NY Mets owners settle Madoff case, avoid trial

NEW YORK (Reuters) - The owners of the New York Mets agreed to pay $162 million to settle a lawsuit by the trustee seeking money for the victims of Bernard Madoff's fraud, a deal that eases pressure on the owners of the cash-strapped baseball team.

The pact was announced in District Court in New York on Monday just as a trial was about to start.

The Mets owners were accused of acting in bad faith in their dealings with Madoff. Their case would have been the first involving the imprisoned financier to go to trial.

The settlement could provide a template for the trustee's other cases still pending against hundreds of individuals, funds and banks such as HSBC Holdings PLC, JPMorgan Chase & Co and UBS AG. The trustee, Irving Picard, claims they benefited improperly from Madoff's fraud.

Picard had accused the Mets owners, brothers-in-law Fred Wilpon and Saul Katz, of ignoring warning signs that Madoff was running a fraud during their 25 years of investing with him. The owners denied the accusations and said they, among thousands of others, were victims of the massive fraud.

The settlement calls for payments over a five-year period, easing some of the immediate pressure on the finances of the Major League Baseball team, which has struggled in recent years and lives in the shadow of the much more successful New York Yankees.

Wilpon and Katz will not have to pay any money until the fourth year. The $162 million could end up being mostly paid with money returning to the owners' Sterling Equities firm as a result of being a victim of the fraud.

On the eve of trial, Picard was potentially set to collect as much as $386 million. Amid some acrimony between the two sides over the past year, the lawyers were not able to reach a deal. People involved in the litigation said the pressure of an upcoming trial had led to the agreement.

The settlement improves the chances of the owners to hold onto the team, said Mark Conrad, associate professor of business law at Fordham University in New York. "It is a big relief for the Wilpon family," he said. "It doesn't have to go through the uncertainty of a trial."

Former New York State Governor Mario Cuomo, who oversaw mediation of the dispute, told reporters outside the courtroom that the settlement was a win for both sides.

"This is common sense," Cuomo said. "There's no artistry here." He said lawyers for both sides came to agreement in the last two weeks.

CUSTOMER RECOVERIES

Picard's original complaint against the Mets owners was filed in bankruptcy court in December 2010, seeking $1 billion, but it was whittled down to $386 million. If a jury had ruled against the owners, they would have been liable for $303 million on top of as much as $83.3 million in "fictitious profits."

For Picard and his team of lawyers, the settlement brings an additional $162 million into the pot to pay back victims of Madoff's fraud, the biggest in investment history.

"This settlement is for the benefit of all the customers," David Sheehan, the lead lawyer for Picard, told reporters.

The deal allows Wilpon and Katz to avoid having their business affairs spilled out in court. The trustee also may receive money for customers sooner than if the lawsuit continued to be fought in court.

Picard estimates that Madoff customers were defrauded out of about $20 billion overall. He has said he will try to recover as much money as he can through the courts. So far, he has won settlements amounting to $9.1 billion, $2.2 billion of which has so far been distributed to swindled customers.

The pact "provides guidance towards other similar settlements" in pending lawsuits by the trustee, said Stephen Harbeck, president of the Securities Investor Protection Corporation. The trustee works under the auspices of SIPC, which helps customers of failed brokerages.

Under the settlement, Wilpon, Katz and their partners at Sterling Equities essentially agreed to pay "fictitious profits" of about $162 million that the Sterling parties withdrew in the six years before Madoff's scheme collapsed in December 2008. District Judge Jed Rakoff had previously ruled the defendants were liable for two years of profits, or $83.3 million.

"The settlement that we announced in court confirms that Mr. Wilpon and Mr. Katz and their partners acted at all times in good faith and did not act willfully blind," said Robert Wise, one of their lawyers.

The Sterling parties' customer claims of about $178 million will be entitled to recovery on the same basis as other customers of Bernard L. Madoff Investment Securities LLC, the settlement said. It said any pro rata distributions would be used to reduce the Sterling parties' settlement obligation.

Madoff ran a Ponzi scheme in which he paid old clients with the money from new investments. Many of his relatives and associates were lured to invest with the promise of steady high returns that turned out to be bogus.

The settlement was reached on Friday, but kept secret until Monday when Rakoff announced it in court.

"It's a lovely day for a trial, but the parties have something else in mind," the judge said. He set April 13 for final approval of the deal.

The case is Picard v. Katz et al, District Court, Southern District of New York, No. 11-03605.

(Reporting by Grant McCool; Editing by Lisa Von Ahn)