Here is the exact response from the Wilpons' attorneys to a variety of allegations made in the $1 billion lawsuit:

Allegation 1. Sterling Stamos (the Wilpon-owned hedge fund trying to mimic Madoff's returns, according to the complaint) told the Sterling Partners that Madoff was a “scam” or fraud

Before the Trustee filed the complaint, he took testimony under oath from Peter Stamos in which he testified to just the opposite – that prior to December 11, 2008 he thought Madoff was “among the most honest and honorable men that we will ever meet” and “perhaps one of the best hedge fund managers in modern times.”

Peter Stamos further testified that “[a]ll the way to the time when the fraud was discovered, I had the same conclusion.”

Responding to a question from the Trustee whether he thought that Madoff was a “scam” or “too good to be true,” Stamos testified, “I can’t recall ever using those words to describe Mr. Madoff.”

In another deposition taken by the Trustee before he filed the complaint, the chief strategist [Ashok Chachra] of Sterling Stamos testified that he had “no reason to think there was anything wrong [at BLMIS].” He viewed Madoff as “very talented,” a “pioneer” and the “grandfather of electronic trading.” He regarded Madoff’s split-strike conversion strategy as “amazing.”

2. Sterling Stamos advised the Sterling Partners not to invest with Madoff

Before filing the complaint, Peter Stamos testified that he viewed Madoff as honest and honorable, and that he never warned Saul Katz about Madoff or suggested that he redeem his Madoff investments.

Stamos’ advice to the Sterling Partners only concerned diversification of their investments, recommending that they should diversify more and not invest more than 10% with any single manager.

Stamos freely admitted that, in providing this advice, he was also competing with Madoff for Sterling’s money.

The single manager risk Stamos described was not specific to Madoff and has nothing to do with fraud.

3. The Sterling Partners were sophisticated stock market experts who should have detected Madoff’s fraud

Testimony taken by the Trustee before he filed the complaint consistently demonstrated that the Sterling Partners were not sophisticated securities investors.

4. The Sterling Partners should have recognized Madoff’s fraud because Saul and David Katz became expert in the brokerage business

The Trustee had undisputed evidence that no Sterling Partner, including Saul and David Katz, had any material involvement with Sterling Stamos’ investment strategies or decisions.

Sterling Stamos personnel testified to the Trustee that Saul Katz was involved initially in business decisions like where to lease office space, how many employees to have and how they should be paid, but “he was not involved at all in the investment decisionmaking.”

Sterling Partner testimony establishes not only that none of the Sterling Partners was involved in investment decisions, as that would have defeated the purpose of hiring Peter Stamos as an expert to make the investment decisions on their behalf.

5. All Sterling Partners were familiar with Sterling Stamos’ due diligence process

The Trustee’s prefiling evidence established that no Sterling Partner was familiar with Sterling Stamos’ due diligence requirements.

Excluding a manager from a potential investment because of the nature of his trading strategy is not an indication of fraud, nor did anyone at Sterling Stamos say that it was.

6. Madoff’s investment advisory company’s (BLMIS) failure to pass Sterling Stamos’ and Merrill Lynch’s due diligence processes was an indication of fraud

Sterling Stamos in fact never conducted any due diligence on BLMIS, as Stamos testified under oath to the Trustee.

Stamos testified that he never turned down an opportunity to invest with Madoff.

Peter Stamos had invested with BLMIS and developed a positive view of Madoff.

Merrill Lynch’s due diligence requirement that all investment managers complete a transparency report disclosing details of their investment strategy was not directed at Madoff.

Merrill Lynch’s policy prevented Sterling Stamos from investing in any investment manager who refused to disclose their proprietary trading strategy (i.e., a “black box” strategy).

Excluding a manager from potential investment because of the nature of his trading strategy is not an indication of fraud, nor did anyone at Sterling Stamos say that it was.

7. BLMIS’ proprietary “Black Box” strategy was a red flag

“Black box” trading strategies are common, unremarkable and entirely legal, and using such a strategy is not an indicator of fraud.

No “industry professional,” and in particular, no Sterling Stamos employee, ever warned the Sterling Partners that Madoff’s “black box” strategy was an indication of fraud.

Peter Stamos testified to the Trustee that early in the development of Sterling Stamos, hearing of “black box” strategies “was a common answer to a number of [fund] managers that we either invested with or considered investing with.”

