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 N

1

1

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

2

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

3
4
5

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

Videotaped

6
Plaintiff-Applicant,
7
8

v.

10

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

11

BERNARD L. MADOFF,

12

Rule 2004
Examination of:

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

9

SAUL B. KATZ

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 Wednesday,

20

August 4, 2010, commencing at 10:04 a.m.

21
22
23
24
25

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

13

1

it's really been a focus of my life.

2

Q.

3

15 years?

4

A.

You've been chairman of the board for

5

been chairman.

6

Q.

7
8
9
10
11
12

No, no.

Of the 15, nine years I've

But been very, very active.
Is that a paid position or is that

a -A.

No, no, it's not a paid position.

fact, it cost a lot of money.
Q.
A.
Q.

I would think so.
Costs a lot of money.
Is that in the role, working for

13

North Shore Long Island Jewish Health System, is

14

that where you met Peter Stamos?

15
16
17

A.
Q.
A.

Yes.
Was he also on the board?
No, no.

Peter was a consultant.

18

Peter was a health -- you know, he's got his

19

doctorate, Peter got his doctorate in economics

20

from -- he's a Rhodes Scholar, in Oxford.

21

actually wrote NAPTA (phonetic), he was the only

22

chief of staff of a US senator.

23

chief of staff.

24

was no longer chairman the first time; retained a

25

wonderful relationship.

He

He was Bradley's

He had left the hospital after I

And so that's how the

In

14

1
2
3

relationship came.
Q.

What, if you can tell me, what year

did you first meet Peter Stamos; do you know?

4

A.

Yeah.

I can give you a range.

I

5

can't tell you exactly when, but it was somewhere

6

around '95.

7

Q.

15 years ago.
Just going back to your work, I think

8

you said there were some points in time when a large

9

percentage, I think you said 90 percent of your time

10

might have been spent with the hospital health

11

system.

12
13
14
15

A.
Q.

Yes.
What years would you have been that

involved in the hospital activities?
A.

In '98 to 2004, and then maybe 50

16

percent in 2006 to 2010.

17

maybe 25 percent.

18
19
20
21
22
23
24
25

Q.
A.
Q.
A.
Q.

And the in-between piece,

Before 1998 -No.
No, I understood you.
I'm sorry, okay.
Before 1998, how much time did you

spend outside of the -A.
Q.

20.

20 or 25 percent.

So before 1998 you were --

22

1
2
3
4

A.
Q.

Yes.
Did you have -- what does that mean,

to invest in assets?
A.

Does that mean that --

Finding other properties, or if not

5

properties, they're businesses.

To -- our concept

6

has been to diversify.

7

of the real estate business since 1980.

8

successful in 1980 in the real estate business, we

9

want to be successful in other things to diversify.

We've been diversifying out
If we were

10

And so my responsibility is to find new things to

11

diversify into.

12

Q.

Okay.

Then when you told me before

13

that you were responsible for investing money on

14

behalf of the business or investing on behalf of the

15

business, that's what you were referring to?

16
17

A.
Q.

That's exactly what I'm referring to.
Who is responsible for investing the

18

partners' money or the Sterling entity's money into

19

securities?

20
21
22
23
24
25

MS. SESHENS:
A.
Q.

Objection to the form.

I just don't understand the question.
Okay.

Are you aware that the

Sterling companies -- strike that.
Did the Sterling companies make
investments into securities or into funds, hedge

23

1

funds, money market funds, other types of funds?

2
3

A.

Individuals might have.

4
5

The Sterling companies did not.

Q.

When you say the Sterling, when you

say the Sterling companies have not --

6

A.

Well, there was no Sterling way of

7

investing.

It was individuals made their own.

8

bought deals.

9

opportunity to join the deal.

We

People would be offered the
There was never a

10

point where we say, gee, IBM looks good, let's all

11

go buy IBM.

12

business.

13

Q.

That's never the way we've done

Okay.

Describe to me how individuals

14

would be offered the opportunity to participate in

15

the deal.

16

A.

Essentially the partners each have

17

their own percentage.

18

percentage of the company and opportunities they

19

had.

