“That makes like 10 people we know who were caught up in this,” said one of the guys.

As I pretended to listen to what my wife was saying I focused on their conversation – hoping to hear a name I might know.

“This is crazy,” the other guy said. “We’re talking billions of dollars. I talked to my mother today and she said some more friends of ours are caught up in this.”

These guys looked wealthy – as did their female companions. But it made me think about that in the small world of the ultra rich this must be like one of those small-town scandals when the preacher cheats on his wife or something. All these high-income people must be gossiping about who got hit. Who was duped? And who won’t be able to recover.

Then I read the WSJ story on scam and found out that none other than Mets owner Fred Wilpon (pictured below).

New York Mets owner Fred Wilpon, GMAC LLC Chairman J. Ezra Merkin and former Philadelphia Eagles owner Norman Braman were among the dozens of seemingly sophisticated investors who placed money on what could prove to be history’s largest financial scam…

Mets owner Mr. Wilpon, who also owns real-estate investor Sterling Equities, often raved about Mr. Madoff’s investment prowess and invested tens of millions of dollars of both his own money and the team’s with his company, say financiers who have worked with him. Mr. Madoff handled investments for the Judy & Fred Wilpon Family Foundation, which distributed about $1 million a year in 2005 and 2006 to charities, according to its most recent federal tax returns..

Mets spokesman Jay Horowitz declined to comment Friday. Mr. Wilpon’s Sterling Equities said in a statement: “We are shocked by recent events and, like all investors, will continue to monitor the situation.”

Then I read the New York Times story on Wilpon and Madoff and find out that they grew up in the same Brooklyn neighborhood. And that even reinforced the small-town feel this must have to upper-crust of New Yorkers.

The Times’ story also looked at how Wilpon’s losses, which included some of the team’s money, might affect the Mets. Wilpon’s total investments with Madoff wasn’t known but a big loss could hurt the team’s ability to afford the second-largest payroll in baseball and the recent signing of reliever Franscisco Rodriguez to a $37 million contract over three years.

For Wilpon and the Mets, this could be a tough season. They are moving into a new ballpark, Citi Field, that bares the name of troubled financial firm, Citigroup, at a time when the New York economy is already in a recession. And their division rival, the Philadelphia Phillies, are World Series champs (this is especially for Damian).

The Yankees bagged 28-year-old Sabathia this week with a seven-year, $161 million deal that includes an opt-out clause after three years. Combined with the $82.5 million spent on Burnett, that’s $243.5 million in five days.

Billions Lost in Former Nasdaq Chairman's Pyramid Scheme

At the end of last week, former Nasdaq chairman and money manager Bernard L. Madoff was arrested for running a firm that lost billions of dollars through a pyramid scheme.  Although such scandal is not new to Wall Street, Madoff might hold the dubious honor of committing the largest fraud in financial history.  And the details are emerging rapidly this weekend.

The SEC orginally investigated Madoff in 1992, but ended up clearing his name, and have been caught off-guard by news of Madoff’s Ponzi scheme.  In an affadavit written for federal agents, Madoff said his fraud totaled about $50 billion.  Bernard L. Madoff Securities gave its earlier investors returns with money from later victims, rather than actually investing the money.  The scheme worked until the firm was hit with about $7 billion worth of redemptions by early December.  Similar schemes usually quickly collapse, but Madoff’s fraud looks to have gone on for years.

Madoff did not run a hedge fund, but managed accounts for investors inside of his security firm.  If the investors’ portfolio had, like hedge funds, been held at a bank or brokerage firm, outside auditors could have checked that the fund existed.  Instead, only Madoff looked at the clients’ accounts that he processed, with the exception of a tiny auditing firm in NYC.  He attracted investors through his reputation, and they put billions of dollars into funds that then invested in Madoff’s firms. According to the Wall Street Journal, the money manager tried to exude an aura of exclusivity, and marketed himself through an ‘A-list’ of prominent investors.  His emphasis on an invitation-only policy for investors, and targeting of country clubs generated new customers for his Ponzi scheme for years.  Madoff was referred to by some investors as the “Jewish bond,” who consistently paid returns of 8 to 12 percent per year, ‘no matter what.’

While Madoff was a winner for many years, there are now many losers.  They include Yeshiva University (Madoff was even chairman of their board), a Jewish charity that lost its $7 million endowment and plans to lay off its workers and shut down, as well as prominent Jewish families in Florida and New York.  

Originally, Madoff started his firm with money he made 50 years ago working as a lifeguard in Queens.  His firm was a major driver in the growth of the Nasdaq by persuading brokers who primarily traded on the NYSE to do more Nasdaq training.

How did Madoff get caught? Redemptions.  In the first week of December, Madoff’s scheme collapsed when clients asked for $7 billion in redemptions.  According to Time, Madoff met with his sons last Wednesday and told them his firm was a fraud, and called it “a giant Ponzi scheme.”  When the sons called a lawyer, the lawyer alerted federal authorities about the fraud.  By this time, Madoff was virtually bankrupt.  He had planned to give the remaining $300 million that his firm had to family members and employees, but it looks like that scheme will have to be worked on from jail.