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Madoff stays out of jail; deal possible

By Diana B. Henriques
New York Times / January 13, 2009
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NEW YORK - A federal magistrate refused to revoke bail yesterday for Bernard L. Madoff, the financier accused of operating a $50 billion Ponzi scheme, while signs emerged that his lawyer is actively negotiating a plea agreement that could conclude the baffling fraud case without a trial.

Federal prosecutors acknowledged in a court order released yesterday that Madoff's lawyer, Ira Lee Sorkin, is "engaging in discussions concerning a possible disposition of this case."

While Sorkin would not comment, several former prosecutors said that language clearly indicated that the discussions were about a deal in which Madoff agreed to plead guilty in exchange for some type of leniency.

"He's trying to cut a deal," said Marvin G. Pickholz, a former securities regulator and specialist in white-collar crime. "The only other possible 'disposition' that could be negotiated would be for the government to drop the whole case - and that's not going to happen."

The information was contained in an order, signed by the US Magistrate Judge Ronald L. Ellis, that approved a 30-day delay in a hearing on Madoff's case that otherwise would have been held yesterday.

The magistrate also denied a government request that Madoff be jailed until he can be tried, saying that the government had not proved that he was a flight risk or a security risk.

Lev L. Dassin, the acting US attorney in Manhattan, notified the magistrate he planned to appeal the ruling, which has been stayed for 48 hours to permit that appeal.

The magistrate's ruling allows Madoff to remain in his Manhattan apartment, wearing an electronic monitoring device and being watched around the clock by a security team paid for by his wife.

Prosecutors had asked the court to revoke Madoff's $10 million bail, secured by various family homes held in his wife's name, after he violated a court-ordered asset freeze by mailing about $1 million in expensive watches and jewelry to family and friends on Christmas Eve.

In addition to the jewelry that was sent out, prosecutors said, Madoff had plans to transfer $200 million to $300 million of investors' money to family members and friends. When authorities searched Madoff's office desk, they found $173 million in signed checks ready to be sent.

The judge did place additional restrictions on the bail requirements, many of which had already been imposed by Judge Louis L. Stanton of US District Court, who is handling the civil suit.

In denying the request, Ellis wrote that he was not satisfied that the government had proved "by clear and convincing evidence" that jailing Madoff before trial was the only way to ensure that he did not flee or obstruct justice.

Included in the restrictions is one that bars Madoff from transferring any assets. Madoff's wife, Ruth, must also comply with restrictions on the transfer of assets.

In addition, the ruling said, Madoff shall compile an inventory of all "valuable portable items" in his Manhattan apartment and supply it to the government. Casale Associates or another security company approved by the government must check the inventory every two weeks, the judge said. Madoff and the government shall agree on a threshold value of the items within a week.

A security firm will also be required to examine all outgoing mail to assure no property has been transferred.

Meanwhile, a federal bankruptcy judge overseeing the liquidation of Madoff's brokerage firm granted a request from the trustee in the case, Irving Picard, for broad power to subpoena witnesses and gather documents as part of Picard's investigation of the alleged fraud scheme.

The trustee was appointed at the request of the Securities Investor Protection Corp., which provides limited insurance coverage for the brokerage customers affected by the firm's collapse.

One Madoff associate from Boston, Robert Jaffe, is scheduled to testify before the Massachusetts Securities Division today, in response to a subpoena. Jaffe, who worked for many years in the brokerage business, recently has worked for Cohmad Securities Corp., a firm that counts Madoff among its officers. Cohmad was one of several gatekeepers through which investors could get access to Madoff.

Jaffe is married to a daughter of Carl Shapiro, the Boston philanthropist who has lost about $545 million to Madoff through his family foundation and personal wealth. Both Jaffe and Shapiro have said they were unaware of Madoff's scheme.

Madoff was charged last month with securities fraud but has remained free since posting bail.

Material from Beth Healy of the Globe staff is included in this report.

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