Prosecutor: Madoff gifts included diamond necklace
NEW YORK -- Alleged Ponzi scheme mastermind Bernard Madoff sent packages containing at least 16 watches and a diamond necklace to family members over the holidays, prosecutors said in court documents Wednesday as they argued that he be jailed right away.
The court document was formally filed in federal court in Manhattan Wednesday. A defense lawyer is scheduled to submit his arguments later Wednesday.
Assistant United States attorney Marc Litt, said Monday that Madoff violated a court injunction that forbade him from transferring any assets either of his company or his personal assets. "On Dec. 29 and Dec. 31 … jewelry and other valuables belonging to the defendant were transferred by the defendant and his wife to third parties," Litt said, according to transcripts of Monday's court hearing.
Madoff and his wife, Ruth, sent antique watches, pens, mittens and jewelry to their brother and two sons, and also to a family friend in New York. Litt said the value of the items is worth over $1 million.
Madoff's lawyer Ira Sorkin tried to make light of the transfers. "I don't mean to be cavalier about this, your Honor … the cuff links were $25," said Sorkin. "The mittens were a Hanukkah gift valued at $200."
Litt fired back: "The government is not here because of mittens and cuff links. We're here because of hundreds of thousands of dollars and perhaps millions of dollars worth of very expensive watches and other jewelry." Litt said that Madoff's action decreases the amount of assets left for recovery for victims of the scam.
Judge Ronald Ellis said he would rule after he had the documents. David Rosenfield, a counsel at Herrick Feinstein in New York, says that the government's case is rather thin. By law, the judge can revoke a bail only if there is a risk of flight or there is a danger to the community. "It's a stretch to make the argument that sending gifts poses either a risk of flight or that he can do anybody any harm," says Rosenfield.
However, Rosenfield says that Madoff could have opened up the possibility that prosecutors could file new charges for civil or criminal contempt for violating a court order.
Sorkin called the transfers an innocent mistake and said Madoff and his wife sought return of the items they sent Dec. 24 as soon as they were told they could not send them. He also suggested that some of the items belonged to Madoff's wife, and therefore were not subject to a court order.
"We maintain it happened innocently," Sorkin said. "He's not a threat to the community, and there's no danger he's going to flee."
The court hearing was the latest chapter in a struggle between prosecutors and Madoff over his bail.
Madoff was released without restrictions after his arrest, angering critics who thought it was unfair that a man accused of such a large fraud could walk the streets. Conditions of his bail were later tightened to the point that Madoff is now under constant surveillance and confined to his Manhattan penthouse around the clock, the exception being court hearings.
His $10 million bail is secured by his homes in Manhattan, Long Island and Florida.
In Washington on Monday, Congress wanted to know why the Securities and Exchange Commission failed to discover Madoff's alleged $50 billion Ponzi scheme despite repeated complaints since 1999.
"Our regulatory system has failed miserably, and we must rebuild it now," said Paul Kanjorski, chairman of the House Financial Services Committee. The hearing could play a key role in how Congress rewrites rules for financial markets and institutions and the government agencies that oversee them.
SEC Inspector General David Kotz, who is investigating the agency's failure to uncover the alleged fraud, said the SEC's failure stemmed from its structure rather than any fault of its officials. "The circumstances surrounding the Bernard Madoff matter may very well dictate a more expansive analysis of commission operations," Kotz said.
The SEC has come under withering criticism for not following up on warnings going back to 1999 from Harry Markopolos, a former money manager and Madoff rival. Markopolos was also scheduled to testify before the panel but said he needed more time to prepare his testimony.
Kotz said he will interview Markopolos as part of his own investigation, commissioned by SEC Chairman Christopher Cox, who admitted to his agency's lapses. "Our investigation will be independent and as hard-hitting as necessary," Kotz said.
Rep. Gregory Meeks, D-N.Y., who said many of his constituents have lost money, called on Congress to shore up rules to prevent a Madoff-style situation from happening again. "We're dealing with a crook, and he deserves to go to jail," he said.
One alleged victim, Allan Goldstein, 76, testified he had lost all $4.2 million of his retirement savings and has had to cash in his life insurance to make his mortgage. Goldstein said he also blames regulators for letting the alleged fraud happen. "There were warning signs, and nobody did a thing," he said.
Madoff, 70, was arrested Dec. 11. Prosecutors charged Madoff with securities fraud, saying that he confessed to having lost $50 billion. The list of those who lost their investments ranges from individuals to charities, hedge funds and banks.
So far, the trustee liquidating Madoff's firm has found $830 million in assets. Stephen Harbeck, president of the Securities Investor Protection Corp., testified he's mailed out more than 8,000 claim forms to creditors who lost money investing with Madoff. Harbeck says he expects customer claims "will be in excess of any previous case."
Contributing: USA TODAY's Pallavi Gogoi, The Associated Press