Mr. Rosenthal.
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But

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1

we had a lot of liquidity.

2

we had a lot of liquidity, so it was a silo of our

3

business.

4

Q.

We were very wealthy and

It says here, "We manage liquidity,

5

our own liquidity and other people's liquidity."

6

What did you mean by managing other people's

7

liquidity?

8
9

A.

It may have been an overstatement, in

the fact that we didn't manage other people's

10

liquidity but other people said, Saul, what are you

11

doing?

12

get in there?

13

there.

14
15

And said, we're in Bernie Madoff.

Can we

Q.

We invited them in, let them go in

A.

And did you -- I'm sorry.
As I recall, you know, that all went

16

through Arthur Friedman, who when friends or family

17

wanted to do that, we allowed them to talk to Arthur

18

and Arthur was able to oversee that, their sending

19

money to Bernie and Bernie sending money back when

20

they needed it.

21

Q.

Okay.

And would Arthur Friedman then

22

act as the person in between the other people and

23

Mr. Madoff?

24
25

A.
Q.

Yes.
Okay.

And the term "manage," what

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1

Q.

2

Yeah, I know.

Sorry about that.

(Comments off the record.)

3

Q.

Staying with Sterling Stamos and your

4

role there, I want to go back even before 2002.

5

your understanding, how did Sterling Stamos come

6

about?

7

A.

To

I worked with Peter Stamos from '95

8

on at the hospital.

9

hospital.

10

Q.

11

A.

12

He was a consultant at the

Um-hum.

hospital.

13
14
15
16
17
18
19
20
21
22

Q.
A.

His firm was a consultant at the

Right.
And so I worked side by side with him

and became personally friendly with him.
Q.
A.
Q.

Okay.
And that's how...
Well, did that friendship then evolve

into a business relationship?
A.
Q.
A.

Yes.
And how did that come about?
Peter sold his business in around

23

2000, in around 2000.

And he and his family took

24

their money, one of our friends, and invested it

25

with Bernie Madoff.
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1
2

Q.
A.

Um-hum.
And so he, for a couple of years, was

3

just looking around as to what to do and developing

4

an interest in investing.

5

used to tell us that -- me in particular -- he would

6

say, Dad, when you're gone, if I had all of our

7

liquidity in one place, what would you do?

8

him that you better be careful, I may strike you

9

with a lightning bolt.

And my son, who for years

I'd tell

He said, well then, why

10

don't we do something while you're here, so that I'm

11

prepared to handle the liquidity silo.

12
13

Q.
A.

Yup.
And so he and Peter were always

14

friendly, and they came up with the idea of starting

15

a fund of funds, and that fund of funds would manage

16

our money and eventually when Bernie Madoff was no

17

longer doing this business, it would be a

18

diversified kind of thing that we'd be able to

19

manage all of our liquidity.

20

Q.

Prior to 2002 -- let me use this time

21

frame, 1995 to 2002, when you were working with

22

Mr. Stamos at Long Island and up to 2002, using that

23

time frame.

24

your investments with Bernie Madoff?

25

A.

Did you ever discuss with Mr. Stamos

Yes, we did.
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1

Q.

And do you remember what those

2

discussions were?

3

A.

I told him what Bernie was doing and

4

when he finally had enough liquidity to do

5

something, he put it into Bernie.

6
7
8
9

Q.

Okay.

And when did that happen, that

he put it into Bernie?
A.

I don't know exactly but I know he

sold his company, Stamos Associates, Inc., around

10

2000 maybe, maybe '99.

11

sold it, but when he had that liquidity.

12

Q.

Right.

I don't know exactly when he

When you were discussing

13

Mr. Madoff, prior to Mr. Stamos' investment in

14

Madoff, did you discuss with him what Madoff's

15

strategy was?

16

A.

17

strategy was.

18

Q.

I told him what I thought his

19

A.

And what did you tell him?
I told him that we were pretty secure

20

in the fact that we weren't really at risk in the

21

market -- or not at risk, but certainly mitigated

22

risk by virtue of the fact that Bernie would buy

23

stocks long and collar them by buying puts and

24

selling calls.

25

your downside was protected.

So your upside was restricted and

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1

Q.

Did you have any discussion about

2

that strategy with Mr. Stamos besides just

3

describing it to him?

4
5
6
7
8
9
10
11
12
13
14

A.
Q.

No.
Did he at any time question that

strategy with you?
A.
Q.

