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

NEW YORK (Reuters) - Accused swindler Bernard Madoff mailed $1 million worth of diamonds, watches and other jewelry violating a court order, U.S. prosecutors said on Wednesday while demanding the disgraced investment adviser be jailed.

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

They said every effort was made to return the jewelry.

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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”, that he posed no danger to anyone and that he was not a flight risk. He and his wife have surrendered their passports to authorities.


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.

The bank, one of several in the world to disclose exposure to Madoff, is the only one to have been placed under government supervision since the Madoff scandal erupted.

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In a statement on Wednesday, Bank Medici denied a New York Times report that chairwoman and majority owner Sonja Kohn had gone into hiding for fear of recrimination from wealthy Russians who lost money with the funds they bought from her.

Madoff has become a vilified figure since his December 11 arrest on a charge of securities fraud. He is under house arrest in his luxury Manhattan apartment on $10 million bail.

Recovery of investor losses through whatever assets and money Madoff and his firm have left is a major goal of investigators probing what could be Wall Street’s biggest scam.

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“Dissipation of the defendant’s assets through transfers to third parties obstruct justice, within the meaning of the bail statute, because they make it more difficult, if not impossible, to recover all forfeitable assets to recompense victims,” prosecutors said in court documents.

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.

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


SIPC President Stephen Harbeck said in an interview with Reuters that some of the simpler claims might be resolved within the next few months. The SIPC does not have to wait until a criminal case is resolved to start distributing money on investors’ claims.

Harbeck said the impact to SIPC’s reserve would not be as great as the purported fraud, given the maximum the agency can pay an investor is $500,000.

“The $50 billion figure includes non-existent profits. Since there is a cap on what we can pay any one individual, the drawdown on our funds is not as severe as the entire loss,” he said.

The Wall Street Journal reported on Wednesday that 10 days before his arrest, Madoff received $250 million from entrepreneur Carl Shapiro, one of his oldest friends and biggest financial backers. It was not clear if the money was a loan or investment, the report said.

Reporting by Martha Graybow in New York, Rachelle Younglai in Washington and Boris Groendahl in Vienna; Editing by Toni Reinhold