U.S. presses to jail Madoff on diamonds, watches mail

By Grant McCool

NEW YORK (Reuters) - Accused swindler Bernard Madoff mailed $1 million worth of diamonds, watches and other jewelry violating a court order, U.S. prosecutors said on Wednesday while demanding the disgraced investment adviser be jailed.

As prosecutors pressed their case, the Securities Investor Protection Corp (SIPC) said some investors who may have been bilked by Madoff could start recovering funds in a few months.

The agency, created by Congress in 1970 to help investors who had accounts at failed brokerages, said it had mailed 8,000 claim forms to Madoff investors, but that it was too soon to know how many investors had been defrauded.

Authorities have said that Madoff confessed last month to running a Ponzi scheme for many years in which early investors were paid with the money of new clients, piling up losses of $50 billion.

In a brief filed in U.S. District Court in Manhattan in response to the government, Madoff's lawyers said he "simply did not realize" that mailing valuable personal items to family and friends violated a December 18 court order.

"Although Mr. Madoff had consented to the order, which prohibited Mr. Madoff from transferring assets, he simply did not realize that it pertained to these personal items," lawyers Ira Sorkin and Daniel Horwitz wrote.

They said every effort was made to return the jewelry.

Madoff, under house arrest and surveillance, was arrested and charged in December with security fraud.

His lawyers argued in court papers on Wednesday that the 70-year-old's restrictive bail conditions "are more than adequate", that he posed no danger to anyone and that he was not a flight risk. He and his wife have surrendered their passports to authorities.

HUGE EXPOSURE

Wealthy investors, Jewish charities, universities and others have said they lost money through the scheme.

The situation looked bleak for Austria's Bank Medici, which said it is one of the biggest victims of Madoff's purported $50 billion "giant Ponzi scheme", with a $3 billion exposure.

The bank, one of several in the world to disclose exposure to Madoff, is the only one to have been placed under government supervision since the Madoff scandal erupted.

In a statement on Wednesday, Bank Medici denied a New York Times report that chairwoman and majority owner Sonja Kohn had gone into hiding for fear of recrimination from wealthy Russians who lost money with the funds they bought from her.

Madoff has become a vilified figure since his December 11 arrest on a charge of securities fraud. He is under house arrest in his luxury Manhattan apartment on $10 million bail.