Not that I recall.
Okay.

let me ask you this:

Did he ever bring up -- well,
Was part of your discussion

ever the consistency of Mr. Madoff's returns?
A.

It was more the liquidity of it,

which was really important to us.
Q.
A.

Um-hum.
Because of our other businesses, our

15

other silos, when we needed money, we wanted to get

16

it back.

17

money, but they had more volatility and when you

18

needed the money, it was always there, and so when

19

Peter was selling his business, he needed the

20

income, it was a steady thing, as opposed to the up

21

and down.

22
23
24
25

Q.

So, other managers may have made more

So, that's what we talked about.
Just so we're clear here, when you

talk about liquidity, what do you mean by that?
A.

When you needed money -- if you

invested in Jim Simons in Renaissance, who made us
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1

substantially more money than Bernie Madoff over the

2

years, period, you're locked in.

3

in and you're -- if you need the money to buy a

4

building --

5

Q.

You put your money

Right.

6

A.

7

send me a check.

8
9
10
11
12
13

Q.
A.

-- you can't call Jim Simon and say,

Um-hum.
Where with Bernie Madoff, in a short

period of time you could get your money back.
Q.

You also used the term "volatility."

What did you mean by that?
A.

Well, John Pauling, hedge fund

14

manager, may have made 300 percent two years ago and

15

last year lost 40 percent.

16
17
18
19
20

Q.
A.
Q.

Right.
That's volatility.
And what was your understanding of

Mr. Madoff's volatility?
A.

It was restricted in the fact that he

21

had restricted the upside by selling the calls and

22

protected the downside by buying puts.

23

Q.

Did you ever discuss what you've just

24

described for us with Mr. Madoff -- let me explain

25

what I mean by that.

That's a bad question.

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1

First of all, again, do you have any recollection of

2

this meeting?

3

A.

No.

I don't even understand it,

4

because it says 12:30 lunch, starts at 4:30 and ends

5

at 5:00.

6

Q.

Yeah, that's one of the beauties of

7

Microsoft, it does things like that.

8

do you recall -- just specifically, did you have a

9

luncheon on that date?

10
11

A.
Q.

In any event,

No.
Using October of 2002 reference, do

12

you have any recollection of anything occurring at

13

that point in time that would have caused you to

14

have a meeting with Mr. Madoff?

15
16

A.
Q.

Not that I can think of.
Okay.

Let me just ask this:

When

17

did Sterling Stamos become, you know, a reality,

18

actually get formed?

19
20

A.
Q.

I think officially July of 2002.
Okay.

Did you have any -- at or

21

around that time, the formation of Sterling Stamos,

22

did you have any conversations, you personally, with

23

Mr. Madoff about Sterling Stamos?

24
25

A.
Q.

Yes, we did.
Okay.

Could you tell me what those

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1

conversations were.

2

A.

Just we told Peter that -- told

3

Bernie that Peter, who Bernie knew, that we were

4

starting this new company with Peter.

5

Q.

And what was your purpose in telling

6

Mr. Madoff that?

7

A.

Well, he managed some of our monies

8

and I wanted him to understand that we're just not

9

going to continue to just send money over.

10

It actually started before that,

11

sometime before that, I don't know if it was a year

12

or 18 months before that, when one of our meetings

13

with Bernie Madoff, Fred and I had, we said to him

14

when -- because Bernie is our age.

15

and I are 2-1/2 years apart and he's right in

16

between.

17

when you're not doing this, who's going to be doing

18

it?

19

said, the kids know nothing about the business.

20

This is my thing, they do their thing.

21

doing it any longer, I'll send you a check, you give

22

it to U.S. Trust and they'll run your money.

You know, Fred

And I said -- we said to Bernie, you know,

Are the kids knowing any -- they run it?

23

He

When I'm not

And I said to Fred on the elevator on

24

the way down, no way am I turning our money over to

25

U.S. Trust.

We've got to do something about it.
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1
2

Q.
A.

Okay.
And so that was the impetus to move

3

forward with Sterling Stamos.

4

that we were going to be doing something based upon

5

him not being able to continue his business.

6

Q.

So, he already knew

At that meeting where you just

7

described Mr. Madoff talked about his retiring at

8

one point and giving you the money back, did you

9

tell him at that meeting that you were going to

10
11
12
13
14
15
16
17
18

start your own alternative fund?
A.
Q.

