By Grant McCool
NEW YORK (Reuters) - Accused swindler Bernard Madoff will be allowed to stay in his Manhattan apartment under house arrest, a U.S. judge ruled on Monday, rejecting a government request to throw him in jail.
The ruling gives Madoff, who has become one of the most vilified figures in America, more time at home before he pleads guilty or goes to trial as authorities probe a $50 billion investment fraud they say he confessed to a month ago.
Madoff's lawyers have said their client is cooperating with government investigations following his December 11 arrest for what would be Wall Street's biggest Ponzi scheme -- a fraud in which early investors are paid off with the money of new clients.
The government has until mid-February to convince a grand jury to bring an indictment against Madoff, 70, a former chairman of the NASDAQ stock market and a figure for more than 40 years in a financial industry already reeling in crisis.
Madoff has not formally answered one charge of securities fraud in court and is the only person the government has so far accused.
Fraud experts said the purported scheme was too complicated and went on too long to have been carried out by Madoff alone.
The written ruling by Magistrate Judge Ronald Ellis of U.S. District Court in Manhattan said, "Aside from the bare assertion that there remains some risk of flight, the government has failed to articulate any flaw in the current conditions of release."
Prosecutors last week asked the judge to revoke Madoff's bail, saying he violated a December 18 court order freezing his assets by mailing more than $1 million worth of valuables to relatives and friends.
They said he was a flight risk and could cause further economic harm to investors by dispersing his belongings.
Ellis turned down the government's bid to jail Madoff but imposed additional restrictions, including checks on his mail and ordering him to provide a list of portable valuables. The list was to be checked every two weeks by the government.
"The decision speaks for itself," said Daniel Horwitz, one of Madoff's lawyers.
The U.S. Attorney's office in Manhattan declined comment.
DIAMOND NECKLACE AND WATCHES
The items mailed by Madoff and his wife in late December included a diamond necklace, 13 watches, an emerald ring, two sets of cufflinks, a diamond bracelet and diamond brooches, according to court papers.
Madoff's lawyer argued that he "simply did not realize" that sending personal items would contravene the court order freezing his assets. They added that he was not a flight risk because he is under house arrest and 24-hour surveillance.
If convicted, Madoff faces up to 20 years in prison and millions of dollars in fines. According to court documents, he confessed to his sons a month ago that for many years he ran a "giant Ponzi scheme" with losses of $50 billion.
Wealthy investors, banks, hedge funds and charities have all declared themselves victims of the purported fraud. Madoff's firm is being liquidated by a court-appointed trustee as part of the effort to recover losses.
A hedge fund manager, a Frenchman, committed suicide in his New York office last month in distress.
Many people who claim to be victims of Madoff have said they want him jailed immediately.
However, legal experts said that deciding to hold a defendant ahead of trial should not be about punishment, but whether the person is a flight risk or a danger to the community, said Daniel Margolis, a partner at law firm Pillsbury Winthrop and a former federal prosecutor.
Margolis said it was hard for the government to argue that Madoff might flee.
"The guy is on electronic monitoring, he has a guard watching him every day, and the press is watching his every move," he said. "So fleeing the country under these conditions would require an escape plan of cinematic proportions."
Daniel Richman, a Columbia University law professor and former prosecutor, said it was not unusual for accused white-collar criminals to be offered bail packages.
"Initially, the government was presented with someone who appeared to be contrite," he said. "Then, the government was presented with someone who wasn't."
(Additional reporting by Martha Graybow and Edith Honan; editing by John Wallace)