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 in his $7 million home before he pleads guilty or goes to trial, as authorities probe a $50 billion investment fraud to which they say he confessed a month ago.
Madoff's lawyers have said their client is cooperating with government investigations following his December 11 arrest for what would be the biggest Ponzi scheme in history -- 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, a former chairman of the NASDAQ stock market and a figure for more than 40 years in a financial industry already reeling in crisis.
It is not unusual for people accused of white-collar crimes to be offered bail packages, and at this stage of the case, indictments could come at any time, legal experts said.
Monday's 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 bail, arguing that Madoff had 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.
Legal experts said it was hard for the government to argue that 70-year-old 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," said Daniel Margolis, a partner at law firm Pillsbury Winthrop Shaw Pittman LLP and a former federal prosecutor.
"So fleeing the country under these conditions would require an escape plan of cinematic proportions."
Ellis turned down the government's bid to jail Madoff but imposed more curbs as part of the bail conditions -- searches of his mail and ordering him to provide the government with a list of portable valuables, to be checked every two weeks.
"The decision speaks for itself," said Daniel Horwitz, one of Madoff's lawyers.
The U.S. Attorney's office in Manhattan declined comment.
Aside from parallel criminal and civil investigations, a court-appointed trustee is overseeing the winding down of Bernard L. Madoff Investment Securities LLC.
Separately on Monday, a bankruptcy court granted trustee Irving Picard the powers to subpoena witnesses and documents. Picard had asked the court for the added powers, contending that the vast scope of the purported fraud made them necessary.
Madoff, has not formally answered one charge of securities fraud in court. He 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.
Wealthy investors, banks, hedge funds and charities worldwide have all declared themselves victims of the purported fraud. A hedge fund manager, a Frenchman, committed suicide in his New York office last month in distress.
If convicted, Madoff would face 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.
The items mailed by Madoff and his wife in late December included a diamond necklace, 13 watches, an emerald ring, two sets of cuff links, 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.
The case is 08-02735 USA v. Madoff in U.S. District Court for the Southern District of New York (Manhattan)
(Additional reporting by Martha Graybow and Edith Honan; editing by John Wallace and Gerald E. McCormick)
