U.S. tries again to jail Madoff

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 $10 million bail and living under guard in his $7 million Manhattan penthouse apartment.

Federal prosecutors will at a hearing on Wednesday try to persuade a judge to revoke the bail, which was set by a different judge.

The government wants Madoff 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 "should not be trusted with a second chance to dissipate assets," prosecutors wrote U.S. District Judge Lawrence McKenna, who is hearing the appeal. "There is no combination of conditions that reasonably will assure the presence of the defendant and the safety of the community."

McKenna will hear the government appeal at 2:30 p.m. Wednesday in Manhattan, court officials said.

Lawyers for Madoff have argued that the mailings were innocent mistakes and that their client, who has surrendered his passport, posed no risk of flight.

Ira Sorkin, one of the lawyers, 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 with endowments managed by Madoff to close.

Massachusetts officials had subpoenaed Madoff 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 spokesman Josh Hochberg that he had no knowledge of the fraud, and like others was a victim.

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.