Madoff Remains Free as Judge Considers Prison Request

Bernard Madoff, awaiting trial for securities fraud, remained free on bail while a federal judge considered a request by prosecutors to send him to prison for mailing $1 million of valuables in violation of an asset freeze.

Madoff disposed of five items including “very valuable jewelry,” Assistant U.S. Attorney Marc Litt said today in Manhattan federal court. The government has three of the items, Litt told U.S. Magistrate Judge Ronald Ellis. Defense lawyer Ira Sorkin said the objects, including watches and cuff links, were heirlooms innocently sent to Madoff’s relatives. Sorkin said he told his client to retrieve them and alerted the government.

Madoff, 70, was charged last month for allegedly directing a $50 billion Ponzi scheme out of his New York investment firm. He is free on $10 million bail while under house arrest and electronic surveillance. Litt said the transfer of valuables is a “changed circumstance” allowing the revocation of bail.

Ellis declined to immediately rule on the government request, asking for legal briefs from both sides by Jan. 7. As Madoff fought today to stay out of jail, his alleged victims continued to detail their losses with him and regulators sought to identify assets they could use to repay customers.

Disclosed Today

Bard College’s president disclosed today that the Annandale- on-Hudson, New York liberal-arts school had lost about $3 million in investments related to Madoff. Harley International Ltd., a hedge fund run by Cayman Islands-based Euro-Dutch Management Ltd., invested all of its assets with Madoff, a person familiar with the matter said. The fund managed $2.76 billion as of Oct. 31.

Last week, Rosenman Family LLC, managed by Martin Rosenman, president of Bronx-based Stuyvesant Fuel Service Corp., sued Irving Picard, the trustee appointed to supervise the unwinding of Madoff’s firm, seeking return of a $10 million investment.

Picard has identified $830 million in liquid assets in Madoff’s defunct brokerage firm, Bernard L. Madoff Investment Securities LLC, according to the Securities Investor Protection Corp. The assets may be subject to recovery by Madoff’s customers, SIPC Chief Executive Officer Stephen Harbeck told a congressional committee today in prepared testimony.

Picard sent 8,000 claim forms Jan. 2 to people who appeared to have invested with Madoff, and published a notice telling them how to recover lost money. The forms were sent to people “who appear to have been customers” of Madoff’s firm “with open accounts within the past 12 months,” according to a statement. Madoff’s advisory business was estimated to have had more than 4,000 customers, people familiar with the matter said last month.

Bail Hearing

At today’s bail hearing, Litt argued that the mailing of the valuables by Madoff and his wife Ruth, which Sorkin said began Dec. 24, violated an agreement to freeze Madoff’s assets as part of a Securities and Exchange Commission lawsuit.

“The bail conditions that were originally set by this court haven’t been violated one iota,” Sorkin responded in court, adding that he learned of the government revocation bid today.

Litt argued that the dispersal of the valuables constituted a risk to investors and the public that justified imprisonment before trial. He said that the likelihood that Madoff would be eventually imprisoned increased his risk of flight.

“The case against the defendant is strong, and it’s getting stronger,” the prosecutor said, making it more likely Madoff will flee. The transfer was an “obstruction of justice.”

Janice Oh, a spokeswoman for Interim Manhattan U.S. Attorney Lev Dassin, declined to comment on how prosecutors first learned of the asset transfers or the break down of their alleged $1 million value.

Pair of Mittens

The items included cuff links, watches, a pin and a pair of mittens, Sorkin said. The cuff links are worth $25 and the watches are worth more, he added, without being more specific. He told the Madoffs on Dec. 30 to get the items back, Sorkin said.

The items were mailed to his brother Peter Madoff, his two sons, a daughter-in-law and an unnamed New York City couple now vacationing in Florida, Sorkin and Litt said.

The mittens were given to Madoff by his granddaughter, Sorkin said. Peter Madoff’s lawyer, John Wing, didn’t immediately return a call seeking comment.

Some of the items belong to Madoff and some to his wife, Ruth. On Dec. 26, Ruth Madoff agreed with the government not to dispose of her assets, Litt said. She hasn’t been charged and is also represented by Sorkin’s firm.

“There was no attempt by Mr. Madoff or Mrs. Madoff to violate the terms of bail,” Sorkin told the judge. “Nothing has changed.”

Legal Issue

In declining to rule today, Ellis said the legal issue is whether the dissipation of assets constitutes a risk of harm to the community that would warrant a change in Madoff’s bail status.

The judge asked both sides to file briefs on the matter. Prosecutors will deliver their brief by tomorrow. The defense response is due Jan. 7.

Litt is the prosecutor who convinced a federal judge to jail Amerindo Investment Advisors Inc. cofounder Alberto Vilar last month pending his sentencing in March. Vilar, convicted Nov. 12 of stealing as much as $20 million from clients, had asked to remain free on $10 million bail.

Madoff’s firm collapsed in December after he told his sons it was a fraud, according to a criminal complaint by the FBI and a lawyer for the brothers. Madoff was placed under 24-hour house arrest in his $7 million New York City apartment last month after prosecutors warned of his “harm or flight.”

Original Order

He was originally ordered to have electronic monitoring and a 7 p.m. curfew. He is now barred from leaving his Upper East Side Manhattan apartment except for court appearances, and his building is monitored by security guards and video surveillance.

Madoff’s wife, Ruth, agreed to give up homes in Montauk, New York, and Palm Beach, Florida, if her husband flees. Bernard Madoff was arrested Dec. 11 after telling his sons that his firm was “one big lie,” the SEC said. U.S. Magistrate Judge Gabriel Gorenstein in Manhattan also ordered the Madoffs to surrender their passports.