20

opportunity came up, people were told about the

21

opportunity and they could come in to that

22

opportunity up to their allotted interest.

23
24
25

It changed over years of what

And that changed over the years.

Q.

And they would invest their own

money?
A.

So when an

Yes, they would.

52

1

was simple, well respected member of the community.

2

So...

3
4
5
6
7
8
9
10
11

Q.

When were there -- when did you

become aware of SEC investigations?
A.

When I read about it in the paper,

with those accountants in Florida.
Q.

Were you aware at the time it was

occurring or were you -A.
Q.
A.

12

Q.

I saw it in the paper.

-- or after the fact?
After the fact.

After the fact.

I

didn't know --

13

No.

14
15
16
17
18
19
20

A.
Q.

Let me ask the question differently.
Sure.
Did you read about it in the paper

and become aware of it after the collapse of Madoff?
A.
Q.

No.
Closer in time to when the event

actually happened?
A.

21

Q.

22

Yes.

Yes.

Florida?

23

A.

So you remember the accountants in

Well, I remember there were

24

accountants in Florida who got in trouble with the

25

SEC and the SEC had Bernie give everybody back their

53

1

money, as I read, which he gave back immediately.

2

And the SEC, with this problem, in my mind would

3

have investigated Bernie to make sure that Bernie is

4

doing the right thing and he wasn't part of the

5

charge on the accountants.

And, again, Bernie is

6

clean, Bernie is terrific.

SEC has done a good job.

7

Q.

Do you remember any other instances

8

of becoming aware of SEC investigations of

9

Mr. Madoff?

10
11

A.
Q.

No.

Not in detail.

No.

What's the relationship between

12

either Sterling or the Mets and Travelers?

13

back in 1990, what was the relationship?

14
15
16

A.
Q.
A.

At least

What time was that?
1990.
I know we borrowed money from them.

17

I don't even recall why we borrowed the money, but I

18

know we borrowed money from them.

19

Q.

Do you recall Travelers doing any

20

diligence on Madoff in connection with any of its

21

dealings with Sterling?

22

A.

Yeah, because we put up some of

23

Madoff's accounts for security, so they did an

24

investigation with due diligence.

25

Q.

Did you have any role in that

54

1

investigation?

2

A.

Actually, I remember the name Barry

3

Gonder.

4

also remember Barry Gonder telling me that his wife,

5

who's in the securities business, did a similar

6

strategy that Bernie was doing.

7
8
9

I think he represented them at the time.

Q.

I

When did he tell you that, at the

time?
A.

10

Q.

11

At that time.

her strategy?

12

A.

Did he tell you anything else about

Not that I recall.

Just the fact

13

that certain things stick in your head --

14

gesundheit -- certain things stick in your head, and

15

that's, like the name Barry Gonder comes up.

16

Q.

Now, did you, in preparation for your

17

deposition, did you review Barry Gonder, any memos

18

from Barry Gonder?

19

A.

20

Q.

21

reviewed those?

22

A.

Yes, I did.
Did you remember his name before you

Yes, I did.

I don't take credit for

23

remembering too many names, but that one for some

24

reason I did.

25

(Exhibit SK-1 marked for

58

1
2

documents other than account statements from Madoff?
A.

I think we got two things.

3

stock transactions and monthly statements.

4

We got

different.

5
6
7
8
9

Q.

Two

The stock transactions, you're

referring to confirmation tickets?
A.
Q.

Confirmation tickets, yes.
Do you recall getting other reports

called portfolio management reports, maybe on a

10

quarterly basis?

11

A.

As I recall, there was a time we got

12

something like that, but I don't remember seeing any

13

for a while.

14
15
16
17
18
19
20
21
22

Q.

What would you do with those types of

documents?
A.
Q.

All sent to Arthur.
And the same with the confirmation

statements?
A.
Q.

Oh, yeah.

Yes.

What was the purpose of sending them

to Arthur Friedman?
A.

As I said earlier, he was the one who

23

was our person in the office who gathered all the

24

information on Bernie and whatever relationship we

25

had with Bernie through the office, it was Arthur's.

59

1

Q.

Did you keep copies of what you gave

2

to Mr. Friedman?

