Filing: Wilpons were alerted to returns

A former executive for a hedge fund started by the owners of the New York Mets warned them eight years ago that Bernard Madoff had to be doing something illegal to gain such high returns, new court documents allege.

Noreen Harrington, a 20-year hedge-fund executive and former Goldman Sachs and Merrill Lynch employee who was trying to match the returns of the Madoff funds, quit her job as chief investment officer of Wilpon-owned Sterling Stamos in protest in 2003.

That came after the Wilpon-owned funds placed money with a Madoff feeder fund over her strenuous objections, the trustee suing the Wilpons for $386 million claims.

According to trustee Irving Picard's latest filings, Harrington met with Wilpon's brother-in-law, Saul Katz, in summer 2003 and told him that the Madoff-related funds either had to be "front running" or their statements were outright made up.

"Front running" means having knowledge of upcoming large trades and doing one's own trades beforehand, because one knows the direction the stock price is headed.

Harrington testified that Katz became "very angry" when she alleged Madoff might be front running.

"And I said, 'If it wasn't that, I believed it was fiction,' " Harrington testified. "And to that he said, 'What do you mean by fiction?' And I said, 'I don't believe the numbers [returns] are worth the paper they're printed on.'

"When Saul Katz asked me what I thought Madoff was doing with the money, my first response is an illegal act. You know, it's a violation of securit[ies] law, and it is illegal. It may be profitable, but it's extremely illegal. And the second is -- a fiction charge is even more heinous."

If a jury accepts Harrington's testimony during the trial, which is scheduled to begin March 19 in U.S. District Court in lower Manhattan, it could be detrimental to the Wilpons' defense. And a large enough judgment against the Wilpons could affect their ability to retain ownership of the Mets.

Picard is suing the Wilpon family to recover $83 million in alleged profits from Madoff's Ponzi scheme in the two years before Madoff was arrested, as well as $303 million in principal invested with Madoff.

Judge Jed S. Rakoff has set the standard Picard needs to prove in order for the Wilpons to forfeit principal at "willful blindness" -- essentially, that they knew something was amiss with Madoff and disregarded the information. Harrington's testimony will be used in attempting to prove that to a jury.

In court papers, the Wilpons' attorneys call Harrington's testimony "suspect" and "unsubstantiated."

Harrington, who was responsible for leading Sterling Stamos' checks into the legitimacy of potential investments, quit after the investment proceeded over her objections, according to Picard's latest filings.

"It was very clear to me that Saul wanted to do this investment, and therefore my answer was the wrong answer," she testified.

Harrington's role in the Mets-Madoff situation was first reported by capitalnewyork.com.

Adam Rubin covers the Mets for ESPNNewYork.com.