madoff

Bernard Madoff should remain free on bail because he didn’t intentionally violate a judge’s order when the accused financier mailed jewelry including a diamond bracelet and watches to relatives and friends, his lawyer told a judge in a court filing.

Federal prosecutors asked U.S. Magistrate Judge Ronald Ellis in Manhattan to jail Madoff since he mailed the items in violation of a court-ordered asset freeze. In a letter to Ellis filed yesterday, Madoff’s defense lawyer, Ira Sorkin, said his client had done nothing improper.

The letter elaborates on arguments Sorkin made at a Monday hearing in which prosecutors requested that Madoff’s $10-million bail be revoked. Sorkin said Madoff made an innocent mistake in mailing the items and was seeking to retrieve them. Madoff was charged last month with running a $50-billion Ponzi scheme.

“Our position is that the bail reform act permits him to remain out on bail,” Sorkin said in the filing.

Prosecutors have until noon today to respond to Sorkin’s letter. The judge hasn’t said when he will rule and whether there will be a court hearing before he does so.

Madoff, 70, was arrested on Dec. 11 at his Manhattan apartment and charged with one count of securities fraud. He is restricted to his Upper East Side home and faces as much as 20 years in prison and a $5-million fine if convicted.

Assistant U.S. Attorney Marc Litt said in a letter to the judge that Madoff’s actions show his “willingness to disobey an explicit court order” and that the transfer of assets suggests he “may dissipate” assets he owns in three residences in the United States and one in France.

It describes items Madoff mailed in separate packages. One of them contained 13 watches, a diamond necklace, an emerald ring and two sets of cufflinks, the collective value of which may exceed $1 million, he said.

“Two other packages — containing a diamond bracelet, a gold watch, a diamond Cartier watch, a diamond Tiffany watch, four diamond brooches, a jade necklace, and other assorted jewelry, also were sent to relatives,” Litt wrote.

Litt also said that Madoff poses “a serious risk of flight” because he faces a long prison term and his ties to New York have been “largely severed by the loss of his New York business and his loss of status in the New York Community.”

Meanwhile, people familiar with the Madoff case said Credit Suisse Group AG, whose clients lost almost $1 billion in his alleged swindle, urged customers more than eight years ago to withdraw cash from his firm because the bank couldn’t determine how he made money.

Oswald Gruebel, who headed the private-banking unit of Switzerland’s number-two lender at the time, made the recommendation after meeting Madoff in New York in June 2000, the people said, speaking anonymously because the details were private. Credit Suisse customers proceeded to redeem about $250 million from Madoff-run funds, half the total held at the time by the bank’s clients, the people said.

Credit Suisse, based in Zurich, risked alienating clients who were reaping annual returns from Madoff of about 11 percent a year, said two of the people at the meeting, which included executives from Fairfield Greenwich Group, a so-called feeder fund for Madoff. The bank couldn’t force clients to pull out their money.

“Some investors allowed greed to overrule the advice of their advisers,” said Ron Geffner, a lawyer at New York-based Sadis & Goldberg LLP. Funds removed from Madoff’s firm as early as 2000 probably won’t have to be returned, Geffner said.

Corene Sullivan, a spokeswoman for Credit Suisse, said Credit Suisse didn’t actively sell stakes in funds that fed into Madoff’s firm, and that the funds offered by the marketers weren’t on the bank’s recommended list.

Gruebel, 65, and two other Credit Suisse executives at the meeting with Madoff raised concern about his use of a little-known auditor who had just one client, two of the people said. The bank also worried about why Madoff served as the custodian of his clients’ assets, they said.

Madoff wouldn’t tell Gruebel how much money he managed, saying only that he had 12 people working with him to manage the strategy, along with 6 senior traders, the people said. Madoff said he didn’t charge clients fees to manage their money, earning a profit instead on trading commissions that equaled as much as 3 percent of assets.

Gruebel declined to comment. He became chief executive officer of Credit Suisse in 2004 and retired in 2007, after doubling the bank’s earnings in three years.

The recommendation eight years ago may have angered some of the lender’s own bankers, who were profiting from rebate fees, known as retrocessions, which were paid to them by groups such as Fairfield that marketed the funds. Sullivan, the Credit Suisse spokeswoman, declined to comment on the rebate fees.

“These retrocessions are an open secret in the private banking world, and in most cases they aren’t passed on to clients,” said Bernhard Bauhofer, founder of Wollerau, Switzerland-based consulting firm Sparring Partners GmbH. “The Swiss private banks depend a lot on these.”