Madoff Remains Free on Bail, Judge Rules

AP

Accused swindler Bernard Madoff can remain out on bail and under house arrest, a U.S. judge ruled Wednesday, rejecting a government appeal to send him to jail.

U.S. District Court Judge Lawrence McKenna said in U.S. District Court in Manhattan that "the government has not shown that there are no conditions to prevent Madoff from being a danger" to any person or cause economic harm.

McKenna agreed with a ruling Monday by U.S. Magistrate Judge Ronald Ellis. The government appealed the ruling in briefs and during a one-hour hearing on Wednesday.

Madoff, 70, who authorities say has confessed to running a $50 billion scam that defrauded investors worldwide, is out on $10 million bail and living under guard in his $7 million Manhattan penthouse apartment.

His assets are frozen under court order, but the government argued that he mailed $1 million worth of jewelry and valuables to family and friends in violation of the order.

Madoff's lawyers argued that it was an innocent mistake and not an attempt to send his assets to other people. "The freeze on the assets has made it close to impossible for the defendant to dispose of his assets,' McKenna said. He said the restrictions on Madoff made it "close to nil as you can get" for Madoff to flee.

Madoff arrived at the courthouse at about 1:15 p.m., getting out of his car and walking with federal marshals into the building without taking any questions from the throng of reporters awaiting him.

More from CNBC.com:

• Slideshow: Rogues Gallery of Financial Crime

The once-respected money manager, now one of the most vilified figures in the United States, was seen by reporters taking off a sleeveless dark blue flak jacket from under his coat after passing through the security metal detector in the lobby. He then was escorted by marshals to the courthouse elevators. He then was escorted by marshals to the courthouse elevators.

The bail conditions, including 24-hour house arrest and electronic monitoring, were imposed to "prevent harm or flight" according to a prior court order.

Prosecutors did not initially oppose bail for Madoff after his Dec. 11 arrest, saying in the court papers that when the alleged fraud first came to light, Madoff "had confessed" and "had indicated through counsel a willingness to assist the government in doing whatever possible to make victims whole."

But they said they now believed jailing him is the only way to ensure that Madoff does not try to disperse more assets and cause further harm to his victims, who are trying to recover money they lost. Tighter bail restrictions on Madoff that were imposed on Monday were inadequate, they said.

Among the new restrictions was an order for Madoff to provide the government with a list of portable valuables to be checked every two weeks.

"Checking the contents of his apartment against that inventory every two weeks would only mean that the government would learn after the fact that assets had been dissipated," the prosecutors wrote.

Prosecutors said the inventory check also only applied to Madoff's Manhattan home and not his other properties, which according to court filings include homes in Long Island, New York and Palm Beach, Florida.

Madoff Associate Robert Jaffe Sued

Meanwhile, Massachusetts' top securities regulator Wednesday sued a prominent business associate and friend of Madoff to force the man to testify one day after he missed a key meeting.

William Galvin, Massachusetts' Secretary of State, said he filed a complaint in Massachusetts Superior court to force Robert Jaffe, who funneled billions of investment dollars to Madoff, to provide testimony to regulators.

Galvin issued a subpoena to Jaffe in December so regulators might find out more about how Madoff, who has been charged with having masterminded the biggest Ponzi scheme in U.S. history, operated.

Jaffe failed to show up at Tuesday's scheduled meeting, however, because he was under a doctor's care, his spokesman said Tuesday.

Stanley S. Arkin, counsel to Jaffe, had this statement for CNBC: "We will deal with this lawsuit, as we deal with any lawsuit, by defending it appropriately."

Copyright 2009 Reuters. Click for restrictions.