The government has lost its bid to have Bernard Madoff jailed while he awaits trial for a Ponzi scheme in which losses could be up to $50 billion.
Southern District Magistrate Judge Ronald Ellis Monday rejected a request to revoke bail for Madoff, who had angered the government by mailing more than $1 million in jewelry and other valuables to family members and friends in late December -- a violation of a court order not to dissipate assets in a related civil case.
Magistrate Judge Ellis in United States v. Madoff, 08 Mag. 2735, recognized an expansive reading of the Bail Reform Act that would allow the law's concern for the "safety of the community" to include economic damage caused by a defendant while free on bail. Nonetheless, the judge said the government fell short of showing that Madoff posed such a risk.
Madoff's bail conditions already included a $10 million personal recognizance bond secured by property owned by him and his wife and co-signed by his wife and brother, as well as house arrest at his $7 million Park Avenue penthouse with 24-hour-a-day electronic monitoring.
Magistrate Judge Ellis said that the prior conditions had "greatly diminished" Madoff's ability to move funds, but he imposed several new requirements as added protection:
• The order not to dissipate or transfer assets issued by Southern District Judge Louis Stanton in the related civil case brought by the Securities and Exchange Commission, SEC v. Madoff, 08 civ. 10791, is now incorporated into Madoff's bail conditions.
• Also incorporated into the bail conditions is a voluntary freeze of assets signed by the defendant's wife, Ruth Madoff, who joined her husband in mailing some of the valuables last month.
• And Madoff will be required to conduct a complete inventory of property in his Manhattan apartment. The magistrate judge said a security company approved by the government "shall search all outgoing physical mail to ensure that no property has been transferred."
In his 22-page opinion, Ellis said the government failed to carry its burden to show that Madoff presents a clear risk to flee or obstruct justice or show that Madoff presented a danger to the community.
Prosecutor Marc Litt had argued at a Jan. 5 hearing and in papers filed last week that case law and legislative history supported the broader reading of community safety -- a definition that would encompass the chance Madoff might dissipate assets that could be used to compensate victims or be forfeited to the government.
But Madoff's attorney, Ira Sorkin of Dickstein Shapiro, succeeded in persuading the magistrate judge that the facts in this case did not warrant pretrial detention. He argued that the jewelry distribution was an "innocent" mistake.
Under the Bail Reform Act, the government is first obligated to show by a preponderance of the evidence that Madoff was a serious risk to flee or a serious risk to obstruct justice.
The magistrate judge said the government had not sought detention for Madoff when he was arrested on Dec. 11 and again when the conditions were modified on Dec. 17 and 19.
The government, Ellis wrote, "fails to explain how the transfers in question change the calculus with respect to the question of flight."
He said Litt undermined his claims on risk of flight at the Jan. 5 hearing when he said "the prior bail orders substantially diminished [the risk of flight] by home detention, electronic monitoring and then subsequently by order of the court the imposition of a 24-hour guard. But that doesn't make the flight risk zero. There is still some flight risk."
Ellis said that was not the standard.
"The act does not require that the risk be zero, but that conditions imposed 'reasonably secure' appearance," he said.
Concerning government claims that mailing the valuables represented an obstruction of justice, Ellis said that "even if there were obstruction, and even if there remains potential for obstruction in the future, the government has failed to demonstrate that no conditions can be set to reasonably protect the community from this form of obstruction."
The magistrate judge then examined the "safety of the community" language in 18 U.S.C. §3142(f)(1).
Sorkin pressed the fact that the 2nd U.S. Circuit Court of Appeals has not had occasion to decide whether to extend the idea of a danger to the community beyond physical danger to include economic harm.
Sorkin also argued that two decisions by other circuits cited by the government did not matter because they involved post-trial detention, which Magistrate Judge Ellis said is "governed by §3143, which provides for a more lenient burden of proof to the government."
The magistrate judge also was reluctant to read economic harm into the statute based on language cited by Litt from a Senate Judiciary Committee on the Bail Reform Act.
"Because the committee indicates that 'harm' to the community should not be limited to 'physical violence,' it does not mean a court should be able to identify other types of harm and read them into the statute," he said.
In fact, Ellis said, if one were to try to discern the intent of the committee, the committee's proposition "would apply only to activities which are in fact crimes."
Nonetheless, he noted there was some support for considering economic harm in evaluating danger to the community.
And while he declined to recognize the significance of the distinction between pretrial and post-trial detention, he said the presumption of innocence should carry some weight in determining when economic harm can rise to the level of being a danger to the community.
However, the government did not meet its burden on the second part of the analysis, he concluded.
"Here, the government fails to provide sufficient evidence that any potential future dissemination of Madoff's assets would rise to the level of an economic harm cognizable under §3142 of the Bail Reform Act," he said. "Further, it is far too great an extension to reach from the cases presented by the government that narrowly recognize the possibility of economic harm ... to such a conclusion based on the minimal evidence presented here by the government."
Daniel C. Richman, a former Assistant U.S. Attorney who teaches federal criminal law and practice at Columbia Law School, said the government was dealing with some tough facts.
"It's a very interesting question, the extent to which a detention can be based on risk of economic crime, and it seems that while Magistrate Judge Ellis was not fully persuaded, he at least recognized the power of the government's argument," Richman said.
"But beyond that, this is a sui generis case," he added. "This is not the type of defendant whose detention is usually sought, but then again he's an extraordinary defendant in a lot of ways and Magistrate Judge Ellis put a lot of weight on the government's initial readiness to allow him to remain free on bond."
The government's "readiness," he said, "probably was based in large part on what they thought was his complete acceptance of responsibility and commitment to abide by court orders" and that no longer appears to be the case.
Eric Rieder, the head of Bryan Cave's securities litigation and enforcement practice, said that despite the "understandable" public outrage that Madoff has remained free on bail, "you have to meet a heavy burden to deprive somebody of his liberty before he's convicted of a crime -- and the fact is [that] bail is not a means of punishing someone for a crime he's accused of but not convicted of."
Rieder agreed that the judge saw "some support for considering economic harm in evaluating danger to the community."
He added, "So it's possible you could have a dissemination of assets that would be sufficient to be cognizable under the Bail Reform Act but the government hasn't shown it here. In addition to saying the magnitude of the threat of dissipation isn't great enough here, the judge also says the government hasn't shown that all of the restrictions on Madoff's assets would be insufficient to prevent from him from dissipating his assets."
The government could appeal the bail ruling to the district court judge assigned to cover Part I at the courthouse at 500 Pearl St. -- Judge Colleen McMahon.
The Southern District U.S. Attorney's Office declined to comment.
Sorkin, who represents Madoff, said, "The decision speaks for itself and we will abide by the court's order."
The disgraced financier is facing a single count of securities fraud for which he could be sentenced to 20 years in prison. On Friday, he consented on Friday to a 30-day extension to Feb. 11 on the requirement that the government obtain an indictment against him.
With victims and no small number of commentators, expressing outrage that Madoff has not been jailed, the bail question placed an unusual amount of heat on the veteran magistrate judge.
Magistrate Judge Ellis took the bench in 1993. A graduate of New York University School of Law, he joined the staff of the NAACP Legal Defense Fund in 1976, where he worked as a litigator in a range of areas including voting rights cases and fair employment actions.
He was named director of the fund's national fair employment program in 1984, where he specialized in class actions. In 1990, he was elevated to the position of director of the fund's Poverty and Justice Program, where he oversaw efforts on behalf of poor people in the areas of fair access to health services and education and environmental issues.
He served in that job until being named as a magistrate judge.