Jan. 6 (Bloomberg) -- The sons of Bernard Madoff, who is accused of running a $50 billion Ponzi scheme, told prosecutors last week their father violated a court-ordered asset freeze by mailing them jewelry, watches and other items, his lawyer said.

The government yesterday asked a federal judge to revoke Madoff’s bail in his criminal case because he violated the freeze. U.S. Magistrate Judge Ronald Ellis in Manhattan withheld judgment, ordering legal briefs filed by Jan. 7. Madoff remains free on $10 million bond, restricted to his Manhattan apartment.

He mailed five packages including “very valuable jewelry,” after his assets were frozen by a judge in a related suit by the Securities and Exchange Commission, Assistant U.S. Attorney Marc Litt said yesterday. Defense lawyer Ira Sorkin, who today said he and his client are cooperating with the government, countered the objects, including 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 yesterday in an interview after the bail hearing. 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.

Turned Him In

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

Litt said in court yesterday 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 declined a request by Congress for Madoff to testify in hearings related to the alleged Ponzi scheme, said Representative Paul Kanjorski, a Pennsylvania Democrat. Sorkin declined to comment on the matter.

Sorkin said 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 Ruth Madoff may have transferred some items she owned before her Dec. 26 agreement with the government not to do so.

The Transfers

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 yesterday. The sons haven’t been charged with wrongdoing.

As Bernard Madoff fought yesterday 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.

Disclosed Yesterday

Bard College’s president disclosed yesterday 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.

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 yesterday in prepared testimony.

Claim Forms

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 yesterday’s court 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 the SEC lawsuit.

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.

U.S. Attorney

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 return a call seeking comment yesterday.

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 6, 2009 11:21 EST