3

A.

4
5
6
7

Q.
A.

No.
Did you expect him to keep copies?
I'm terrible with paper.

I don't

keep paper.
Q.

Do you know what Mr. Friedman did

8

with the account statements and the other documents

9

that you sent to him?

10

A.

11

I have no idea.
(Exhibit SK-2 marked for

12

identification.)

13

A.

14

Q.

15

Are we through with this?
Yes, for now.
I've handed you what's been marked as

16

Exhibit 2.

17

page of Exhibit 2.

18
19

A.
Q.

I'm really just interested in the second

Yes.
Which is -- is that a document that's

20

familiar to you?

21

A.

22
23
24
25

Q.

Yes.
That's the portfolio management

report we talked about a minute ago?
A.
Q.

Yes.
Would you -- this one, this

90

1

Q.

2
3

Their choice or your choice?

A.

Their choice.

It's their choice.

It's their choice.

4

Q.

Now, we talked to -- in our

5

discussions with other people from Sterling, we've

6

talked about investment in Madoff, not just by the

7

Sterling partners, but by what I think we've called

8

outsiders.

9

A.

10
11

Friends and family.

Q.

Friends and family.

Tell me about

your role in that, if you have any role.

12

MS. SESHENS:

13

A.

Objection to the form.

My role in that is that this was such

14

a blessing that I wanted to share with my friends

15

and family.

16

somebody needed a safe, steady return to help them

17

live their life, we introduced them to an idea.

18
19

Q.

22

And how would that introduction take

place?

20
21

And so if an opportunity came and if

A.

Tell them we're doing it and just

tell them what we know, tell them what we knew.
Q.

So give me -- what would you -- I've

23

become a good -- let's say it's 1990 and I'm a good

24

friend of yours and you're going to tell me about

25

Madoff.

What would you tell me?

100

1
2

Q.

And it includes the other investments

of your partners as well?

3

A.

4

Yes.

Q.

So, earlier you told me that the

5

reports that you saw only had your and your family's

6

investments.

7

A.

8

Right.

Q.

9

Is that still your understanding?

A.

That's my understanding.

10
11

MS. SESHENS:
form.

Objection as to the

Sorry.

12

A.

13

ones I looked at.

14

years ago.

15

since, nor do I remember seeing this one.

16

Q.

17

What I said is that those are the
Those are the ones -- this is 15

I don't know if I've seen another one

So this one is from 1995.
Do you recall any point in time at

18

which you considered purchasing insurance to cover

19

your investments in Madoff?

20
21
22

A.
that.
Q.

23
24
25

I recall looking at and considering

Tell me what you recall about that.
MS. SESHENS:

A.

Objection to the form.

I recall friends of mine who were

more conservative than I am -- and I'm very

101

1

conservative -- talked about doing it and asked us

2

to look into it.

3
4
5
6
7
8
9
10
11
12

Q.
A.

Who were the friends?
The friends at American Securities,

my friend Chuck Klein.
Q.

And did you have an understanding

that American Securities had purchased insurance?
A.

I think he said they were going to,

or considering it.
Q.

And so what did you do when you

learned about this?
A.

We weren't going to buy insurance on

13

something that we thought was as good as gold and

14

waste money.

15

Q.

So what steps did you take to

16

investigate, if any, what steps did you take to

17

investigate the insurance aspect of this?

18

A.

I think I asked Mr. Friedman to

19

investigate it and see what the costs are.

20

that's because of my respect for Mr. Klein who said,

21

just take a look at it.

22
23
24
25

Q.

But

So we took a look at it.

Did you attend any meetings with any

outside third parties to discuss the insurance?
A.
Q.

I don't recall.
Do you recall a guy named Robert

102

1

Duran?

2

A.

3
4

Q.

7

Do you recall a company called Frank

Crystal & Company?

5
6

No.

A.

The name Frank Crystal strikes a

bell.
Q.

Do you recall the reasons why -- I'm

8

assuming from your answer, I think you said you

9

declined to buy the insurance.

10
11
12

A.
Q.

Yes.
Or determined not to.

Do you recall

the reasons why you decided not to buy insurance?

13

A.

