Denial urged on request by Wilpons

The trustee suing New York Mets owner Fred Wilpon and family for $386 million on behalf of victims of Bernard Madoff's Ponzi scheme filed court papers Thursday asking U.S. District Judge Jed S. Rakoff to deny a defense request to have the case tossed.

Meanwhile, the Wilpons' attorneys also filed papers, which asked that the judge reject trustee Irving Picard's motion to award $83.3 million to him even before the case is scheduled to go to trial March 19.

The Wilpon family, its businesses and charities are viewed by the trustee as net winners in the Ponzi scheme -- meaning they allegedly withdrew more money than they deposited in Madoff accounts. However, the Wilpons say they are losers because they believed $500 million was invested with Madoff when he was arrested -- money that now does not exist.

The trustee originally sued the Wilpons for $1 billion, but Rakoff has reduced the potential liability for now to $386 million -- finding that legally the trustee can only recover money from the two years before Madoff's Dec. 11, 2008, arrest, not the six years prior to Madoff being taken into custody.

Of the $386 million at stake right now, $83 million is alleged to have been profit from the Ponzi scheme in the two years before Madoff's arrest. Picard argues that he is entitled to that sum in the form of a summary judgment from Rakoff even before the March 19 trial, since he asserts there is no legal question he is entitled to that sum.

At trial, Picard wants to try to recover the remainder of the $386 million -- which allegedly is principal invested by the Wilpons with Madoff during that period.

Picard claimed he is entitled to principal in addition to profits because, he argues, the Wilpons were sophisticated investors who should have recognized warning signs a fraud may have been occurring. The Wilpons reject Picard's claim, saying they were betrayed like other investors and were not, in fact, sophisticated investors despite their business success in real estate.

Rakoff has determined that the standard for whether the Wilpons ought to forfeit principal is "willful blindness" -- essentially, they disregarded direct information a fraud was occurring.

Picard wanted the standard to be "should have known," and he likely will attempt to appeal the standard to the Second Circuit Court of Appeals after Rakoff completes handling the case.

The Wilpons' attorneys have asked Rakoff to throw out the case entirely without the need for a trial.

Picard's reply to that request Thursday outlined reasons why the trustee believes a jury ought to hear the case.

Amanda Remus, a spokesman for the trustee, said Wilpon-owned Sterling Partners "ignored amassing red flags of fraud concerning their Madoff investments."

The trustee's court filings assert that the Wilpons discussed with another Madoff investor securing Ponzi scheme insurance, allegedly a sign they recognized a fraud might be occurring.

Remus also cited Wilpon-owned Sterling Stamos -- a hedge fund set up by the Wilpons to try to mirror Madoff's returns -- rejecting investing with Madoff because it could not pass due diligence requirements on transparency.

"The Sterling Partners had become utterly dependent on Madoff's investment returns, which over time had grown to become the very cornerstone of their business plans and personal finances," Remus said in a statement Thursday. "Moreover, they had become over-dependent upon their BLMIS [Madoff] accounts to secure hundreds of millions of dollars in bank loans -- loans as to which, as they admit, could be in default upon just an investigation into BLMIS."

Adam Rubin covers the Mets for ESPNNewYork.com.