No.
When do you recall first telling

Mr. Madoff you were going to do that?
A.
Q.

I don't recall.
Did you ever seek Mr. Madoff's advice

in creating this fund?
A.
Q.

No, we didn't.
Did you talk to him about strategies

19

that you might use at the fund as opposed to his

20

strategy?

21

A.

22
23
24
25

Q.

No, we didn't.
Did you talk to him about the fact

that you might use his strategy at your new fund?
A.
Q.

That wouldn't be diversifying.
Okay.

Why no way U.S. Trust?

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1

A.

It was just a concept.

2

Trust.

3

school, managing money.

4

It's not U.S.

our own destiny.

5

It's just some young kid coming out of

Q.

We want to be in control of

And was the fact that you were

6

utilizing Mr. Madoff in connection with liquidity

7

issues for the Sterling silos, was that part of your

8

thinking?

9

A.

10

question.

11

Q.

I'm not sure I understand that

In other words, when you say no way

12

U.S. Trust, was it also a concern that you were

13

using Mr. Madoff with regard to the liquidity of the

14

Sterling silos and you needed someone to be an

15

alternative to him if he weren't around to handle

16

those issues?

17

MR. WISE:

18

You can answer.

19

A.

Objection to the form.

I still don't understand it.

20

understand the question.

21

I don't

getting to.

22
23

Q.
A.

24

Q.

25

I don't know what you're

Let me break it down if I can.
Yeah, please.
No, no.

This is good.

tell me that.
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1

In other words, your earlier

2

testimony I think was, and if I get this wrong,

3

correct that too, was that there are Sterling silos

4

that you have and those Sterling silos each may have

5

some liquidity and when they did, they may, and

6

often did, use Madoff to manage that liquidity.

7

A.

8
9

Q.

Right.
Okay.

And what I'm asking you is, is

was that fact, the fact that Madoff managed

10

liquidity, also part of the reason you were looking

11

to -- for an alternative to Madoff in the event he

12

were to stop doing business?

13

A.

No.

Let me make it clear.

I can't

14

answer your question, I'm sorry, because I'm not

15

sure where -- what the question is.

16

Q.

17
18

A.

Okay.
So let me just try it and then we'll

put ourselves together.

19

Q.

20

A.

All right.

Go ahead.

He managed the liquidity.

When he

21

said he was no longer going to do it and turn it

22

over to U.S. Trust, already in the back of our mind,

23

we've been -- my son, I said to you, has been

24

pushing us to not have all the money in the same

25

place.
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1

I don't -- in our mind, we did not

2

want an investment banking house managing our money

3

without someone we picked organize, and so when we

4

talked about starting Sterling Stamos, Sterling

5

Stamos eventually would have managed all of our

6

liquidity, including the short-term liquidity

7

because they have short-term funds, which would have

8

solved the short-term liquidity issue for some of

9

those silos that needed the money back and forth.

10

So they would have had short term,

11

long term, mid term, something that someone managing

12

and designing for us, for our needs, sitting across

13

the table from us, saying what do you need, they

14

understanding the markets, would invest our money,

15

the Peter Stamos kind of thing.

16

wanted, as opposed to some corporate thing.

17
18

Q.

That's what we

Let me go back to what I asked you a

moment ago, and that is this:

19

The fact -- I'll try to ask this in a

20

way -- let me just say it out loud and then we'll

21

see how it works, okay?

22

You were using Mr. Madoff, as you

23

say, to manage liquidity for some of the Sterling

24

silos, right?

25

A.

No?
No.

What I said is that there are
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1

certain of the silos, if it had monies sitting

2

around, let's take the Mets for a second.

3

Q.

4

Sure.

A.

5

The Mets are an easy one.

Q.

6

Yup.

A.

They get a sum of money the beginning

7

of the season, and we need it during the year.

8

it all goes during the year.

9

of it goes.

10

In fact, more than all

That's one of the problems.

Q.

11

And

A.

Yeah, exactly.
But it's sitting in lumps.

So we

12

would send the money to Bernie and he'd send us back

13

the money as we needed it monthly or quarterly.

14

we'd earn a little bit of money, a little bit more

15

money on that.

16

that balances that kind of thing.

17
18

Q.

And

But that's a liquidity kind of thing

If Madoff went out of business, how

would you replicate that?

19

A.