14

waste of money.

15

Q.

Why would we waste money?

It was a

Because?

16

A.

17

anything wrong.

18

Bernie, he's totally collared.

19

our money?

20

Q.

Because Bernie's not going to do
We're not going to lose money in
Why would we waste

What did you understand -- what types

21

of loss did you understand the insurance you were

22

looking at to protect?

23
24
25

A.
Q.
investments?

I have no idea.
Did it protect losses from bad

108

1

Q.

But I just want to be clear.

Did

2

anyone ever tell you that parts of Bernie's business

3

that should be transparent were in fact not

4

transparent and, therefore, that should be a concern

5

to you?

6

Did anyone ever tell you that?
A.

The last part concern, the answer is

7

no, because the only part that wasn't transparent is

8

the part as to why he goes in when he goes in and

9

when he comes out and what helps him make that

10
11
12

decision.
Q.
A.

Okay.
I didn't have to worry about that

13

because the fact is that if he is buying the stock

14

and long and short, which is all he did for us other

15

than being in treasuries, then we have nothing to

16

worry about.

17

and when he went out.

18
19
20
21

Q.
A.

The nontransparent is when he went in

Okay.
And the fact is that not knowing that

shouldn't make you uncomfortable.
Q.

22

Okay.

Let me ask it this way then.

Did anyone ever advise you that there

23

was one or more reasons why you should be

24

uncomfortable investing your money with Madoff?

25

A.

Not that I recall.

114

1

Q.

You told me earlier you met

2

Mr. Stamos in connection with your work for the

3

health system, I think you said around 1995?

4
5

A.
Q.

That's what I recall, yes.
And then at some point after you met

6

him you developed a business relationship with

7

Mr. Stamos, correct?

8
9

A.
Q.

Yes.
Now, were you the main person that

10

was the point of contact for the discussions that

11

ultimately developed into a business relationship

12

between the Sterling Group and Mr. Stamos?

13
14

A.
Q.

15
16

A.
Q.

My son and I.
Your son David?
My son David.
What was the impetus, if there was

17

one, for developing a business relationship with

18

Stamos?

19

A.

For a long period of time my son was

20

saying to me that when I'm gone and the family needs

21

to be able to manage this money and if we had all

22

the money -- if he had all the money in one place,

23

what would I do.

24

I'll be sending lightening bolts down to him.

25

very dangerous to have all your money in one place.

I told him he has to duck because
It's

115

1

And so for years he used to bug us about the fact

2

that we have all our money in one place, even if it

3

was as good as it was, why do we have it all in one

4

place.

5

Q.

You used a lot of pronouns in the

6

first part of your answer.

7

what to whom.

8

A.

9

Q.

10
11

A.

I didn't follow who said

David would say to me.
When you're gone?
When I'm gone.

When I'm gone and he

has to manage the money.

12

Q.

13

A.

Okay.
And he had all the money, and David

14

had all the money in one place, as good as it was,

15

would I be happy, from up above.

16

no.

17

And the answer was

So, he was constantly on me and our

18

partners to diversify, the same as we diversified

19

our business, we should be diversifying our

20

investment strategy.

21
22
23

Q.

I'm not going to address the

assumption that you'd be looking down from above.
A.

But you can, it's okay.

24

are getting out of here alive.

25

than me, but I promise you you'll --

None of us

You're a lot younger

116

1
2
3
4
5
6

Q.
A.
Q.

Some of us might not be looking down.
Well, that's a different story.
That's, we're not going to -- we

don't have to talk about that.
A.
Q.

Okay.
Why was it of concern to you that the

7

money not be all in one place when you're looking

8

down from above, after you passed on, but it wasn't

9

of concern to you while you're in the here and now?

10
11
12
13
14
15

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

Easy.

Objection to the form.

Lazy.

I'm sorry?
Lazy.
What do you mean?
I was lazy to do what I had to do,

16

and that is to diversify.

17

opportunity came with Stamos, and this was an

18

opportunity to now diversify.

19

position -- and let me give you an impetus here.

20

And that's when the

To also put in a

Fred and I went to visit Bernie, one

21

of our visits, and the visit was, Bernie, you're

22

doing a great job, but you're my age.

