Madoff still out on bail, Mass. targets middleman

By Grant McCool

NEW YORK (Reuters) - Accused swindler Bernard Madoff was allowed to stay in his Manhattan penthouse and out of jail on Wednesday, as regulators chased down one of his top associates and investors worldwide sued over their losses.

A U.S. judge upheld a magistrate's ruling on a government request to jail the disgraced investment adviser, among the most vilified people in the United States after being charged with one of the biggest frauds in Wall Street history.

The silver-haired Madoff, 70, was seen by reporters in the lobby of the Manhattan federal courthouse removing a sleeveless dark blue flak jacket from under his coat before being escorted to the hearing. He was put under house arrest and electronic monitoring in mid-December to "prevent flight or harm" according to a court order.

U.S. brokerage watchdog the Financial Industry Regulatory Authority (FINRA) said it investigated 19 trading complaints at Madoff's brokerage firm since 1999 but said they did not relate to any of the investment advisory issues involved in the financier's alleged fraud.

FINRA said the U.S. Securities and Exchange Commission did not share tips it received or alert the brokerage watchdog to any concern that the SEC may have had with Madoff's firm.

It's another blow to the SEC, which has been criticized for not following up on warnings from a Madoff competitor and spotting red flags such as the firm's use of a small unknown auditor.

In Massachusetts, the state's top securities regulator sued to force a Madoff middleman to testify. The middleman, Robert Jaffe, missed a scheduled meeting with regulators on Tuesday, providing a doctor's note saying that he was ill. Jaffe was said to have funneled billions of dollars to Madoff.

The global fallout continued from the purported scandal that may have bilked as much as $50 billion from the wealthy, charities, universities and banks around the world.

A Spanish law firm said it would sue in the United States on behalf of investors in Latin America, particularly Mexicans, Brazilians, Venezuelans and Argentines.

Separately, the law firm also said it was representing a group of Spanish investors with exposure of 10.5 million euros to Madoff-related funds and was preparing to seek redress under Spanish law.

"All of them had a relationship of trust with financial intermediaries who told them where to place their funds," one of the firm's partners, Juan Ignacio Peinado, said in the statement.

SWISS BANK

A Swiss bank jolted by the scandal said it conducted repeated analyses of the hundreds of millions of dollars it invested with Madoff, contrary to a Wall Street Journal report.

The Union Bancaire Privee said in a statement it made repeated due diligence visits over the years, but like other investors, had no inkling that it and its investors were victims of a fraud.

Meanwhile, Ireland's financial regulator is looking into two investment funds with exposure to Madoff, including a pan-European fund known as UCITS, a spokeswoman said.