Federal prosecutors in Manhattan today asked a court to place alleged $50 billion Ponzi scheme operator Bernard Madoff in jail while they continue developing their case against him. Meanwhile, in Washington a Congressional panel was asking what the SEC could have done to prevent the scandal.
A federal judge, perhaps predictably, questioned the validity of the government's request to put Madoff in custody considering that Madoff's current bail terms -- home confinement in his posh Manhattan penthouse -- had earlier been agreed upon by the government.
A federal prosecutor argued that cufflinks, watches, and other personal property purportedly worth $1 million had been shipped by Madoff and his wife to relatives and friends during the holiday season, and that this constituted a violation of the terms of bail because the "dissipation of assets" could potentially harm investors seeking to recoup any of their losses from investing with Madoff.
Madoff's attorney, Ira Sorkin made light of the government's claim, saying the cufflinks were worth twenty five dollars and the valuable property included a pair of $200 mittens Mrs. Ruth Madoff sent a friend. Madoff's bail is secured by his assets including a posh Manhattan apartment appraised by some at $7 million, an ocean retreat in Montauk, New York, and a Florida mansion in Palm Beach.
When Madoff was originally arrested in mid December, his bail terms included an electronic bracelet but allowed him to roam his exclusive upper East Side neighborhood during the daytime and only be confined in his home overnight. Within a week, and amid public outcry, those terms were amended to eliminate the provision that allowed Madoff freedom from confinement.
A federal judge asked the prosecution and defense for written briefs to consider prior to making a decision on the government's request that Madoff be incarcerated. That decision is not expected to be handed down before Thursday afternoon.
Meanwhile, Congress has barely gotten back to work but members are already debating the Madoff scandal -- and what new regulatory changes are needed to prevent a similar one in the future.
As Rep. Paul Kanjorski, (D-PA), who chaired the hearing by the House Financial Services Committee Monday, put it, the allegations of fraud by Madoff "simply shock the conscience."
But, as the debate between the members made clear, the central question Congress will looking over in the coming months: whether it is a lack of regulations or a lack of enforcing existing regulations that led to the failure to detect Madoff's alleged Ponzi scheme.
Most, particularly Democrats agreed with Kanjorski, who noted that the failure of the SEC to detect the alleged scam despite complaints "raised even more troubling questions about the effectiveness of our regulatory process." He added: "Clearly our regulatory system has failed miserably and we must rebuild it now."
And while Republicans like Rep. Spencer Bachus (AL) agreed for the need for a "regulatory system for the 21st century," he said that Madoff's alleged scam may not be the result of a failure of regulation but "a failure to use them."
Whatever the ultimate shape of any new congressional legislation, it is clear that the SEC's inspector general, H. David Kotz, will take a broad look at whether the SEC failed to uphold its own standards.