23

older than me and a year younger than Fred.

24

not going to be here.

25

here; who's going to be doing this?

He's a year
We're

What happens when you're not
And his answer

117

1

was, we'll send you a check, you'll send it to U.S.

2

Trust Company and they'll manage the money for you.

3

And we left that meeting and I said

4

to Fred, David's right, we've got to prepare the

5

kids and teach them how to manage the money and

6

let's get somebody younger, who can train them, who

7

can get started with a family office with our own

8

money to manage the money ourselves.

9

Q.

10
11
12

A.
Q.

15
16

And that was Peter.
You said something that jogged my

memory.

13
14

And that was Peter?

So basically -- when was this meeting
with Bernie?
A.
Q.

What year?
I'd say 2002, in that range.
What -- so what Bernie was basically

17

telling you was that when he was going to retire or

18

hang it up or die, he was -- you -- he was going to

19

cash you out?

20

A.

Send us a check for all of our

21

accounts, send it over to U.S. Trust Company and

22

they'll manage your money.

23
24
25

Q.

Did you respond to that in any way

when Bernie told you that that was the endgame?
A.

My answer -- I don't know if I said

118

1

it to him then or shortly thereafter, but that's not

2

satisfactory to us.

3

Q.

Did you ask why someone else wasn't

4

going to run Bernie's business?

5

right?

6
7
8
9

A.
Q.
A.

He has two sons,

Yes.
Did you ask him about that?
He said his sons run their

proprietary business.

They're very happy running

10

their business, running the family money in the

11

proprietary business in the trading, and that they

12

don't do this.

13

Q.

Did you have any observations or any

14

information that contradicted that statement, that

15

the sons knew about the other side, the side of the

16

business you were involved with?

17
18

A.
Q.

No.
Did Bernie's statement about how his

19

business was going to end and how your accounts

20

would be dealt with, seem unusual or odd to you in

21

any way?

22

A.

No.

In our mind he'd become a very

23

wealthy man and there are a number of people who

24

manage money like in the hedge fund business who no

25

longer take money and they just run proprietary

126

1

proprietary --

2

Q.

3
4
5
6

A.

They invest in other funds?
-- they invest in other funds.

There

are 125 or 150 different managers.
Q.
A.

Of those other funds.
That they use to put together

7

different strategies, whether it's a long-term

8

investment, a short-term investment, whether it's

9

long stocks or short stocks or long/short, and they

10
11
12
13
14
15
16

put together different managers.
Q.

And those funds, those managers in

the funds they're dealing with, are those black box?
A.
Q.

No.

They're mostly all transparent.

So they're all -- that's what you

were telling me before, that they're all -A.

All transparent.

And Peter's way of

17

doing it was to make sure that all of his managers

18

were transparent.

19

Peter that he should consider, because there are a

20

lot of very successful black box hedge fund managers

21

who do it proprietary and they don't let the people

22

know what they're doing.

23

that some of their investors might want to take a

24

piece of their money --

25

Q.

And what I was suggesting to

It's very proprietary, but

And put it in a black box?

127

1

A.

And put it into -- knowing that it's

2

nontransparent, knowing that there are six or seven

3

or eight for diversification, and that they should

4

consider doing that.

5

Q.

So you told -- in your discussions

6

with Peter you --

7

A.

8
9

Q.
A.

I don't tell him anything.
That's fine.
Peter was the chief investment

10

officer and is the chief investment officer at

11

Sterling Stamos.

12

trying to tell him there might be another kind of

13

fund he could do.

14

Q.

This is, in the management level,

You suggested that this other kind of

15

fund would be a fund of funds made up of investors

16

that had --

17

A.

18

nontransparent.

19

Q.

20
21
22
23
24
25

Managers who have black boxes who are

And what was Stamos's reaction or

response to your suggestion?
A.
Q.

He was considering it.
And when did you make that

suggestion?
A.
Q.

Maybe three, four years ago.
And is he still considering it today?

128

1

A.

2

Q.

3

A.

4

Q.

5

A.

I don't know.
Has he opened such a fund?
I don't think so.
Would you know if he did?
Yes, I would.

