December 17, 2008 / 12:44 AM / 11 years ago

Madoff in house arrest, SEC under fire

NEW YORK/WASHINGTON (Reuters) - Disgraced Wall Street investment manager Bernard Madoff, accused of orchestrating a $50 billion fraud, was put under house arrest on Wednesday.

Bernard Madoff walks back to his apartment in New York December 17, 2008. REUTERS/Shannon Stapleton

BNP Paribas SA became the latest European bank to reveal its exposure to the scandal, and its stock was the main loser among Europe’s top banks, as the chairman of the U.S. Securities and Exchange Commission again answered questions about why the alleged fraud went on for a decade.

A federal judge ordered Madoff, 70, confined to his $7 million Manhattan apartment and told Madoff’s wife, Ruth, to surrender her U.S. passport by noon on Thursday as part of modified bail conditions.

Madoff will be fitted with an electronic ankle bracelet and will only be allowed to leave his home for appointments prearranged with authorities.

On Wednesday afternoon, the Madoffs signed an agreement to forfeit their Manhattan apartment and properties in Montauk, New York and Palm Beach, Florida if they failed to adhere to the bail conditions.

Bernard Madoff was filmed by television crews leaving the federal court in Manhattan, but he did not talk to reporters. With a calm expression on his face, he sat in the front passenger seat of a black SUV that sped away.

He later was seen by news photographers getting out of a vehicle near his apartment building. Madoff walked briskly with a slight smile on his face as photographers jostled to take his picture before he entered the front door of the building.


The changes in bail conditions for the one-time Nasdaq Stock Exchange chairman were ordered as angry investors urged prosecutors to take a firmer stance.

“The investors I am speaking with are extremely upset and think he should be in jail today,” said Ross Intelisano, a partner at law firm Rich & Intelisano LLP said. “They think he is a flight risk, and they are shocked that the bail is so low.”

On Tuesday, SEC chairman Christopher Cox offered an embarrassing mea culpa for the agency’s lack of oversight of Madoff’s investment advisory firm, Bernard L. Madoff Investment Securities LLC.

He said Wednesday there was no evidence that SEC staff did anything wrong amid accusations the regulator failed to act on tips of alleged fraud by Madoff in the past 10 years.

“I want to emphasize that there is no evidence that anyone is aware of at this point that any personnel did anything wrong,” Cox told reporters after an agency meeting.

He said he was still troubled that the securities watchdog did not catch the scandal earlier. “I was very concerned to learn this week that credible allegations about Madoff had been made over nearly a decade and yet never referred to commission for action,” Cox said.

Staffers at the market watchdog apparently saw Madoff as one of their own. He made regular appearances at the SEC and served on agency advisory panels.

Madoff was accused in a criminal complaint last Thursday of defrauding hundreds of wealthy investors in a Ponzi scheme. Under a Ponzi scheme, later investors’ funds are used to pay returns to initial investors.

He faces up to 20 years in prison and a maximum fine of $5 million if convicted.

A rewrite of U.S. regulations to prevent a relapse of the Madoff fiasco will be high on the agenda of the new U.S. Congress, said U.S. Rep. Paul Kanjorski, who chairs the House Capital Markets Subcommittee. He said he will convene a congressional inquiry in early January.


BNP’s stock was the main loser among Europe’s top banks after it announced an unexpected 11-month loss at its CIB investment bank unit, blamed partly on exposure to Madoff.

In Asia, Great Eastern Holdings Ltd, the insurance arm of Singapore’s Oversea-Chinese Banking Corp, said it had an indirect exposure of about S$64 million (US$43.93 million) to Madoff.

In Europe, the Dutch pension fund of Royal Dutch Shell Plc said it had $45 million exposure.

An investor protection group in the United States overseeing the liquidation of Madoff’s firm said it could take several years to sort through investor losses.

Madoff, who counted celebrities and many friends among his investors, was only able to obtain two out of four signatures needed to guarantee his $10 million bond. The bail conditions were modified in lieu of two additional signatures.

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In another sign of Madoff’s close ties to the powerful, U.S. Attorney General Michael Mukasey has removed himself from involvement in the investigation, a department spokesman said. He declined to discuss the reason. Mukasey is leaving office in January.

Marc Mukasey, a son of the attorney general, told Reuters on Wednesday that he represents Frank DiPascali, a senior official at Madoff’s firm. The younger Mukasey leads white-collar defense and special investigations at New York law firm Bracewell & Giuliani.

Additional reporting by Rachelle Younglai and Karey Wutkowski in Washington, Svea Herbst-Bayliss in Boston, Martha Graybow in New York; writing by Christian Plumb; editing by Jeffrey Benkoe and Bernard Orr

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