Stamos further testified that “[Sterling Stamos] found in past periods of [stock market] crisis that black boxes were in fact those kinds of managers that had a higher probability of performing well when markets collapsed.”

8. Sterling Stamos was restructured to evade SEC scrutiny of BLMIS

As the business of Sterling Stamos grew, they decided in 2005 to register as an investment advisor.

The Sterling Partners were concerned that Sterling Stamos’ registration would require them to disclose their private family investments.

The Sterling Partners also were concerned about having increased legal exposure to thirdparty investors, particularly because they did not have investment experience and were not involved in the investment decisions at Sterling Stamos.

To protect their privacy and to minimize any risk of legal exposure to thirdparty investors, the corporate relationship between Sterling Equities and Sterling Stamos was restructured.

9. Sterling Stamos and the Sterling Partners should have been concerned that Madoff was frontrunning

Testimony taken by the Trustee before the complaint was filed states repeatedly and consistently that Sterling Stamos employees had no knowledge or reason to believe Madoff was front running. Peter Stamos specifically told Saul Katz that he did not think Madoff was frontrunning.

Saul Katz explained to Peter Stamos that he too did not believe Madoff was frontrunning because he had been reviewed regularly by the SEC and was a highly reputable investor.

10. The Sterling Partners knew that Madoff’s custody of securities was a red flag

Selfcustody arrangements are common in the securities industry and many financial services companies practice “selfclearing.”

One of the risks of selfclearing was “frontrunning,” not that Madoff was running a Ponzi scheme.

11. The Sterling Partners knew about the Bayou Fraud and therefore should have recognized Madoff’s fraud

Sterling Stamos invested in Bayou, which was a hedge fund, but later withdrew from Bayou after learning from Bayou’s manager that he intended to completely shift his trading strategy, and do so within three months time, which they did not believe to be feasible.

There was no “style drift” at BLMIS.

Further, the other specific reasons for the Bayou redemption — Bayou’s “plan to drastically increase the amount of assets under management, and deficiencies in its back office infrastructure” — were not raised or identified with regard to Madoff. In fact, Peter Stamos understood that Madoff had a “substantial infrastructure in his brokerdealer.”

12. The Sterling Partners never conducted any diligence on Madoff

The Trustee knew that while the Sterling Partners were not investing other people’s money, were not being paid to invest other people’s money and had no diligence obligation, they nevertheless undertook many due diligence exercises early in their relationship with Madoff to try to understand Madoff’s trading strategy.

Sterling Partner Arthur Friedman performed many due diligence exercises over several years, including tracking transaction prices by comparing them to prices in publicly available information. The prices were always consistent with that information.

Mr. Friedman even successfully replicated the “split strike conversion” strategy on paper and “determined in [his] own mind that the strategy was good, but not to the extent that it worked for [Madoff]” probably due to the precise timing of the trades and the absence of commission costs.

Over many years the Sterling Partners and other customers continued to make deposits and withdrawals in an unremarkable manner and to receive statements and confirmations that reflected the purchase and sale of equity securities.

Major financial institutions over the years reviewed the Sterling Partners’ holdings in BLMIS to determine their value as collateral and a source of liquidity, and in every instance the holdings were accepted as valuable collateral.

One financial institution conducted its own due diligence, including speaking personally with Madoff, and confirmed the Sterling Partners’ understanding about Madoff’s strategy.

Throughout the Sterling Partners’ relationship with Madoff, Madoff remained a star in the brokerage community.

Like many other Madoff customers, the Sterling Partners took comfort from the SEC’s clearance of Madoff.

13. The Sterling Partners received “staggering” profits

The Sterling Partners are entitled to the securities on their statements. No “profit” or principal concept applies.

The Trustee has no basis for aggregating all of the Sterlingrelated accounts or cherrypicking only the accounts with no net losses to allege that the Sterling Partners had $300 million in “fictitious profits.” When accounts with net losses are offset, the Sterling Partners believe the Trustee’s claim for “profits” is less than half of what he contends.

The Trustee makes no allegation, as he has against others, that the Sterling Partners received “fantastical” or extraordinary returns. The Complaint alleges only that the Sterling Partners’ returns were “consistent.”