Part of case vs. Mets owners tossed

The owners of the New York Mets received favorable news from a U.S. District Court judge's ruling Tuesday afternoon, but are not fully off the hook in a $1 billion lawsuit brought by the trustee trying to recover funds for victims of convicted swindler Bernard Madoff's Ponzi scheme.

Trustee Irving Picard had sued Fred Wilpon and family seeking to recover roughly $300 million in alleged "fictitious profits" -- money withdrawn over principal invested. He also sought $700 million in principal, alleging the Mets owners had warning signs a fraud was occurring.

Judge Jed S. Rakoff set a very high standard in order for the Wilpons to have to forfeit principal, essentially saying they would have to have been aware of fraud occurring in order to be compelled to return that money.

Rakoff said Picard can seek to recover up to $295 million in fictitious profits that he claims were paid out to the Mets' owners during the multi-decade fraud, but he added that he has not yet decided whether Picard can pursue the entire $295 million or only $83.3 million, an amount accumulated by the Mets' owners in the two years before a bankruptcy court filing occurred.

A March 5 trial date has been set to decide the case, and Rakoff asked the sides to appear in his court Wednesday. Rakoff said Picard "might well prevail" in winning a judgment prior to the March 5 trial.

"How to determine which profits the trustee can recover remains an open question," he said.

According to attorney Michael J. Kline of Fox Rothschild LLP, who specializes in complex corporate transactions, mergers and acquisitions, financing, and federal securities regulations, it would be a matter of law, however, whether the statute of limitations allows Picard to recover the full $295 million or a lesser amount, $83 million.

A statement released by Wilpon-owned Sterling Partners disputed Kline's assertion that the statute of limitations is an open question. In Sterling Partners' view, Rakoff ruled that the two-year statute of limitations is the standard, leaving only $83 million at stake with respect to the potentially recoverable profits from the Ponzi scheme. Roughly $300 million also would be at stake in terms of principal, but given Rakoff's high standard, the likelihood is the Wilpons/Sterling Partners would prevail and retain that money.

"The Sterling Partners are pleased that the court today dismissed nine of the 11 counts in the Trustee's complaint, and that the lone remaining count in which the Trustee seeks to recover payments from the Sterling Partners is limited to a two-year period," a statement from Sterling Partners read.

Rakoff was skeptical Picard could prove the Mets' owners met the standard for the larger amount and be required to forfeit principal.

"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."

Kline believes Picard may be more compelled to settle as to not jeopardize larger cases.

"An adverse result with the Wilpons could affect other large clawback cases that Picard has pending," Kline said.

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 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.

Rakoff wrote: "In summary, the Court hereby dismisses all Counts of the Amended Complaint except Counts 1 and 11. Under Count 1, the Trustee may recover defendants' net profits simply by proving that the defendants did not provide value for the monies received, but the Trustee may recover the return of the defendants' principal only by proving that the defendants willfully blinded themselves to Madoff Securities' fraud."

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. The fraud cost thousands of investors roughly $20 billion. In statements, Madoff had told them their investments had grown to be worth nearly $68 billion.

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.

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.

Adam Rubin covers the Mets for ESPNNewYork.com. Information from The Associated Press was used in this report.