Jan. 14 (Bloomberg) -- Bernard Madoff, accused of masterminding the largest Ponzi scheme in history, should be jailed immediately, prosecutors told a federal judge.

Assistant U.S. Attorney Marc Litt today urged U.S. District Judge Lawrence McKenna in Manhattan to imprison Madoff for violating a court order in a related civil case by transferring some of his valuables. Madoff, 70, is in the courtroom along with his attorney, Ira Sorkin. The hearing is underway.

“The critical fact is that the defendant, knowing of the order, consenting to the order, violated it,” Litt said. “And by violating it, the defendant acted 180 degrees opposite to his stated intent after his arrest, which was to see to it that the victims got back as much as possible.”

The hearing comes about a month after Madoff was arrested on a securities fraud charge for allegedly bilking investors of $50 billion. Madoff confessed that he used new money to pay old investors, prosecutors said. He faces as much as 20 years in prison and a $5 million fine if convicted.

The government last week asked that Madoff’s bail be revoked after he transferred $1 million in jewelry to family members. On Jan. 12, a magistrate judge in Manhattan allowed Madoff to remain free, prompting a government appeal. Any ruling resulting from today’s hearing may be appealed to the U.S. Court of Appeals in Manhattan. McKenna hasn’t indicated whether he will rule on the government’s request today.

House Arrest

Sorkin told McKenna today that the transfer of jewelry was “a desperate and futile effort” by Madoff to “reconnect” with his family. “These had been sent out, in error, innocently, stupidly.”

Madoff has been under house arrest, except for court appearances, and monitored by guards and electronic surveillance. He hasn’t formally responded to the charges. He was wearing a bulletproof vest under a black overcoat when he arrived today at the courthouse.

With government consent, Madoff was freed Dec. 11 on $10 million bond. Last week, prosecutors asked that he be jailed for transferring jewelry to relatives in violation of a court order in a civil lawsuit by the Securities and Exchange Commission. U.S. Magistrate Judge Ronald Ellis denied the request while imposing additional conditions.

Prosecutors said Madoff mailed Cartier and Tiffany watches, a ring, a diamond necklace and other jewelry in a bid to “dissipate” assets. They said his violation indicated he might flee the country. Sorkin called it “innocent.”

Dec. 24

Sorkin said the mailings started Dec. 24 as Madoff and his wife Ruth began to “reach out” to family and friends by giving away a few “sentimental personal items.” That evening, Ruth Madoff set aside items accumulated over 49 years of marriage and Madoff gathered watches he’d collected over the years.

The couple, Sorkin said, mailed items to their sons Andrew and Mark; to their daughters-in-law; to Ruth Madoff’s sister, Joan Roman; and to an unnamed married couple with whom they were close friends. It wasn’t until after Ruth Madoff met with lawyers on Dec. 30 that she realized they shouldn’t have done so, and the Madoffs began retrieving them, the lawyer said.

Sorkin said in a court filing today that the government made a “cynical decision to backtrack on its” bail agreement when Madoff was arrested.

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

To contact the reporters on this story: David Glovin in New York federal court at dglovin@bloomberg.net; Erik Larson in New York federal court at elarson4@bloomberg.net; Patricia Hurtado in New York federal court at phurtado@bloomberg.net.

Last Updated: January 14, 2009 15:03 EST