Sterling Stamos would be able to have

20

a fund of short-term investments, and it would --

21

whether it bought 30-day paper -- it would figure

22

its own way -- we'd need someone to help figure that

23

out.

24
25

Q.
A.

All right.
We couldn't do it, we'd need
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1

A.

I think it's a reach, because, you

2

know, describing hedge funds, we have a real estate

3

fund.

4

and V.

5

look at that as a hedge fund or alternative

6

investment.

Actually, five of them.

SAP I, II, III, IV

And we get the same fees -- and people would

7

So we're partners in our own real

8

estate fund.

We're partners in the LBO fund.

And

9

so, would we be experts in investing in hedge funds?

10

We've done very well with them.

11

reach, because someone may think of a hedge fund as

12

something different than I think of it as.

13

Q.

But this may be a

Do you think of Mr. -- when

14

Mr. Madoff was in business, did you view him as a

15

hedge fund?

16

A.

17

Q.

18

business to be?

19

A.

Absolutely not.
What did you view Mr. Madoff's

A relationship between myself and

20

Merrill Lynch or my relationship between me and a

21

broker-dealer, a regulated broker-dealer.

22
23
24
25

Q.

Okay.

Did you see him as anything

beyond being a broker-dealer?
A.

Absolutely not.

thought he had other businesses.

Well, I'm sorry, I
I thought his sons

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1

ran a proprietary business.

2

Q.

3

Right.

A.

Trading for his monies.

And I

4

thought that he had a market business, market-making

5

business where he bought volume and traded for other

6

people in the market-making business on the

7

Cincinnati Exchange.

8

far as my relationship with him, or our relationship

9

with him, it was strictly broker/dealer.

10

Q.

Okay.

That's what I thought.

Okay.

But as

You used the term -- I

11

want to go back for a minute to LBO fund as a hedge

12

fund.

13

that statement.

14

hedge fund?

15
16
17
18

Just if you can explain to me your basis for

A.

Why would you call an LBO fund a

Because I think of a hedge fund is a

fund that raises money in a partnership form.
Q.
A.

Um-hum.
And buys and trades different assets.

19

It could be stocks, it could be commodities, it

20

could be businesses, it could be real estate.

21

that group of people in that partnership, the

22

general partners get a fee.

23

they get a manage -- they manage.

24

management fee and a promote for doing well for that

25

partnership.

And

They get a promote,
They get a

That's, to me, what a hedge fund is.
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diligence that was done with regard to the fund?

2

A.

3

Q.

No, sir.
All right.

Dropping down to the

4

next-to-last item, it says, "risk management."

5

you see that?

6

A.

7
8

Q.

Do

Yes.
Did you ever have any discussions

with Mr. Stamos about risk management?

9

A.

10

Q.

In regard to?
Just generally, I'm sorry.

Apart

11

from the document itself even, did you ever have a

12

discussion with Mr. Stamos about risk management?

13

A.

14

Q.

Yes.
And what were those discussions?

15

A.

That we are very conservative and we

16

want little risk.

We want to do things in a way

17

where we're not looking to hit home runs.

18

looking to manage the risk.

19

managing money for us, he should take that in mind

20

because we're not interested in hitting any home

21

runs.

Q.

Okay.

And what did the term "risk"

mean to you?

24
25

And that when he's

So, risk is very important.

22
23

We're

A.

Risk means that you can lose your

money.
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Sterling Stamos.

2

Okay, here you go.

3

Q.

Do you know whether or not Sterling

4

Stamos on a regular basis compared its performance

5

to the Madoff return performance?

6

A.

7
8

Q.

Are you asking if they did that?
Yeah.

If Sterling Stamos on a

regular basis compared its performance to Madoff?

9

A.

10

Q.

I don't know.
Okay.

Do you ever remember having

11

any conversations with Peter Stamos about Madoff's

12

returns?

13

A.

14
15

Q.

And can you, just to start, tell us

what you recall of those conversations.

16
17

Yes.

A.

Just that Bernie's done a great job

and continues to do a good job, and he's brilliant.

18

Q.

Okay.

Did you ever have a discussion

19

specifically about the returns at any period in

20

time?

For example, you mentioned earlier today

21

1987.

I realize that's before you were with

22

Mr. Stamos, but using that as a reference point, do

23

you ever recall talking to Mr. Stamos about Bernie's

24

performance at a specific point in time?