No, I take it back.

6

should but I'm not sure I do.

7

I

could be there and I don't even know about it.

8

Q.

9

A.

It could happen -- it

How could that be?
Because I'm not involved in the

10

management strategy.

11

strategies.

12

Q.

13

A.

14
15

Q.

I mean, in the investment

Is there a time when you were?
Never.
Never been involved in any investment

strategies at Sterling Stamos?

16

A.

17

Q.

18

A.

19

Q.

No.
Is the same true for your son David?
Yes.
Did you suggest, as part of this

20

discussion about a fund of funds with the black box

21

concept, did you suggest that Madoff be a part of

22

that?

23

A.

24
25

Q.
that?

Yes.
What was Mr. Stamos' reaction to

135

1

and brother and everybody put money in Bernie.

2

it in there until such time as we sat and talked

3

about starting a new business.

4
5

Q.

Kept

How do you know that -- how is it

that you know that Stamos put money with Madoff?

6

A.

I think he may have been one of the

7

friends and family, I think he may have been one of

8

the accounts that came to our office.

9
10

Q.

Do you know how much money he

invested with Madoff?

11

A.

12

million dollars.

13
14

Q.

It was a few million dollars.

So that would have been -- he sold

his business in SAI in 1997.

15

A.

A few

Does that help you?

Yeah, that could be.

That could be.

16

He worked as an employee for a couple of companies

17

in between, as an advisor.

18

the fact that I thought he'd be a very good --

19

because of his global economic understanding and how

20

bright I thought he was, I thought he could put

21

together a fund of funds to find the right managers

22

to balance a portfolio for us, so that we're

23

properly diversified, and so we started Sterling

24

Stamos.

25

Q.

But then we talked about

And when was that?

137

1
2

Q.
A.

For the hospital?
That manages the endowment for the

3

hospital, run by a man named Bob Rosenthal, who I

4

invest with to this day.

5
6
7
8
9
10

Q.
A.
Q.
A.
Q.

13

He's a -- no.

I don't think so.

Was he at any time?
No, I don't think so.
I'm going to make a statement and ask

you to tell me if it's true or false.

11
12

Is Rosenthal a customer of Madoff?

MS. SESHENS:

I object to the form

already, but let's see how this goes.
Q.

The Katz, Wilpon and Stamos families

14

began jointly investing in 1998 with a select number

15

of individual hedge funds.

16
17
18

MS. SESHENS:
A.
Q.

True or false?
Objection to the form.

Not that I recall.
So around 2002 Sterling Stamos was

19

set up, correct?

20

A.

21
22
23
24
25

Q.

Yes.
What was the initial strategy or

vision for Sterling Stamos?
A.

To balance a portfolio of hedge funds

to protect our wealth long term.
Q.

So was there a criteria for the type

138

1
2
3
4
5
6
7
8
9

of funds in which you would invest?
A.
Q.
A.
Q.

No.
Not at any point in time?
No.
How were decisions -- well, first of

all, who ran Sterling Stamos?
A.
Q.
A.

10

Q.

Were there -- what was his title?
President and chief executive

officer.

11

Peter Stamos.

Who were the decision-makers as far

12

as what types of investments would be made by

13

Sterling Stamos?

14

A.

15

officer.

16

Q.

Peter was the chief investment

17
18
19
20
21
22

Were there any other persons that

were decision-makers that would -A.
Q.
A.
Q.
A.

Peter made the decisions.
Okay.

What role did you have?

In?
Sterling Stamos.
Only in where the business rented the

23

space and how many employees and budget, only on a

24

management of the business level.

25

in any investments.

Zero involvement

139

1

Q.

So management on the business level

2

would include what?

3

business rented space.

4

A.

You mentioned where the

Where the business rented space, what

5

the business plan was, how were they raising money,

6

some of the strategies in marketing and how you

7

market this thing, what do you -- what are you

8

looking to sell.

9

Q.

10

A.

David,

your son?

11

What role did David play?

12

Q.

13

A.

14

Q.

Same as me.
Same as you?
Yeah.
No decision-making with respect to

15

investments, particular investments of the Sterling

16

Stamos fund?

