U.S. to Ask Another Judge to Revoke Madoff’s $10 Million Bail Jan 14,2009

By David Glovin and Allan Dodds Frank

Jan. 14 (Bloomberg) -- Bernard Madoff will attend a hearing in Manhattan federal court where the government plans to challenge a U.S. magistrate’s decision allowing the investment adviser to remain free on bail, a defense lawyer said.

Another judge will hear arguments on whether Madoff, the accused mastermind of the biggest Ponzi scheme in history, will stay out of jail as prosecutors probe the alleged fraud. U.S. District Judge Lawrence McKenna set arguments for this afternoon.

“His continued release represents a danger to the community of further obstruction of justice and economic harm,” Assistant U.S. Attorney Marc Litt wrote in a filing yesterday. He seeks reversal of the magistrate’s ruling upholding a $10 million bond.

Madoff, 70, was charged last month with bilking investors in a $50 billion Ponzi scheme by using money from new investors to pay old ones. With government consent, he was freed Dec. 11 on bail. Last week, prosecutors asked that he be jailed for transferring jewelry to relatives. U.S. Magistrate Judge Ronald Ellis denied the request while imposing additional conditions.

Madoff is under house arrest, except for court appearances, and monitored by guards and electronic surveillance. He must now also inventory his belongings. His lawyer, Ira Sorkin, said Madoff will attend the hearing. The attorney is to file a response to the U.S. filing beforehand.

Fraud Charge

Madoff hasn’t formally responded to the lone securities fraud charge he faces, which may result in a sentence of as much as 20 years in prison and a fine of $5 million if he’s convicted.

The case now goes before McKenna, who will consider whether Madoff’s transfer of property in violation of a court order in a related civil lawsuit means he’s a threat to flee or poses a risk to the community, as the government has argued.

McKenna, 75, has been on the bench since 1990 and is now a senior judge with a reduced caseload. In 2007 he sentenced former Aspen Technology Inc. Chief Executive Officer David McQuillin, who was accused by authorities of accounting wrongdoing, to four weeks in a halfway house for hiding a side deal from investors.

He also presided over the criminal case of money manager Martin Armstrong, who languished in a New York jail for more than six years while his case was pending. McKenna eventually transferred the case to another judge. Armstrong later pleaded guilty.

In 2002, McKenna ruled that New York City police can’t disperse homeless people who sleep on the steps of the Fifth Avenue Presbyterian Church in Manhattan, though officers may remove those sleeping on the church’s sidewalk.

Library Clerk

McKenna, a graduate of Fordham University and Columbia Law School, once worked as a clerk for the New York Public Library. He later became a partner at the New York law firm Wormser Kiely Galef & Jacobs.

He now must decide whether federal law requires Madoff be imprisoned until his case is concluded.

On Jan. 5, prosecutors said Madoff violated a court order in a Securities and Exchange Commission case by mailing Cartier and Tiffany watches, a ring, a diamond necklace and other jewelry in an effort to “dissipate” his assets. They said his violation of the order indicated he might flee the country. The property was worth more than $1 million, they said.

Sorkin told Ellis last week that the mailings started Dec. 24 as Madoff and his wife Ruth began to “reach out” to immediate family and friends by giving them a few “sentimental personal items.” That evening, Ruth Madoff set aside items accumulated over 49 years of marriage and Madoff gathered watches he’d collected over the years.

The Couple

The couple, Sorkin said, mailed the items to their sons Andrew and Mark; to their daughters-in-law; to Ruth Madoff’s sister, Joan Roman; and to an unnamed married couple with whom they were close friends. It wasn’t until after Ruth Madoff met with lawyers on Dec. 30 that she realized they shouldn’t have done so, and the Madoffs began retrieving them, the lawyer said.

Ellis said an asset transfer may warrant jailing a criminal defendant, though it wasn’t called for in this case. Even for the most serious offenses, more than half of all defendants are released on bail, including 73 percent of those charged with fraud, he said in the ruling.

“The issue at this stage of the criminal proceeding is not whether Madoff has been charged in perhaps the largest Ponzi scheme ever, nor whether Madoff’s actions should result in his widespread disapprobation by the public,” Ellis wrote.

At issue is “whether the government has carried its burden of demonstrating that no condition or combination of conditions can be set that will reasonably assure Madoff’s appearance and protect the community from danger.”

Letter to Judge

In his letter to McKenna, Litt repeated many of the arguments he unsuccessfully made to Ellis. The prosecutor said Madoff posed a threat to the community and may flee. He said McKenna should conduct a “de novo,” or new, review of whether Madoff’s asset transfer should lead to the revocation of bail.

Madoff may flee also because the government has a strong case and he will likely receive a lengthy jail term, Litt added.

“The harm to the community by the risk that defendant will further attempt to dissipate assets is obvious,” Litt wrote. “Every possible penny of the defendant’s assets must be protected from dissipation.”

The case is U.S. v. Madoff, 08-mag-2735, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Allan Dodds Frank in New York at allanfrank@bloomberg.net and; David Glovin in New York federal court at dglovin@bloomberg.net.

Last Updated: January 14, 2009 00:01 EST