25

A.

No.

Only that his performance has
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2

always been just like his reputation, superlative.
Q.

Was -- did you have any conversation

3

with Mr. Stamos about the consistency of those

4

returns that Mr. Madoff would have?

5
6
7

A.
Q.
A.

Yes.
And what was that information?
The fact that we were giving up the

8

opportunity to invest in longer-term things that

9

might have more volatility, higher returns, but that

10

the steadiness and the focus of Mr. Madoff has

11

proven -- the steadiness is really what we need.

12

Q.

Did Mr. Stamos ever indicate to you

13

that the, that the consistency of those returns may

14

have indicated that something was not quite right at

15

Mr. Madoff?

16
17
18

A.

He's never, never indicated anything

negative about Mr. Madoff.
Q.

Okay.

Do you recall ever putting

19

pressure on Mr. Stamos to achieve returns like

20

Mr. Madoff?

21
22
23
24
25

A.
Q.
A.
Q.

Have you ever met Mr. Stamos?
No, I have not, actually.
He's very competitive.
Okay.

So you didn't have to do that,

is that what you're saying?
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2
3
4
5
6

Q.
A.
Q.
A.

At any point in time?
Not his securities.
Well, your -His strategy, maybe.

Not his

securities.
Q.

Maybe you can -- I'm not quite

7

understanding your answer.

8

strategies?

9

A.

10

What do you mean his

long securities.

11
12
13
14
15
16
17
18
19

Q.
A.
Q.

The securities he had were beautiful

Right.
That would have passed.
I'm sorry, I was using Madoff

Securities as sort of the entity.
A.
Q.
A.
Q.

I'm sorry.
I apologize.

That was my fault.

And I saw the securities themselves.
No, no, that's a good point.

Everyone hears it a different way.

20

What I meant -- let me rephrase the

21

question -- is that whether or not Mr. Stamos ever

22

said to you, Peter Stamos that is, at any point in

23

time, that the -- BLMIS, you know, Mr. Madoff's

24

company, would not have passed Sterling Stamos' due

25

diligence requirements?
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A.

Peter Stamos didn't even look at it,

2

to try to pass it.

3

was over the years, he knew what was done by

4

Mr. Madoff and knew that it couldn't pass their due

5

diligence and was more of a black box kind of

6

investment than would be accepted into Sterling

7

Stamos.

8
9
10

Q.
different.

13

My question was just a little
And that is whether or not Mr. Stamos

ever said to you --

11
12

Because as an investor, as he

A.

That's what I'm telling you, he

didn't.
Q.

Okay, fine.

14

A.

15

knew it was so --

16
17
18

Q.
A.
Q.

I'm telling you without saying it, we

Okay.
-- but he didn't say it.
But is it your testimony he never

19

said that to you?

20

A.

21

Q.

22

That's my testi -- not that I recall.
Okay.

All right.

Does the term "front-running" mean

23

anything to you?

24

A.

25

Q.

Yes.
What do you understand front-running
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of paper.
Q.

All right.

I believe I asked you

3

this before but to put it in context, do you know

4

who Noreen Harrington is?

5
6
7
8
9
10

A.
Q.

I know who she is, yes.
And could you tell me your

understanding of who she is?
A.

Well, she was one of the early

employees at Sterling Stamos.
Q.

When you say "early," could you give

11

us a time frame?

12

A.

One of the -- in fact, we just went

13

through the papers and I noticed her name in the

14

partnership agreement.

15
16

Q.
A.

Right.
So I don't think she was there July

17

1st, but obviously when the partnership was done,

18

she seems to have been there.

19
20
21
22
23
24
25

Q.

All right.

Did you ever meet with

Noreen Harrington?
A.
Q.

Yes.
And did you ever discuss with her any

potential investments of Sterling Stamos?
A.
Q.

No, sir.
Okay.

Not that I recall.

Let me be specific.

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ever recall discussing with her a potential

2

investment by Sterling Stamos in a fund run by

3

Mr. Merkin?

4
5

A.
Q.

No, sir.
To be even more specific, do you ever

6

recall discussing with her a potential investment by

7

Sterling Stamos into a fund called Ascot?

8
9
10

A.
Q.

13
14

Do you ever -- do you recall her at

any time saying to you that -- let me withdraw that.

11
12

Do not remember it, sir.

Do you recall at any time talking to
her about the transparency of Mr. Merkin's funds?
A.
Q.