17

A.

The only decision we made is putting

18

our own money into any particular fund as it was

19

offered to the limited partners.

20

the fund together, not picking managers, not

21

reviewing the managers, no review process.

22

to do with the investment strategy of the company at

23

all.

24
25

Q.
A.

Who is Ashok -Ashok.

But not putting

Nothing

154

1

A.

2

Q.

Right.
Where did you obtain your money from,

3

for your portion of the capital investment when

4

Sterling Stamos was started?

5

A.

I moved some money from my Rosenthal

6

investments, which was First Long Island Investors.

7

I still have some but I moved some over.

8

some from Madoff over.

9

else.

10
11

I moved

And I don't recall where

It could have come from a deal that I just

closed or something.
Q.

As you -- do you know where your

12

partners obtained funds to make their investment in

13

Sterling Stamos?

14

A.

15
16

As I sit here today I don't know how

much they put in or didn't put in.
Q.

Are you aware of whether -- well,

17

strike that.

18

you're sitting there and they're not.

19

I'll just stick with you because

As you made more investment over time

20

in Sterling Stamos, was that primarily from funds

21

that became available to you from operation of

22

Sterling entities' business or did you take money

23

out of Madoff to put in Sterling Stamos or was it a

24

combination?

25

A.

Combination.

The $112 million that

155

1

we received from our share of the sale of our

2

interest went right into Sterling Stamos, to

3

different funds in Sterling Stamos.

4

Q.

5

A.

6

Q.

In Sterling Stamos.

When we sold to

Merrill Lynch.

7

Share of your interest where?

8

Oh, sold to Merrill Lynch.

That's

later.

9

A.

When we sold to Merrill Lynch those

10

monies went right into Sterling Stamos.

11

things may have happened.

12

where the monies come from.

13

Q.

14

A.

Other

I don't know exactly

Now, there were -If I had to guess, I would say the

15

amount of money we had in Madoff, I would say the

16

amount of money we had in Madoff in 2002 may have

17

been the same amount we had now.

18

it's not as if the Madoff money decreased.

19

it had.

20

Q.

21
22
23

A.

In other words,
I wish

Right.
I wish we had taken more money out of

Madoff.
Q.

Just what you're telling me is it may

24

be the case that you kind of just left Madoff static

25

as far as new investments and your new money was

156

1

going into Sterling Stamos?

2

A.

Yeah.

But still money went into

3

Madoff.

4

three hours -- now I can tell you that, three hours

5

after Madoff was arrested I sent a million dollars

6

from the Mets Foundation to Madoff.

7

after he was arrested.

8

I mean, we literally, if you'll excuse me,

Q.

9

A.

Because you didn't know he had been

arrested?

10

Three hours

Yeah.

So, the point is, money was

11

still going to Madoff even during this period.

12

not as if everything went somewhere else.

13

Q.

I understand.

It's

I was really trying to

14

find out if you -- you explained that the Sterling

15

Stamos notion, part of the notion was to diversify.

16
17
18

A.
Q.
A.

Right.
That was the impetus?
Our dream was to have half and half.

19

That would have been our dream.

20

Madoff and half in Sterling Stamos and if we had

21

$500 million in total in Madoff, which was I think

22

close to where we had, I think at one time we had as

23

much as almost, almost 350 to $400 million at

24

Sterling Stamos.

25

Q.

To have half in

I mean, we were growing to that.

Was that your goal that you --

157

1

A.

2

diversification.

3

Q.

4

Yeah, to balance, as part of the

Okay.
Now, did you have any discussions

5

with Madoff about Sterling opening this fund or

6

opening this other investment --

7

A.

8
9

Q.

A.

11

Q.

12

16
17

Yes.
Tell me about those.
MS. SESHENS:

13

15

Place to put your money, put it that

way.

10

14

Yes.

A.

Objection to the form.

What would you like me to tell you

about?
Q.

Start with, what did you tell

Mr. Madoff?
A.

I told Mr. Madoff that we were going

18

to start to diversify because of the conversation we

19

had with them that I don't want U.S. Trust to run

20

out of money.

21

Q.

