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Madoff's wife withdrew funds on eve of his arrest

By Svea Herbst-Bayliss and Martha Graybow
/ Source: Reuters

By Svea Herbst-Bayliss and Martha Graybow

BOSTON/NEW YORK (Reuters) - The wife of Bernard Madoff withdrew more than $15 million from an account linked to the accused swindler in the days before his arrest, Massachusetts authorities said on Wednesday, adding a new layer of intrigue to the probe of the purported $50 billion scam.

Ruth Madoff pulled out $10 million on December 10, the day before her husband was arrested and charged with running a global investment fraud, and $5.5 million on November 25, according to Massachusetts Secretary of State William Galvin.

The disclosure came in reports produced by Cohmad Securities Corp, a firm co-owned by Bernard Madoff that funneled millions of dollars from its clients to the financier. Galvin's office filed a court complaint trying to suspend Cohmad's license as a broker in Massachusetts.

Galvin, whose office has the power to bring civil but not criminal charges, did not accuse Ruth Madoff of any wrongdoing and the Cohmad documents did not provide any details on what she may have done with the withdrawn funds. The withdrawals were mentioned in a footnote in Galvin's 39-page complaint.

The $10 million withdrawal on December 10 matches the amount Bernard Madoff was required to post in bond as a condition of his release on bail on December 11. Ruth Madoff is also paying for private security to monitor her husband, one of the terms of his house arrest at their Manhattan penthouse.

"The immediate leap you make is to allege that Mrs. Madoff was on notice and knew something was going down," said Brenda Sharton, a partner at law firm Goodwin Procter who is working on Madoff-related litigation. "But all the facts have not come to light yet and we don't know the purpose for which she withdrew the money."

Lawyers for the Madoffs could not immediately be reached.

The U.S. Attorney's Office in Manhattan bought more time to probe the Madoff case on Wednesday, with the government and defense lawyers agreeing to extend for 30 days a deadline to bring an indictment or secure a guilty plea. A preliminary hearing is scheduled for March 13.

Bernard Madoff, 70, is the only person charged so far in the alleged scam that has hit banks, charities, wealthy investors and celebrities worldwide.

Authorities say he has told them he acted alone. Legal experts, however, have said they are skeptical that such a massive fraud could have been pulled off by one person.

"This thing is still unfolding and the players still need to be identified," said Howard Kleinhendler, an attorney for Madoff investors. "The notion that Madoff was a one-man show acting alone just doesn't withstand scrutiny."

Federal prosecutors, the U.S. Securities and Exchange Commission, various state authorities and a court-appointed trustee liquidating the Madoff firm are all investigating.

Galvin said that, for years, Cohmad Securities received monthly payments from Madoff -- totaling $67 million and comprising the bulk of the firm's total income -- for "professional services," "brokerage services" and "fees for account supervision."

Cohmad is short for the names Cohn and Madoff. Maurice Cohn, a long-time Madoff friend and business partner, owns at least 75 percent of Cohmad, while Madoff owns between 10 percent and 25 percent, Galvin's office said.

Galvin said in his complaint that Cohmad had largely refused to cooperate with his office's request for information about its activities and those of top Cohmad executive Robert Jaffe, a long-time Madoff friend.

He said Jaffe engaged in a series of "delay tactics" to avoid giving testimony and that when he did appear on February 4, he invoked his Fifth Amendment rights not to answer any questions regarding his business.

Jaffe lawyer Stanley Arkin said his client was a victim of Madoff's purported fraud and had no knowledge of the scheme, according to a statement from Jaffe's spokesman. The statement said Jaffe did not have adequate time to prepare to testify, which is why he invoked his Fifth Amendment rights.

The complaint also said Cohmad paid money to Sonja Kohn, who founded Austria's Bank Medici and had close ties to Madoff. Bank Medici has said it was one of the biggest victims of the purported Madoff fraud.


Madoff, a former Nasdaq stock market chairman, is accused of running a long-standing Ponzi scheme in which money from new investors was used to pay withdrawals of earlier ones.

In court papers announcing the 30-day continuance of the criminal case, Assistant U.S. Attorney Marc Litt wrote that prosecutors and Madoff's lawyer, Ira Sorkin, have had talks about a "possible disposition of the defendant's case and the parties plan to continue those discussions."

A similar extension in the case was granted in January.

An indictment is a necessary step if Madoff is ever to stand trial on criminal fraud charges.

Ruth Madoff, the co-author of a kosher cookbook, has drawn attention from prosecutors who tried unsuccessfully to have her husband's bail revoked. They said the couple sent more than $1 million in valuables to relatives and friends in violation of a court order.

Other people and firms under scrutiny include hedge funds and other investment managers who recommended Madoff to clients over the years. Among them is Ezra Merkin, who is being probed by New York Attorney General Andrew Cuomo over his role in placing client money with Madoff.

A Cuomo official told Reuters Merkin is being cooperative with the investigation. Cuomo told reporters earlier on Wednesday that the probe was "ongoing," but did not provide details.

(Additional reporting by Grant McCool; Editing by John Wallace and Andre Grenon)