By Jonathan Stempel and Jennifer Ablan

NEW YORK (Reuters) - Owners of the New York Mets pro baseball team rejected allegations in a $1 billion lawsuit that they once shopped for fraud insurance to insulate themselves from Ponzi schemer Bernard Madoff.

Fred Wilpon and Saul Katz, principals at Sterling Equities, said they did not pursue coverage under a "one of a kind" insurance policy in 2001, which might have signaled they feared fraud more than seven years before Madoff was caught.

Irving Picard, the trustee seeking money for Madoff's victims, raised the insurance issue as he pursued claims that the Mets owners sought to enrich themselves by investing with Madoff despite a slew of red flags about his possible crimes.

Picard's Mets lawsuit, which is also being mediated, is perhaps the most publicly contentious of the trustee's roughly 1,050 lawsuits, which seek $90 billion for Madoff victims.

"The Sterling defendants never suspected Madoff was running a Ponzi scheme or any other fraudulent enterprise, never 'shopped' for fraud insurance, never thought they needed fraud insurance, and never purchased fraud insurance," the Mets owners said in a Monday night filing in Manhattan bankruptcy court.

"The trustee has examined everyone and everything. He has found nothing," they added.

Amanda Remus, a spokeswoman for Picard, declined to comment. Picard's lawsuit seeks to recover $300 million of "fictitious profits" and $700 million of principal.


The trustee has alleged that Charles Klein, a managing director at private equity firm American Securities, was among the first to suggest Sterling look into fraud insurance.

But the Mets owners said there was no evidence they then went on an insurance "shopping spree" because they suspected Madoff was corrupt.

They pointed to Katz's sworn testimony last August, under questioning by a lawyer for Picard, in which he recalled a talk with a Sterling partner, Arthur Friedman.

"We weren't going to buy insurance on something that we thought was as good as gold and waste money," Katz said.

"What steps did you take to investigate the insurance aspect of this?" the lawyer then asked.

"I think I asked Mr. Friedman to investigate it and see what the cases are. But that's because of my respect for Mr. Klein, who said just take a look at it. So we took a look at it."


Picard had also recounted testimony by David Katz, Saul's son, that in 2002 he had been "screaming" for Sterling to diversify away from the "black box" that was Madoff's firm.

But the Mets owners said "there is not a scintilla of evidence" to suggest David Katz or any other Sterling partner had concerns about Madoff.

Indeed, they said, David Katz testified last August to once discussing diversification with his father in the 1990s.

"Did you talk about any concerns that either of you had about Madoff, if any?" a lawyer for Picard asked David Katz.

"Other than there's too much money in one place?"


"No. That was the only thing. Otherwise we'd take everything out."

Last month, the Mets owners entered exclusive talks to sell part of the baseball team to hedge fund manager David Einhorn for $200 million, hoping to cover some debt and projected operating losses.

The two sides hoped to reach agreement by June 30. Einhorn was not immediately available on Tuesday for comment.

The case is Picard v. Katz et al, U.S. Bankruptcy Court, Southern District of New York, No. 10-05287.

(Reporting by Jonathan Stempel and Jennifer Ablan; editing by John Wallace)