Embattled Mets Owners Have Extensive PE/VC Ties

Fred Wilpon. Photo by Jeff Christensen, Reuters

The owners of the New York Mets, the target of a lawsuit seeking to recover some $300 million in fictitious profits for victims of the Bernard Madoff Ponzi scheme, have significant private equity holdings, an analysis by sister Buyouts magazine finds. In fact, the owners may have used money from accounts held with Madoff’s firm to help launch a manager of funds of funds.

At the center of the lawsuit, unveiled late last week, are defendants and brother-in-laws Saul B. Katz and Fred Wilpon (pictured), who co-founded Sterling Equities in 1972 to develop and invest in real estate but later expanded to include venture capital and leveraged buyouts. The New York-based firm first invested in the New York Mets in 1980 and later gained control of the team in 2002.

In the lawsuit, Irving H. Picard, the trustee charged with recovering money on behalf of Madoff victims, documents a close financial relationship between Sterling Equities and Bernard L. Madoff Investment Securities. Dating back to at least 1985, the relationship eventually grew to include private equity and other businesses run by Sterling Equities.

According to the lawsuit (download here): “Be it real estate, professional baseball, or private equity, every part of Sterling’s business held investments with Madoff through approximately 65 [Bernard L. Madoff Investment Securities] accounts in the name of various entities created, owned, and controlled by the Sterling partners.” The suit accuses Katz and Wilpon of having “turned a blind eye” to indications that Madoff was running a Ponzi scheme.

In a joint response issued on Friday, Katz and Wilpon said that the “conclusions in the complaint are not supported by the facts” and added that “while they may make for good headlines, they are abusive, unfair and untrue.”

Much of Sterling Equities’s exposure to private equity came after it formed, with investor Peter S. Stamos, a 50-50 partnership in 2002 called Sterling Stamos Capital. The firm appears to run funds of funds (earmarked for hedge funds and private equity). It went on to manage more than $390 million for Sterling Equities by September 2008, according to the suit.

Sterling Stamos, which has more than $9 billion in assets under management, according to its Web site, has significant private equity holdings. Last summer, Reuters, a sister news wire service, reported that the firm planned to manage a $1.9 billion portfolio of private equity investments that Bank of America had earlier sold to AXA Private Equity.

As part of the deal, Jason Cipriani, head of strategic fund investments for Bank of America Merrill Lynch, joined Sterling Stamos as partner and head of private capital managed accounts. According to Reuters, Cipriani planned to take 10 employees with him to form a Charlotte, N.C., office for the firm. (In 2007, Merrill Lynch took a 50 percent, non-controlling interest in Sterling Stamos for $115 million, according to the suit, with Sterling Equities and Stamos each selling half their stakes.)

It is not clear whether Sterling Stamos or its private equity assets will be impacted by the lawsuit. The firm is not named as a defendant in the suit.

However, the suit does state that the partners of Sterling Equities “provided much of the start-up capital” for Sterling Stamos, and that “at least a portion of that funding” came from withdrawals from accounts that Katz and Wilpon held with Bernard L. Madoff Investment Securities. “A substantial portion” of the money that Sterling Equities invested as limited partner in Sterling Stamos funds was funded with similar withdrawals, the suit said. A spokesperson declined to comment on behalf of Sterling Stamos.

Sterling Equities has been openly seeking a minority investor in the New York Mets as a way to raise cash. An analysis by the New York Post last week pegged the value of the equity in the team at about $158 million, given about $700 million in debt and a Forbes estimate of total value of $858 million.

Here’s a brief rundown on select other private equity-related holdings of Sterling Equities:

• The Sterling Equities Web site suggests the firm has an investment in American Securities Capital Partners Fund IV, a mid-market buyout fund sponsored by American Securities Capital Partners of New York. (The investment period has ended on the fund.)

• The Web site lists an investment in Changing World Technologies, founded in August 1997 to identify and fund emerging technologies in energy and environmental markets.

• The Web site lists an investment in PathoGenesis Corp., founded in 1991 to develop drug treatments for such diseases as cystic fibrosis, tuberculosis and AIDS. Sterling PathoGenesis Co. is listed as a defendant in the lawsuit.

(Fred Wilpon. Photo by Jeff Christensen, Reuters)