(Adds judge’s issue of stay)
By Grant McCool
NEW YORK, Jan 12 (Reuters) - Federal prosecutors said on Monday they will appeal a judge’s decision that allows accused swindler Bernard Madoff to stay in his Manhattan apartment under house arrest.
“The government intends to appeal the (magistrate) court’s order to the district court,” Acting U.S. Attorney Lev Dassin said in a letter to U.S. Magistrate Judge Ronald Ellis.
Ellis responded to the letter by ordering a stay for 48 hours until 1:00 p.m. (1800 GMT) on Wednesday.
Earlier in the day, Ellis issued a ruling, rejecting a government request to throw Madoff in jail.
The ruling gives Madoff, who has become one of the most vilified figures in America, more time in his $7 million home before he goes to trial or pleads guilty as authorities probe a $50 billion investment fraud to which they say he confessed a month ago.
Madoff’s lawyers have said their client is cooperating with government investigations following his Dec. 11 arrest for what would be the biggest Ponzi scheme in history. In a Ponzi scheme, early investors are paid with the money of new clients.
The government has until mid-February to convince a grand jury to bring an indictment against Madoff, a former chairman of the NASDAQ stock market and a once-respected figure for more than 40 years in a financial industry that is already reeling in crisis.
It is not unusual for people accused of white-collar crimes to be offered bail packages, and at this stage of the case, indictments could come at any time, legal experts said.
Ellis said in a written ruling on Monday: “Aside from the bare assertion that there remains some risk of flight, the government has failed to articulate any flaw in the current conditions of release.”
Prosecutors asked the judge last week to revoke bail, arguing that Madoff had violated a Dec. 18 court order freezing his assets by mailing more than $1 million worth of valuables to relatives and friends.
They said he was a flight risk and could cause further economic harm to investors by dispersing his belongings.
Legal experts said it was hard for the government to argue that 70-year-old Madoff might flee.
“The guy is on electronic monitoring, he has a guard watching him every day, and the press is watching his every move,” said Daniel Margolis, a partner at law firm Pillsbury Winthrop Shaw Pittman LLP and a former federal prosecutor.
“So fleeing the country under these conditions would require an escape plan of cinematic proportions.”
Ellis turned down the government’s bid to jail Madoff but imposed more curbs as part of the bail conditions, including searches of his mail and an order for him to provide the government with a list of portable valuables, to be checked every two weeks.
“The decision speaks for itself,” said Daniel Horwitz, one of Madoff’s lawyers.
Angry investors and their lawyers have said they wanted Madoff to go to jail immediately.
Aside from parallel criminal and civil investigations, a court-appointed trustee is overseeing the winding down of Bernard L. Madoff Investment Securities LLC.
Separately on Monday, a bankruptcy court granted trustee Irving Picard the powers to subpoena witnesses and documents. Picard had asked the court for the added powers because of the vast scope of the purported fraud.
Madoff has not formally answered one charge of securities fraud in court. He is the only person accused so far. If convicted, Madoff would face up to 20 years in prison.
Wealthy investors, banks, hedge funds and charities worldwide have all declared themselves victims.
According to court documents, he confessed to his sons a month ago that for many years he ran a “giant Ponzi scheme” with losses of $50 billion.
The items mailed by Madoff and his wife in late December included a diamond necklace, 13 watches, an emerald ring, two sets of cuff links, a diamond bracelet and diamond brooches, according to court papers.
Madoff’s lawyer argued that he “simply did not realize” that sending personal items would contravene the court order freezing his assets.
Within days of the scandal breaking, investors started filing lawsuits in U.S. courts seeking to recover lost money. On Monday, Repex Ventures SA fund sued Madoff, Bank Medici of Austria and Italian bank UniCredit SpA (CRDI.MI).
UniCredit’s Pioneer Investments was a top client of Bank Medici, a spokesman said. [ID:nLC361037]
The small Vienna-based Medici was placed under state supervision earlier this month after it sold over $3 billion of Madoff-exposed funds to investors.
The lawsuit, seeking class-action status in U.S. District Court in Manhattan, said, “The fund managers did not inform their investors that they were acting as feeder funds for Madoff.”
The case is 08-02735 USA v. Madoff in U.S. District Court for the Southern District of New York (Manhattan) (For more on the Madoff scandal click [ID:nL9601521]) (Additional reporting by Martha Graybow and Edith Honan; editing by John Wallace, Gerald E. McCormick and Jeffrey Benkoe)