No, sir.
Okay.

Do you ever recall Ms.

15

Harrington saying to you that Sterling Stamos should

16

not invest in the Merkin funds?

17
18

A.
Q.

No, sir.
Okay.

Do you recall Ms. Harrington

19

ever saying to you that Merkin was feeding the money

20

through to Madoff?

21
22

A.
Q.

I do not recall ever hearing that.
Okay.

Do you ever recall Ms.

23

Harrington saying to you that Mr. Madoff's results

24

were too good to be true?

25

A.

I never remember -- I never recall
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her saying that.

2

Q.

Okay.

One last Noreen Harrington

3

question:

4

in which she expressed the opinion that Madoff's

5

returns might be a fiction?

6

A.

7
8

Do you ever recall conversation with her

Q.

I never heard her say that.
Okay.

Do you have any knowledge of

Ms. Harrington's departure from Sterling Stamos?

9

A.

10

Q.

Yes, sir.

11

And what is that knowledge?

A.

That she was one angry lady,

12

disruptive in the office and, as I recall, when she

13

left we found out she was even some sort of a

14

whistle-blower and didn't have good relationships

15

wherever she was.

16
17

Q.

When you said she was an angry lady,

did you have a personal experience with her?

18

A.

She just looked angry and she was...

19

she left very quickly and she and Peter didn't get

20

along.

21

younger people.

22

Q.

She was disrupting the office with the

Is that your complete understanding

23

of why she left?

24

A.

25

Q.

That's what I think happened, yes.
Okay, fine.

Do you know Kevin

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questions about.

2

document.

3

A.

4

But feel free to look at the

Second page?

Q.

Yeah.

I should, for purposes of the

5

record, also identify the fact that what's attached

6

to this email is a copy of the Bayou complaint

7

against Sterling Stamos Security Fund LP.

8

a look at that.

9

A.

10

Q.

But take

Yes, sir.
Okay.

As I said, I'm directing your

11

attention to the email from Steven Kenny to Mark

12

Peskin on page 2.

13

A.

14
15
16

Q.

Do you see that?

Yes.
Okay.

First of all, who's Mr. Kenny,

if you know?
A.

17

America.

18

Q.

Yes, he's an executive at the Bank of

19
20
21
22
23
24
25

And what is his relationship, if any,

to Sterling Equities?
A.
Q.
A.
Q.

He's one of our lenders.
Okay.

Have you met with Mr. Kenny?

Numerous times.
Okay.

And what is the professional

relationship that you have with Mr. Kenny?
A.

He's one of our bankers.
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Q.

Okay.

So just so I understand that,

2

that's someone to whom you would look to for

3

financing?

4

A.

5
6

Q.

Okay.

And would you provide him with

collateral?

7

A.

8
9

Yes.

Q.

Yes.
And what would that collateral

consist of?

10

A.

The Mets, our network, real estate,

11

our SAP loan -- our SAP investments.

12

one.

13
14
15
16
17
18
19
20
21
22
23

Q.

Madoff was

Tell me which one was Madoff.

Or

tell me about the Madoff investment.
A.

The Madoff investments is he would

take his security for loans.
Q.
A.
Q.

And who would the loans be to?
Whoever owned the Madoff account.
Okay.

Is this -- are you referring

to something we've talked about here as double-ups?
A.

In some cases.

In some cases it was

different, but the answer is yes.
Q.

Okay.

Just directing your attention

24

now to this email, it reads, "Mark" -- we should, I

25

don't know if we clarified this.

Who is Mark

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he was not one of the investment options?

2

A.

3
4
5
6

Q.

I do not know why.
Did you ever talk to Mr. Labita about

that?
A.
Q.

Not that I recall.
Do you recall Mr. Labita ever saying

7

to you that they could not get -- that is, he could

8

not get, I should say, enough information to provide

9

adequate information on Madoff to plan participants?

10
11
12
13

A.
Q.
A.
Q.

14

I do not recall that.
Okay.
Are we through with this?
Yes, sir.

Thank you.

(Exhibit Trustee 357, JPMorgan

15

Analysis of Katz account, Bates SE_T954094-118,

16

marked for identification.)

17
18
19

Q.

Mr. Katz, I show you what has been

marked as Trustee Exhibit 357.
A.

20

Q.

21

Yes, sir.

this document?

22

A.

