THE GREAT American pastime of baseball builds and reveals character, while also conveying many valuable life lessons and values, such as perseverance, sacrifice and teambuilding. With that in mind, what sort of lessons can we learn from the 1962 and 2012 editions of the New York Metropolitans?
The New York Mets began life in 1962 as an expansion team in the National League. In that first season, it achieved the dubious distinction of compiling the worst record since the season expanded to a 162-game schedule by compiling a 40-120 won-lost record (two postponed games were never made up). The team's record for futility is indeed unbelievable, but as Casey Stengel often said, "You can look it up."
The 1962 Mets roster was made up of castoffs from the other teams. One of those players, first baseman "Marvelous" Marv Throneberry, was known for his wit and quotable statements. During the inaugural season, Marvelous Marv said something on the order of … "the Mets keep finding new ways to lose ballgames."
Who knew that Marvelous Marv's words would turn out to be not only a contemporary comment, but a prophetic one as well. It was prophetic in the sense that the 2012 version of the Mets might find itself losing games thanks to Bernard Lawrence "Bernie" Madoff.
Fred Wilpon and Saul Katz co-founded Sterling Equities in 1972 as a real estate investment/development company. They expanded into the entertainment industry when they purchased a 1 percent stake in the New York Mets in 1980, added 48 percent ownership in 1986 and became sole owners in 2002.
While Katz and Wilpon built their investment in the Mets, they also invested heavily with Madoff. Not only did they invest with Madoff, they used Bernard L. Madoff Investment Securities LLC, as a depository for disability insurance and as a means of funding deferred compensation for Mets players. Katz and Wilpon were thus able to earn a profit from interest, dividends and capital gains on money owned by – essentially owed to – others. If this sounds like the old "using other people's money" ruse, it is.
After the arrest and conviction of Madoff, the Securities Investors Protection Corp. appointed Irving H. Picard of the law firm of Baker & Hostetler LLP as its trustee to recover assets from Madoff, his associates and early investors in order to compensate the victims of Madoff's fraud scheme. Since Katz and Wilpon invested early, often and in large amounts with Madoff, they were among the few who actually saw a return on and return of their funds.
While the Mets are playing well this season, one has to wonder how much better its record might have been without the distractions of this scandal and the impact of a forced $50 million cut in team payroll that forced the team to cut ties with All-Star shortstop Jos√© Reyes. The trustee originally sought recovery of up to $1 billion from Katz, Wilpon and Sterling Equities. The Mets' owners reached a settlement agreement in the spring in which they agreed to pay back $162 million in 2016.
This isn't the first time Major League Baseball has found itself entangled in a financial scandal. There was the infamous "Black Sox" scandal in 1919 and then there was the Los Angeles Dodgers' payroll embezzlement scheme in 1985 involving Edward Campos.
Could these transgressions have been avoided or at least minimized by additional built-in safeguards or earlier detection?
By applying the discipline of forensic accounting – an emerging specialty within the accounting field – these episodes and others that emerged with the global recession in 2008 could have been mitigated or entirely prevented.
Modern corporate fraud is sophisticated and increasing rapidly. In its 2012 annual survey, the Association of Certified Fraud Examiners estimated that occupational fraud costs businesses 5 percent of their revenues. By applying that estimate to the 2011 Gross World Product, we can project a more than $3.5 trillion loss due to global fraud.
Forensic accounting is more than just number crunching. It involves specialized investigative training. In addition to working toward preventing and uncovering fraud, forensic accountants also might be engaged in shareholder/partnership disputes, insurance claims, divorce and bankruptcy.
In response to this growing problem, American colleges and universities, including Misericordia University in Dallas Township, are offering courses in forensic accounting. In doing so, these institutions are better preparing students for the challenges they might encounter throughout their careers.
Joan Foster is an assistant professor of business, and Charles Makar is a part-time business professor who also has experience investigating fraud and conducting forensic audits for Pennsylvania. The Misericordia University business professors can be reached at [email protected] and [email protected].