Tuesday, April 26, 2011

Eyes Wide Shut: MLB, Wall Street Lay Bets at Same Table

By Diane M. Grassi

As all-time hit king Peter Edward Rose celebrates his 70th year, it would seem only appropriate to at least wish Pete a happy birthday on behalf of his still legions of Major League Baseball fans.

They — perhaps foolishly — remain hopeful that one day Pete's banishment from all-things-MLB will be over-turned; at least before he dies.

Pete's own admission of guilt for having not only been involved in illegal gambling activity and then divulging, albeit years later, that he bet on his Cincinnati Reds team to win, has paid a mighty price. Pete's sin was but a violation of MLB's Golden Rule No. 21:

"Any player, umpire, or club or league official or employee, who shall bet any sum whatsoever upon any baseball game in connection with which the bettor has a duty to perform shall be declared permanently ineligible."

Yet no such rule exists for looking the other way as a presiding MLB Commissioner, over nearly 20 years, where it is a known fact that elicit performance-enhancing drug (PED) use by players in baseball was pervasive.

No such rule exists for MLB owners, such as Fred Wilpon and his partner Saul Katz — owners of the New York Mets — who, for nearly a decade, were serial borrowers of funds from fraud and now convicted Ponzi gamester Bernard Madoff, presently incarcerated for 150 years.

They merely got up to 18% returns on their investments and over-leveraged the team's assets, while the average Wall Street investor saw 7% returns. Deferring players' salaries over periods of years, while reinvesting them with Madoff, is only one example of Wilpon's own schemes.

But at issue is whether the now learned borrowing of nearly $500 million by Fred Wilpon and Saul Katz and their Sterling Equities, Inc. was off the backs of Madoff's other victims' investments. And whether Wilpon and Katz indeed were complicit in the Ponzi scheme, with them also looking the other way, is yet to be decided through a court of law.

No such rule exists for one Frank McCourt, beleaguered at least 50% owner of the Los Angeles Dodgers. Yet we do not indeed know if Mr. McCourt even owns the entirety of the club, as his wife, Jamie McCourt, remains a 50% owner, too.

Larry Silverstein, Frank McCourt's attorney, complicated the ownership issue with his alleged fraudulent change to the ownership documents after the sale of the Dodgers to the McCourts, giving Frank sole ownership. And now the divorce settlement, also intertwined in the Dodgers' fate, awaits a determination by a court to decide who actually does own the Dodgers.

In addition, McCourt is in debt for $525 million; with some of his expenditures in question, whether they were for his legal bills for his divorce or his own personal use.

As concerns Dodgers' ownership, Commissioner Selig abruptly took over day-to-day operations of the Dodgers this past week, appointing a trustee to manage the club's operations indefinitely. He cast McCourt out of the picture, since Selig felt the Dodgers' fiscal house was too far gone.

Yet no such punishment was assessed for the Mets' owners, for Bud Selig has had a close personal relationship with Fred Wilpon over many years, with no love lost for Frank McCourt. Furthermore, McCourt solicited FOX Sports for a loan, against Selig's wishes, which ultimately did him in.

What a game, huh? And what a bunch! Alleged embezzlement, fraud, thievery, greed, self-righteous indignation and a selective might of the sword. But Pete be damned.

Due diligence, not to mention due process in MLB tends to tip the scales of reason, as does its sovereign rule, through its process of selectivity in meting out punishment.

As we learned by way of the U.S. Court of Bankruptcy, through its court appointed trustee, Irving Picard, that the Mets' owners are being sued for nearly $1 billion. The government is on a tear to recover tens of billions of dollars for Madoff's victims via those who it believes are accomplices to his misdeeds. And Picard believes that Wilpon and Katz fit that bill.

Fred Wilpon's Sterling Equities, Inc. held up to 400 Madoff accounts, many of those Mets' holdings and assets. That also includes its SportsNet NY (SNY) cable television network enterprise.

While Selig can claim that McCourt is guilty of fiscal negligence and that his public display of a "War of the Roses" divorce may have brought embarrassment to MLB, legally, McCourt is so far in the clear with respect to criminality. However, legal troubles have befallen Fred Wilpon, his assets, and partners, as storm clouds are amassing.

So what is the point of all of this, you ask?

It's to outline the duplicitous nature of rule and order in business where corruption exists not only in the prototypical corporate or government entity, but extends to that of the Commissioner of MLB. He only presides over a nearly $10 billion industry, of which he commands a $20 million annual salary, and owes yet far more to the consumers of MLB.

Furthermore, it is municipalities that float interest-free bonds, offer tax abatements and provide taxpayer subsidization of MLB operations that enable billionaires to become ever wealthier, in a climate of greed and deceit.

"They know nothing. They know nothing," said Bernard Madoff in a February 2011 New York Times interview; the first such granted after his incarceration in prison. He was referring to Fred Wilpon and Saul Katz, specifically, having not been privy to his business dealings relative to his Ponzi scheme, going back to 1992; even though Wilpon's relationship with Madoff goes back as far as 30 years.

Yet Madoff has had nothing but disdain for many of those he claims should have known better than to claim victimhood at his behest. From J.P. Morgan Chase Bank to individual investors alike, Madoff clearly stated in a Financial Times April 2011 interview that, "They were complicit, all of them. They had to know, but the attitude was sort of, 'If you've done something wrong, we don't want to know.'" Yet Madoff's credibility is tenuous, at best.

So, the question begs, is there that much of a difference between the Commissioner of MLB and those complicity involved in the Madoff scandal? MLB owners and Commissioner Selig himself had selective memory when it came to PED use by players in the commission of a fraud. And the selective processes in which fines and punishments are allotted by the Commissioner of MLB remain suspect.

Regarding Madoff, it involves the SEC and those in the agency who overlooked whistleblowers, virtually ignored for many years. And the seemingly endless list of victims of the Madoff scheme remain a vital part of the equation, as Madoff himself had a fiduciary duty to protect their investments and best interests. They may never recover from his misdeeds.

But at the bottom of the scale remain one Peter Edward Rose, the fans of MLB, its ticket holders, the taxpayers of municipalities, and the many investors of Madoff's, many of whom were merely third-party innocents who lost their pension funds or non-profit charities that lost valuable funding for important programs benefiting the sick, the indigent, and the disabled, having directly invested in organizations that were hopeful recipients of Madoff's.

But you decide. Who has won and lost?

It has been quite the gamble, right, Pete?

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