For identification.

Can you identify

Only that it says what it says on the

23

top, that it's an analysis of Bernie Madoff's

24

investments for one of my accounts.

25

Q.

Okay.

Do you recall this analysis

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2
3
4
5
6
7

being done?
A.
Q.

Not really.

No, sir.

Do you have any recollection of why

it was done?
A.

I don't have a recollection, but on

page 19 it's quite evident why it was done.
Q.

8

A.

And what are you referring to,

Mr. Katz?

9

Okay.

10

some business.

11

Q.

It looks like Morgan was looking for

12

A.

Okay.
And they wanted to complement this

13

investment strategy that I have and they wanted to

14

participate in some way.

15
16
17

Q.

Were you looking at JPMorgan as an

alternative investment?
A.

I don't recall if we were, but I know

18

all of our banks want to manage our money for us.

19

And some do today.

20

manage some money for us.

21
22
23
24
25

Q.

Morgan still does today, they

I'm going to ask you to look back at

page 4 of this exhibit, if you would.
A.
Q.

Certainly.

Yes, sir.

Down at the bottom it has a

disclaimer, but what it does say is, and I'm reading
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observations?
A.
Q.

No, I don't recall.
Do you recall any -- particularly

4

with regard to any discussion of expected volatility

5

changes over time?

6
7

A.
Q.

No.
Do you recall anyone ever suggesting

8

to you that given Mr. Madoff's strategy, you should

9

expect volatility changes?

10
11

A.
Q.

I don't recall that.
Okay.

All right.

I want to go to a

12

different topic and this one is going to be SEC

13

investigations, okay, of Mr. Madoff.

14
15
16

A.

SEC investigations.

Okay, through

with this.
Q.

First of all, do you have any

17

recollection of any SEC investigations of

18

Mr. Madoff?

19

A.

20

heard secondhand.

21

Q.

Only what I've seen in the papers or

When you say -- let's do first what

22

you'd seen in the papers.

23

his confession?

24

A.

25

Q.

Was that before or after

Before.
Okay.

And what did you see in the

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papers before his confession?

2

A.

That there was an issue with some

3

accountants in Florida who were running some sort of

4

a fund that the SEC wasn't happy with.

5

came in and they investigated, as I recall, closed

6

up the fund and required Madoff, who appears to have

7

been managing that fund, to send back all the money

8

to those people.

9

Q.

10

And they

A.

Um-hum.
And as I recall, Ike Sorkin, who was

11

a friend of ours, through the law firm that he had

12

been with before, Howard Squadron's firm, was

13

representing, as I recall, he was representing

14

Bernie, and said that the SEC closed one, no problem

15

with Bernie after their -- whatever their

16

investigation was, and Bernie quickly sent back the

17

money to the fund and it was redistributed to the

18

people.

19

people tried to get right back into Bernie directly,

20

as opposed to through the accounting firm.

21

And as Ike had told me, that most of those

Q.

Other than the SEC investigation you

22

just described for us, are you aware of any other

23

SEC investigations of Mr. Madoff?

24
25

A.

Not before this whole thing broke,

when I read in the papers that there were five or
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what impact the registration of Sterling Stamos may

2

have had on your relationship, meaning Sterling

3

Equities' relationship with BLMIS?

4

And your answer was "yes."

5

A.

6
7

Yes or no?"

Q.

Yes.
Okay.

My question is:

Did you ever

discuss that issue with Mr. Madoff?

8

A.

9

Q.

I might have.
Okay.

Do you have any recollection

10

of a conversation with him about -- about that

11

topic?

12

A.

As I recall, in talking to him about

13

it -- I did talk to him about it I think, as I

14

recall, and I think he described to me what it

15

includes and how the complex life we live would be

16

totally exposed, all our privacy will be exposed,

17

and we're -- until this happened, we were a very

18

private firm, and our life was -- in fact, nobody

19

knew for 33 years that I was an owner of the Mets

20

until this happened.

21

liked to live in.

22

to us.

23

about.

24
25

Which is the privacy that we

And so privacy is very important

So, privacy was something that we talked

We talked about the kind of
administrative problems that have to be filled out,
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the kind of things you have to do.

2

there were so many things that had to get done if

3

you became a registered investment adviser.

4

And it was --

And in addition to that, I remember

5

talking about, right now we have separated ourselves

6

from the investment part of the business, as opposed

7

to the ownership.

