Why Isn’t Bernard Madoff in Jail?
dealbook.blogs.nytimes.com
January 9, 2009, 10:29 am
[Peter J. Henning, a professor at Wayne State Law School, occasionally writes as a guest blogger for The Deal Professor. Mr. Henning specializes in issues related to white-collar crime and is a former editor of the White Collar Crime Law Prof Blog.]
Ever since prosecutors said that Bernard L. Madoff had confessed to engineering a Ponzi scheme that cost investors tens of billions of dollars, there have been repeated questions about why, instead of being sent to jail, Mr. Madoff was allowed to remain in his posh apartment in New York’s Upper East Side.
It has now come to light that Mr. Madoff and his wife tried to send packages containing valuables worth up to $1 million to his two sons, brother and an unidentified couple in Florida. (Maybe that’s just good ol’ Bernie being Bernie, continuing to spread the wealth while ignoring his many victims.)
In response to this little escapade, the United States Attorney’s Office is now seeking the revocation of Mr. Madoff’s $10 million bond so that he can be detained pending the outcome of the criminal securities fraud case. Prosecutors have argued he poses an “economic threat” to the community if he remains free.
Whether Mr. Madoff will be sent to jail is certainly an open question, and there is a decent chance that the federal magistrate judge will allow him to remain free, perhaps imposing additional conditions on him short of incarceration.
But there are grounds for putting Mr. Madoff in jail even though he poses no physical threat to the community, which is the usual ground for pretrial detention.
Under the Bail Reform Act of 1984, 18 U.S.C. § 3142(f)(2), a defendant can be jailed if there is a risk of flight or “a serious risk that such person will obstruct or attempt to obstruct justice, or threaten, injure, or intimidate, or attempt to threaten, injure, or intimidate, a prospective witness or juror.”
It is unlikely Mr. Madoff will try to attack or intimidate a witness in the case, and the government’s “economic threat” argument is in all likelihood a nonstarter. A better position is that Mr. Madoff may try to obstruct justice or flee the jurisdiction.
There are indications that he used offshore accounts for his alleged investment scam, and so there is every reason to suspect he might be hiding assets outside the United States. His attempt to distribute the firm’s remaining assets by signing $173 million in checks is at least some evidence that he cares not one whit about the investors he happily stole from for years.
To this point in the case, federal prosecutors have been remarkably solicitous of Mr. Madoff, agreeing to the bond condition that has allowed him to live in his apartment and travel throughout New York City and Connecticut. Perhaps the move to revoke his bail indicates a change in attitude, but so far, the government has treated him with kid gloves.
Indeed, just like the revelation of his scam, the information about the mailing of the packages was not the result of a government investigation — it came from Mr. Madoff’s own lawyers. Shouldn’t it have occurred to the government a little bit earlier that maybe, just maybe, this guy cannot be trusted?
It is almost unfathomable that the U.S. Attorney’s Office would put any faith in what Mr. Madoff and his lawyers tell them. Mr. Madoff is accused of living a lie for years, perhaps decades, and taking money from investors until almost the last moment before the scheme collapsed, falsifying account documents to maintain the appearance of propriety. His lawyers are there to protect his interests, which do not seem to include helping out the defrauded investors.
Mailing out gifts to family and friends even after being charged with a crime indicates that the seriousness of the situation has not quite sunk in yet.
The government still appears to be in the dark about the extent of the fraud. Mr. Madoff provided an accounting of his assets to the Securities and Exchange Commission, which may not be an entirely trustworthy document. It will in all likelihood be months before there is sufficient information to trace the funds his firm took in from investors, and whether he salted some away to provide as gifts to family and friends — or perhaps for himself once he realizes just how much time he faces in prison — remains to be determined.
Thus, the public outcry to see Mr. Madoff in jail, to begin repaying his debt to society for this massive theft, is growing. Unfortunately, until he has been convicted of a crime, he cannot be punished. Pretrial detention is not a punishment, but a means to protect society and ensure the defendant does not flee the jurisdiction. As much as the public wants its pound of flesh from Mr. Madoff, it cannot get it at this point so long as the due process clause of the Constitution remains in effect.
Is there anything that can be done? Mr. Madoff still has his apartment, and his wife has title to their homes elsewhere. Unlike a drug dealer, whose assets the government can seize through the criminal asset forfeiture laws, a securities fraud is not the basis for an asset forfeiture action. So the spoils of a decades-long Ponzi scheme remain the hands of the Madoff family.
At a hearing on Jan. 5 before the House Committee on Financial Services, representatives railed at the S.E.C. for its failure to detect the fraud and asked what can be done to protect investors. Well, here is something that can be done: Make securities fraud subject to the criminal asset forfeiture laws.
These laws, such as 21 U.S.C. § 853, are particularly powerful because they authorize a court to impose a pretrial restraining order preventing a defendant from using any assets that might be subject to forfeiture. While the S.E.C. and Mr. Madoff agreed to a temporary asset freeze, a judicial order restraining a securities fraud defendant’s assets can be a very powerful tool that will make it more difficult for a defendant to use them to continue to live a lavish lifestyle while victims suffer.
If convicted of a crime that comes under the asset forfeiture laws, prosecutors can recover the fruits of the illegal activity and, more importantly, “substitute assets” if the proceeds cannot be traced. In other words, a defendant’s home, cars, yacht, jewelry and the like can be seized to fulfill the forfeiture order. Given the size of his fraud, such an order would leave Mr. Madoff penniless.
Mr. Madoff cannot be put in jail just because everyone believes he is guilty of a crime. But for him to live in his multimillion-dollar apartment and send out gifts to his family because that’s a nice thing to do is an affront. And it is time the federal prosecutors took a much more aggressive approach to Mr. Madoff by moving the criminal process forward.
At a minimum, don’t let any more packages leave the apartment.
– Peter J. Henning |
