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

By Grant McCool

NEW YORK (Reuters) - Accused swindler Bernard Madoff should be jailed for violating a court order by mailing $1 million worth of diamonds, watches and other jewelry to friends and family, U.S. prosecutors told a court on Wednesday.

Prosecutors said Madoff had become a flight risk and should be jailed immediately.

As the government pressed its case, the Securities Investor Protection Corp (SIPC) said some investors who may have been bilked by Madoff could start recovering money 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.

Prosecutors said the million dollar package mailed by Madoff contained 13 watches, a diamond necklace and other valuables. Other packages contained diamond Cartier and Tiffany watches, a diamond bracelet, gold watch, four diamond brooches and a jade necklace, according to government documents.

Madoff's lawyers said that every effort was being 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." They said he posed no danger to anyone and that he was not a flight risk. He and his wife have surrendered their passports to authorities.

Typically, in cases of white collar crime, defendants are allowed to remain free on bail, but often with restrictions.

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.