Judge allows only part of suit against Mets owners

NEW YORK — A federal judge tossed out most of the claims brought against the owners of the New York Mets by a trustee recovering money for victims of Bernard Madoff’s Ponzi scheme, saying the owners could be liable for up to nearly $300 million if they were “willfully blind” to the fraud.

U.S. District Judge Jed Rakoff’s decision Tuesday cleared away some of the legal clouds that had been hanging over the team since court-appointed trustee Irving Picard brought a lawsuit seeking $1 billion from Mets owner Fred Wilpon and his associates.

Lawyers for the Mets’ owners repeatedly have denied Picard’s claim that they and their partners should have known roughly $300 million they collected from Madoff represented phony profits. The trustee had sought a $700 million penalty as well.

Rakoff dismissed nine of 11 counts, limiting Picard’s claims to those alleging actual fraud. He said Picard can seek to recover up to $295 million in profits that were paid out to the Mets’ owners during the multi-decade fraud by proving they were “willfully blind” to the fraud.

Otherwise, the judge said, Picard’s claim would be limited to $83.3 million, the fictitious profits accumulated by the Mets’ owners in the two years before the fraud was revealed.

A March 5 trial date has been set to decide the case, and Rakoff asked the sides to appear in his court Wednesday.

Rakoff was skeptical Picard could prove the Mets’ owners met the standard for the larger amount.

“But why would defendants willfully blind themselves to the fact that they had invested in a fraudulent enterprise?” he wrote in an 18-page decision. He said Picard claimed “it was because they felt they could realize substantial short-term profits while protecting themselves against the long-term risk.”

He said Picard “while less than overwhelming in this regard, pleads sufficient allegations to survive a motion to dismiss so far as this claim of willful blindness is concerned.”

Madoff revealed his fraud to federal investigators in December 2008 and pleaded guilty to charges several months later that resulted in a 150-year prison sentence, which he is serving in Butner, N.C.

In a statement, Picard spokeswoman Amanda Remus said Picard and his lawyers were reviewing the decision.

“Prior to a thorough evaluation of the ruling, we have no comment,” she said.

Lawyers for the Mets did not immediately respond to requests for comment.

Picard has filed more than 1,000 lawsuits seeking to recover billions of dollars lost by investors in Madoff’s fraud. Picard has argued that investors such as the Mets’ owners owe large sums of money to other investors because they withdrew enough that they came out hundreds of millions of dollars ahead of their original investment.

Lawyers for Mets executives have called Picard’s lawsuit “a fiction.” They insisted the defendants had no idea Madoff was not investing their money as he said he was.

According to court papers, the Mets executives used Madoff accounts in much the same manner as they might have used traditional bank accounts, depositing excess cash for short-term investment before withdrawing it for use in operating their businesses. The lawyers said the Mets would deposit cash received from Mets season ticket sales during the offseason with Madoff to maximize returns until the funds were needed a few months later to meet expenses.

The Mets’ finances have become a distraction for the team this year. The club’s cash-strapped owners announced in May that they had agreed to sell a minority share of the team to hedge fund manager David Einhorn for $200 million. But the deal fell through Sept. 1, and the Mets said they would seek to sell shares of up to $20 million to family members and other potential investors without risking the possibility of losing a controlling interest in the team.