8

at Goldman Sachs, I'm not in investment, but I'm an

9

owner of the business, that's the way we wanted to

I mean, if I were a stockholder

10

keep ourselves.

11

adviser, another issue would be blunting the line

12

between owner and registered investment.

13

a liability issue of managing people's money without

14

the ability to do so.

15

By becoming a registered investment

So it had

So, all those things were not only

16

discussed with Bernie, but were discussed by

17

ourselves.

18

Q.

As a result of those discussions, did

19

your role at Sterling Stamos change as a result of

20

it becoming a registered investment adviser?

21

A.

No.

No, it was always the same.

It

22

was just we were afraid of that line getting blunted

23

by doing that.

24

investments.

25

shareholders on the operations of the business.

We never had any involvement in the
We wanted to make sure we were

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3

Just, could you expand upon that,
what you mean by administrative problems?
A.

Yeah.

Reporting, as was described to

4

us, what kind of reports and information have to be

5

disclosed.

6

company, with a lot of different businesses, a lot

7

of different everything.

8

disaster, it still remains, some of it, private.

9

But with being an investment, registered investment

10

adviser, I've been led to believe that it all has to

11

be reported, cross back and forth.

12

Q.

And as I said, we're a very complex

To date, even during this

Did you ever have a conversation with

13

Peter Stamos where he said to you that kind of

14

disclosure isn't required?

15
16

A.
Q.

Not that I recall.
Okay.

And then the last one is --

17

I'm again reading your testimony, it's near the end,

18

it says -- I'm going to read a couple of sentences.

19

"By becoming a registered investment

20

adviser, another issue would be blunting the line

21

between owner and registered investment.

22

liability issue of managing other people's money

23

without the ability to do so."

24
25

So had a

And my focus is on that answer, that
is, "so had a liability issue of managing people's
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money without the ability to do so."

2

me what you meant by that?

3

A.

Yes.

Could you tell

I think I tried to describe the

4

fact that there was a line between the ownership of

5

the company and the business of managing the money.

6

And me, nor any of my partners, are equipped to do

7

the kind of stuff that Sterling Stamos does in

8

managing the money.

9

that if we became registered investment advisers,

And so that line, I was afraid

10

that line would be blunted.

11

what we were doing, it's just all of a sudden we may

12

be putting ourselves out as a registered investment

13

adviser.

14

than you do.

15

Q.

Nothing changed from

It certainly sounds like you know more

Just so I understand, was it your

16

concern that you weren't qualified as a registered

17

investment adviser?

18

A.

Totally not qualified.

Sorry.

I

19

don't know what the qualifications are of a

20

registered investment adviser, but the perception

21

would be that as a registered investment adviser,

22

you certainly are an experienced investment adviser.

23
24
25

Q.

Okay.

But nonetheless, you still

registered; isn't that true?
A.

Who is "we"?
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Q.

2

A.

3
4

Q.

Sterling Stamos.
Sterling Stamos did, yes.
Aren't you a partner in Sterling

Stamos?

5

A.

I'm not sure I'm a partner of

6

Sterling Stamos or the management company.

7

over.

8

know that we, at Sterling Equities, are not

9

registered investment advisers.

I cross

I'm not sure what the distinction is, but I

I don't know how

10

the technical works, the technicality works on that,

11

as to whether we just own stock in the ownership,

12

but -- and I'm not sure who's the registered

13

investment adviser, whether it's just the management

14

company or the company that owns the management

15

company.

16

Q.

17

of?

18

A.

19
20
21

Which company are you on the board

Q.

I can't tell you.
Okay.

I'm sure the record will tell

us.
Did you ever discuss with Mr. Madoff

22

whether Sterling Stamos' potential registration as a

23

registered investment adviser would require

24

disclosure of either your or Sterling Equities'

25

investments with BLMIS?
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877.404.2193

PICARD v. KATZ, et al.

CONFIDENTIAL

SAUL B. KATZ 1/13/12
268

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A.

We discussed the fact that all of our

investments would be disclosed.
Q.
A.
Q.
A.

Including those?
Including those.
Okay.

I'm done.

You want to check before you...
MR. SHEEHAN:

No, we're done.

Thank

you very much, Mr. Katz.
THE VIDEOGRAPHER:

Going off the

record, the time is 5:45.
(Deposition concluded.)
-o0o-

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877.404.2193