Jan. 5 (Bloomberg) -- The sons of Bernard Madoff, who is accused of orchestrating a massive Ponzi scheme, alerted prosecutors last week that their father mailed them jewelry, watches and other items in violation of an asset freeze, his lawyer said.

U.S. prosecutors today asked a federal judge to revoke Madoff’s bail because he violated the freeze. U.S. Magistrate Judge Ronald Ellis asked for legal briefs by Jan. 7 from the government and from Madoff, who remains free in his Manhattan apartment on a $10 million bond.

Madoff mailed five packages of items, including “some very valuable jewelry,” after his assets were frozen by a judge in a related civil lawsuit, said Assistant U.S. Attorney Marc Litt in court today. Defense lawyer Ira Sorkin said the objects, which included pens and $25 cuff links, were heirlooms innocently sent to Madoff’s children and brother, Peter.

“We believe the children brought it to the attention of the government,” Sorkin said in an interview after court. Madoff, 70, was accused last month of directing a $50 billion Ponzi scheme out of his New York investment firm after his sons reported him to prosecutors.

Madoff’s sons turned him in on Dec. 10 after he confessed to them, their attorney, Martin Flumenbaum, previously said. Madoff, who was arrested by Federal Bureau of Investigation agents the following day, is under house arrest and subject to electronic surveillance.

‘Changed Circumstance’

Litt said in court today that the transfer of valuables is a “changed circumstance” that warranted the revocation of bail. Litt said one of the jewelry items may be worth as much as $1 million.

“In the face of a direct and clear order of a court, he violated the order,” Litt said.

Sorkin said in an interview and in court that he learned from Madoff and his wife, Ruth, on Dec. 30 of their transfer of assets and instructed his clients to retrieve the items, which they’re doing. The government now possesses some of the assets, he said. Sorkin said he also told the government about some of the transfers. The transferred items included a $200 pair of mittens given to Madoff by his granddaughter, he said.

Separately, prosecutors were told of the transfers last week by Madoff’s children and by a New York City couple to whom Madoff sent some objects, Sorkin said. The couple, who haven’t been identified, are now vacationing in Florida, he said.

Mark Madoff, 42, ran Madoff’s proprietary trading business and Andrew Madoff, 40, was a director of that unit. Flumenbaum didn’t return a call seeking comment today. The sons haven’t been charged with wrongdoing.

Victims’ Losses

As Bernard Madoff fought today to stay out of jail, his alleged victims continued to detail their losses with him and regulators sought to identify assets they could use to repay customers.

Bard College’s president disclosed today that the liberal- arts school in Annandale-on-Hudson, New York, lost about $3 million in investments related to Madoff. Harley International Ltd., a hedge fund run by Cayman Islands-based Euro-Dutch Management Ltd., invested all of its assets with Madoff, a person familiar with the matter said. The fund managed $2.76 billion as of Oct. 31.

Last week, Rosenman Family LLC, managed by Martin Rosenman, president of Bronx-based Stuyvesant Fuel Service Corp., sued Irving Picard, the trustee appointed to supervise the unwinding of Madoff’s firm, seeking return of a $10 million investment.

Liquid Assets

Picard has identified $830 million in liquid assets in Madoff’s defunct brokerage firm, Bernard L. Madoff Investment Securities LLC, according to the Securities Investor Protection Corp. The assets may be subject to recovery by Madoff’s customers, SIPC Chief Executive Officer Stephen Harbeck told a congressional committee today in prepared testimony.

Picard sent 8,000 claim forms on Jan. 2 to people who appeared to have invested with Madoff, and he published a notice telling them how to recover lost money. The forms were sent to people “who appear to have been customers” of Madoff’s firm “with open accounts within the past 12 months,” according to a statement. Madoff’s advisory business was estimated to have had more than 4,000 customers, people familiar with the matter said last month.

At today’s hearing, Litt said the mailing of the valuables by Bernard and Ruth Madoff, which Sorkin said began Dec. 24, violated an agreement to freeze Madoff’s assets as part of a Securities and Exchange Commission lawsuit.

Flight Risk

Litt said that the dispersal of the valuables was a risk to the public that justified imprisonment before trial. He also said that the likelihood that Madoff would eventually be imprisoned increased the risk of him fleeing prosecution.

“The case against the defendant is strong, and it’s getting stronger,” the prosecutor said, making it more likely Madoff will flee. The transfer was an “obstruction of justice.”

“The bail conditions that were originally set by this court haven’t been violated one iota,” Sorkin responded in court, adding that he learned of the government revocation bid today.

Janice Oh, a spokeswoman for Interim Manhattan U.S. Attorney Lev Dassin, declined to comment on how prosecutors first learned of the asset transfers.

Some of the transferred items belonged to Bernard Madoff and some to Ruth Madoff. On Dec. 26, Ruth Madoff, who is also represented by Sorkin’s firm, agreed with the government not to dispose of her assets, Litt said. She hasn’t been charged with a crime.

Ellis asked for legal briefs on whether the dissipation of assets constitutes a risk of harm to the community that would warrant a change in Madoff’s bail status.

Peter Madoff’s lawyer, John Wing, didn’t immediately return a call seeking comment.

The case is U.S. v. Madoff, 08-mag-2735, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in New York federal court at dglovin@bloomberg.net.

Last Updated: January 5, 2009 21:37 EST