The Blog Of The Securities Industry Professional Association


Lawsuit against Investors should be used by brokers

Irving Piccard the trustee appointed by the government to oversee the distribution and recovery of the Madoff madness has recently announced a major lawsuit against members of the Wilpon Family who also happen to own the New York Mets. In keeping with full and fair disclosure, I am a lifelong Met fan and have been tormented by their lack of success in recent years. As a kid growing up I remember “Kiner’s Corner” as well as the theme song “Meet the Mets, Greet the Mets”. As this story unfolds I can’t help but wonder if Ed Kranepool and Lee Mazzilli are denouncing their association with the team. \\\

There are two distinct money factors involved here that Firms and Brokers should watch keenly. The first money to follow is the obvious legal fees that will be paid to the Government appointed trustee Irving Piccard and his law firm. As of this writing, Mr. Piccard has billed to the United States taxpayer approximately 300 million dollars in just over 24 months. Let me put that figure into perspective for the common man. The NY Mets are currently ranked as the 3rd most valuable franchise in Baseball with an estimated worth of approximately $800 Million. In just 2 years the Trustee for Madoff has billed almost half as much as the baseball team is worth on paper. It took the NY Mets 40 plus years to grow its worth into the hundreds of millions but a lawyer has taken 2 years to bill the US Taxpayer 300 million? I’m sorry but I find that figure obscene and out of control no matter how you try to justify the figure. The money trail leads right to the lawsuit against the Wilpon Family and the fact that it will be very hard to prove the allegations. In fact, the court case against the Wilpon’s will probably take at least two years to complete so lets follow the money and assume that instead of billing the taxpayer 300 million over the next two years chasing Wilpon, the Trustee’s law firm will only bill one-third of that amount. Win or lose, in two years that law firm will bill about 100 million to go after the Wilpon family. Throw in the fact that they will still be serving as the Madoff Trustee for another 2 years and the total legal fees billed for this fiasco could be approaching one BILLION dollar!. 4 years of legal service is now the equivalent of owning the NY Yankees? Has the world gone mad or is it just me? The NY Yankees are valued at approximately one billion dollars based on almost a hundred years of excellence, dozens of World Series titles and countless other division titles. It seems to me that the Steinbrenner’s were actually dumb in building up the Yankees since the 1970’s and creating their own TV Network and going after every Free agent on the market. Old man George should have stopped firing Billy Martin and Feuding with Winfield and Jackson and just had one of his sons appointed as a trustee when Drexel Burnham collapsed.

Now for the real interesting part of this bizarre story that keeps twisting and turning every day. In its lawsuit the trustee states that the Wilpons had to of known or should have known that these returns were not possible and they should have suspected fraud. Amen Mr. Piccard and since we are on the subject, shouldn’t FINRA and the SEC also be sued for not seeing this fraud? The SEC’s Inspector General even admitted in his report and testimony before Congress that they dropped the ball and should have seen this fraud and should have known those returns were unrealistic. I’m trying to figure out why a family of investors like the Wilpon’s have a responsibility to use better judgment when investing but the organizations who regulate the likes of Madoff are given a free pass? On FINRA’s web site its clearly states “Investor Protection, Market Integrity”. If this case somehow prevails the new slogan for FINRA should be “Investor Protection but only if you are a small investor and know how to sniff out a scam”?

This case can lead to significant lawsuits by investors like the Wilpons against FINRA and the SEC for failing to protect them. I have never seen the fraud onus being thrust upon an investor before and deep down I’m kind of hoping that the Trustee wins this suit because the trickle down effect for Brokers and Firms alike can be a huge windfall. Broker dealers face the huge burden of supervising Brokers in other offices and in other states. Although Brokers sign “Selling Away” and “Outside Businesses” disclosures with their company, month after month we read about Firm’s being fined or losing Arbitrations because a broker sold an unapproved private placement, Limited partnership or some other vehicle that ultimately goes belly up. Should this case prevail against the Wilpon’s a precedent would be set that would allow firms to simply put blame on investors and say that they should have known this was not permitted or that they should have known that sending money directly to the broker was a fraud. Even churning or unsuitable trades could be altered using this precedent. An investor who receives twenty trade confirmations in a week should know that there is unsuitable behavior taking place and unless he calls the Compliance officer immediately he will be liable for the losses. That exact scenario is basically taking place right now with the lawsuits filed and it’s our hope that somehow he prevails because this could change the whole ballgame for Arbitrations against brokers and Brokerage firms.

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February 9th, 2011



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