22
23
24
25

A.
Q.

And what was his response?
I don't recall any great response.
Did he express any feelings about

what you were doing?
A.

No.

He actually knew Peter and

176

1

partners' meetings and we got off on to a discussion

2

following that.

3

question.

4

A.

5

Q.

But I want to come back to that

Sure.
Did the partners in the partners'

6

meetings discuss the double-up accounts bringing a

7

certain added element of risk to the business?

8
9

A.

I don't ever recall us talking about

the risk element in the doubling up, because we all

10

assumed that the asset was solid, and that all we

11

talked about is the ability to leverage and make a

12

little bit more on that same asset class.

13

Q.

Do you recall whether your son David

14

had an opinion about the double-ups, whether that

15

was a good idea or a bad idea from a business

16

perspective?

17

A.

My son David, as I think I testified

18

earlier, felt as though we had too much in one

19

place.

20

Q.

21

A.

And the double-ups would add to that?
Double-ups would add to that.

So if

22

we had too much in one place, too much plus

23

something, it just compounds the lack of diversity.

24
25

Q.
group?

Did he voice that opinion to the

177

1
2
3
4
5
6
7
8
9
10
11

A.
Q.
A.
Q.

Many times.

Never about the asset.

I understand.
Never about the asset.
Just about the fact of too much in

one place?
A.
Q.

Too much in one place.
And why -- was there a consensus

among the partners that diversity was a good idea?
A.

Everyone believed diversity was a

good idea.
Q.

Why was it, how was it that you ended

12

up with all your eggs in one basket, at least at

13

that point in time?

14
15

MS. SESHENS:
A.

Objection to the form.

We all felt very strongly that we had

16

no risk.

This was a risk-free investment because --

17

now, of course, the world could have come to an end

18

and the puts, which are a derivative, the other end

19

of the puts could be some company that can go out of

20

business.

21

think that the world was going to come to an end.

22

As a matter of fact, as bad as the market took place

23

now, I didn't hear of any puts not being supported.

24

So, it was a -- obviously erroneously, we believed

25

this asset was as good as can be, it was as good as

But we didn't think that way, we didn't

215

1

(Recess taken.)

2

THE VIDEOGRAPHER:

3

record.

4

BY MR. LUCCHESI:

5

The time is 4:19.

We're back on the

Q.

This is tape number 5.

Mr. Katz, what was the benefit to

6

Sterling Stamos -- I'm sorry, the Sterling

7

organization to administering the accounts of the

8

friends and family?

9

MS. SESHENS:

10

A.

11

Q.

12

A.

13

Q.

14

A.

15

Q.

16

A.

17
18

Q.
that.

Objection to the form.

What was the benefit?
Was there a benefit?
No.

It cost us money to do so.

Why did you do it?
'Cause we're good guys.
Any other reason?
None.
You said it cost you money to do

What are you referring to?

19

A.

That some of our employees are

20

spending time on doing things gratis for friends and

21

family.

22

Q.

Is that a business practice that was

23

carried over with respect to Sterling Stamos

24

business?

25

MS. SESHENS:

Objection to the form.

CONFIDENTIAL

13

21

13
14

24
1

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Saul Katz
EXHIBIT A
REDACTED

actually wrote NAPTA
(phonetic), he was the only
was no longer chairman the
first time; retained a
relationship came.

actually wrote NAFTA (phonetic),
he was the youngest
was no longer chairman the first
time; we retained a
relationship came about.
REDACTED

1

Transcription errors
Grammatical error
Grammatical error

CONFIDENTIAL

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Saul Katz
EXHIBIT A
REDACTED

worry about. The
nontransparent is when he went worry about. The nontransparency is
in
when he went in
Grammatical error
REDACTED

108

16

116

24

not going to be here. What
happens when you're not

not going to be here forever. What
happens when you're not
REDACTED

Transcription error

126

12

the funds they're dealing with,
are those black box?

the funds they're dealing with, are
those black boxes?
REDACTED

Grammatical error

2

CONFIDENTIAL

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Saul Katz
EXHIBIT A
REDACTED

3

CONFIDENTIAL

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Saul Katz
EXHIBIT A
REDACTED

4