U.S. trying again to jail Madoff; state probes grow

By Martha Graybow and Grant McCool

NEW YORK (Reuters) - U.S. prosecutors will try again on Wednesday to end Bernard Madoff's "penthouse arrest" and send the accused swindler to jail, and the state of New York has begun investigating the damage done to charities that invested in his alleged fraud.

In Massachusetts, a key middleman who helped investors place billions of dollars with Madoff failed to appear before state regulators. He was under subpoena but a spokesman said later he was in a doctor's care and could not attend.

Madoff, a 70-year-old investment adviser accused of running a worldwide fraud that authorities say may have cost investors $50 billion, is out on bail and living in his $7 million Manhattan penthouse apartment, under guard.

A court hearing was set on Tuesday for the next day for U.S. federal prosecutors to try to persuade a judge to revoke Madoff's bail.

The government wants him jailed pending trial or a guilty plea, saying he had sent valuables including diamond watches to family and friends in violation of a court order.

Madoff's attorneys argued that the mailings were innocent mistakes and that Madoff, who has surrendered his passport, posed no risk of flight.

Judge Lawrence McKenna in U.S. District Court in Manhattan will hear the government's argument at 2:30 p.m. (1930 GMT) on Wednesday, court officials said.

Madoff's lawyer Ira Sorkin said Madoff would appear in court for the hearing. "The government will make its application and we will oppose it," Sorkin said.

Madoff has become one of the country's most vilified figures since authorities arrested him on December 11 and said he had confessed to a long-running, $50 billion Ponzi scheme. The fraud has wiped out wealthy investors' fortunes and forced charities whose endowments were managed by Madoff to close.

Massachusetts officials had subpoenaed Madoff business associate Robert Jaffe in December but he failed to show up on Tuesday.

Brian McNiff, Galvin's spokesman, said he did not know why Jaffe missed the meeting but the "Securities Division is preparing to enforce the subpoena and take all necessary actions to protect Massachusetts investors.

Jaffe has said through his spokesman, Josh Hochberg, that he had no knowledge of the fraud and was a victim like so many others.

Jaffe has worked for nearly two decades at Cohmad Securities, a firm that marketed Madoff's investment products. Massachusetts Secretary of State William Galvin, one of the first state regulators to probe the fraud, had subpoenaed Cohmad Securities and ordered Madoff to turn over all records relating to money he managed for state residents.

NEW YORK STATE PROBE

New York's attorney general, Andrew Cuomo, said on Tuesday his office had launched an investigation into frauds perpetrated on charities that lost money on their Madoff investments.