Video: Madoff gifts cause for confinement, prosecutors say

updated 1/7/2009 10:14:20 PM ET 2009-01-08T03:14:20

A debate has been raging in New York over the fact that Bernard Madoff remains free on bail, spending his days in his luxury Manhattan penthouse despite being accused of the largest financial fraud in history.

Investors, editorial writers, and the general public have all expressed outrage, and prosecutors argue Madoff should be thrown behind bars because he could flee or hide his assets. But the push to jail the disgraced financier may have another, hidden purpose: Payback for his decision to stop cooperating.

Madoff, despite a dramatic confession during his arrest, has quit talking about how the money was collected and where it went, hampering the investigation and killing any incentive to give him a break on bail, officials familiar with the case said Wednesday. The officials spoke on condition of anonymity because the probe was at a sensitive stage.

The request to revoke Madoff’s bail suggests authorities “must think something’s being withheld,” said John Coffee, a professor at Columbia Law School. “The attempt to put him in jail is a way to ratchet up the pressure to resume cooperating.”

The issue of whether the former Nasdaq chairman should be allowed to remain under house arrest in his $7 million penthouse made headlines this week when prosecutors made a sudden appearance in court and accused him of violating his bail conditions by mailing jewelry and watches worth more than $1 million to relatives and friends.

The heirlooms included at least 16 watches, a jade necklace, an emerald ring, four diamond brooches, two sets of cufflinks, a diamond bracelet and other assorted jewelry from brands like Cartier and Tiffany.

Prosecutors claimed that by moving assets that could end up being used to compensate his victims, Madoff was a risk to the community — an argument normally reserved for violent offenders.

“Typically when a white-collar defendant is arrested, the ability to commit fraud disappears,” said Anthony Barkow, executive director of the Center on the Administration of Criminal Law at New York University School of Law. “When you’re accused of a crime of violence or of being a terrorist, if you’re out on the street, you can hurt people because that’s just what you do.”

But he noted that this case was one of a kind. “Typically your fraud defendant defrauds people nobody knows. The wreckage this guy caused is astounding,” he said.

Though past big-name defendants in white collar cases typically have remained free before trial, the decision to free the 70-year-old Madoff on bail has stirred up controversy.

“Every second that Bernard Madoff passes in his penthouse — an aerie financed by perhaps the greatest theft of all time — is a gross affront to equal justice in America,” the New York Daily News wrote on Wednesday. The newspaper is owned by one of Madoff’s alleged victims, real estate magnate Mortimer Zuckerman.

Madoff’s lawyer, Ira Sorkin, has confirmed that his client is not cooperating beyond agreeing to a freeze on his assets. He has argued that mailing the personal items was a harmless mistake, and that his client shouldn’t be punished for it.

Sorkin said that on Christmas Eve, Madoff “gathered a number of watches that he had collected over the course of years, knowing that, due to the sudden change in his circumstances, he would never have an occasion to wear these watches again.”

“To Mr. and Mrs. Madoff, the value of these items was purely sentimental,” Sorkin wrote in a court filing Wednesday.

No ruling on the bail is expected until sometime after noon Thursday.

In a letter dated Tuesday, Assistant U.S. Attorney Marc Litt said the Bail Reform Act of 1984 made it clear that Congress meant the need for “safety of the community” to be protected by bail conditions was meant to be broadly interpreted.

“Courts have, therefore, appropriately construed the statute to find that protection of the community from economic harm is a valid objective of bail conditions,” the prosecutor wrote.

Litt argued that Madoff needs to be imprisoned before trial because his decision to mail jewelry and other family heirlooms showed that he is unwilling to obey a previous court order that his assets not be touched.

“The scope of the defendant’s crime is vast, and it is likely that thousands of victim-investors have lost sums in the billions of dollars,” Litt wrote.

From the start, Madoff’s case has been like no other.

Prosecutors, the Securities and Exchange Commission and investors seemed to have little or no inkling that anything was amiss for decades as Madoff delivered steady returns between 8 percent and 12 percent in the best and worst of years.

Authorities say Madoff’s sons turned their father in after he revealed to them that he was “finished,” that he had “absolutely nothing,” that “it’s all just one big lie” and it was “basically, a giant Ponzi scheme.”

They say he confessed to his sons that he had blown more than $50 billion from investors he lured into the scheme, paying the early investors with the proceeds he received from those who entered his investment scheme later.

At an initial court appearance on Dec. 11, a magistrate judge let Madoff go home on $10 million bail secured only by the signatures of Madoff and his wife. Prosecutors agreed to the relatively light treatment without complaint.

By Dec. 17, Madoff was unable to get two of the required four co-signers of his bond. As a result, a magistrate judge tightened bail conditions to include home detention with electronic monitoring, imposition of a curfew and a posting of properties in the Hamptons and Palm Beach, Fla.

Two days later, Madoff agreed to a request by prosecutors for further conditions to reduce the risks of harm or flight. As a result, Madoff was confined to his apartment 24 hours per day with a private guard paid for by Madoff’s wife.

David Apfel, a former federal prosecutor now practicing white-collar defense in Boston, noted that the whole issue is essentially moot when you consider how hard it would be for him to flee at this point.

“His face is now known around the world. He has paparazzi sitting outside his apartment building,” Apfel said.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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