Alleged Swindler Nadel To Stay Behind Bars

Arthur Nadel, the Florida money manager who briefly went missing last month after the six hedge funds he ran collapsed in an alleged "mini-Madoff" scheme, will remain behind bars at least awhile longer.

"I find that there is overwhelming evidence that he is a flight risk," said U.S. District Judge Denise Cote in New York on Friday. But she delayed a final ruling on Nadel's bail, giving the

Arthur Nadel
Arthur Nadel

government and defense attorneys until next week to try and come up with an arrangement that will ensure that he won't take off again. Another hearing is scheduled for next Thursday afternoon. At least until then, Nadel will remain jailed at the Metropolitan Correctional Center in Manhattan.

Nadel, 76, appeared frail in court Friday. The long time Sarasota society maven was unshaven. He wore a navy blue jail uniform, an oversized green t-shirt spilling out from underneath. Asked by the judge if he would like her to read the complaint against him, Nadel replied softly, "That won't be necessary."

The government argues there are "no conditions" that will ensure Nadel doesn't flee, but defense attorneys say he can be subjected to electronic monitoring, and he has surrendered his passport. They also say Nadel can put up his homes, as well as his other businesses. But the government argues those businesses were financed with proceeds from his scheme.

Defense attorney Barry Cohen tells CNBC his client needs to get out of jail in order to help investors get their money back. But he says he can't guarantee Nadel won't attempt suicide--which he has previously threatened--if he is allowed to go free. At the same time, Cohen said he is concerned about how Nadel will fare in jail, even if only for a week. "He didn't look good, did he?" Cohen said after the hearing.

Nadel is charged in a two-count criminal complaint with securities fraud and wire fraud. A prominent philanthropist, he allegedly took in as much as $200 million from investors over the last 10 years, and told them the money had ballooned to more than $300 million as of last fall. But in fact, Nadel was allegedly taking out tens of millions of dollars for himself and his businesses, and donating millions more to charity.

Flooded with redemption requests as the markets as the markets soured last year, his hedge funds were already on the brink of collapse by last fall. Then, after Bernard Madoff's alleged Ponzi scheme blew up on December 11, the redemption requests to Nadel accelerated, and his business partners demanded an outside audit.

On January 14, Nadel took off, leaving a note for his wife threatening suicide and adding "The funds are gone. Nothing is left." But defense attorney Cohen insisted in court that Nadel only left because he was depressed. "He was not running. He was trying to figure out what he was going to do with his life," Cohen said.

Nadel traveled across the country for the next two weeks, "from city to city to city," said Assistant United States Attorney Reed Brodsky in court. Nadel traveled to New Orleans, San Antonio, Atlanta, Los Angeles and San Francisco, as his investors back in Florida were learning that their savings were gone.

All the while, Nadel was faxing letters to his family in Florida. In one, filed in court papers Thursday, Nadel says he "really anticipated" being dubbed a "mini-Madoff". Nonetheless, he insisted his actions were "not stealing, but rather desperate attempts to 'doctor' continuing losses."

"If this works out, you can also find me a literary agent," he concludes, signing the letter, "The 'disappeared' Art."

In court, defense attorney Cohen says he first spoke to his client on January 21, a week after Nadel vanished, and told him, "You don't have to come back if you don't want to."

"I want to make sure I heard you right," said Judge Cote. "You told him he didn't have to come back?"

"That's right, because he didn't," Cohen replied. Even though Nadel's disappearance was widely publicized by then, Cohen said he could not have known at the time that a warrant for his client's arrest had been issued under seal that day. Cohen says once he was informed of the warrant the following Monday, January 26, Nadel turned himself in "the very next day."

Prosecutors have until February 26 to obtain an indictment against Nadel. Cohen tells CNBC that Nadel, through his attorneys, has offered to plead guilty, but those discussions "haven't gone very far." Cohen says the government has been "playing hardball."