SDNY Magistrate Rejects Government’s Effort to Revoke Bail Based on Defendant’s Alleged Risk of Flight and Potential of Economic Danger to the Community
Despite the apoplectic public and media outrage over Bernard Madoff’s pretrial detention at his penthouse while his victims are “headed to the poorhouse,” SDNY Magistrate Judge Ronald Ellis has issued an important and courageous decision on the parameters of the Bail Reform Act. Denying the government’s motion to revoke Madoff’s bail based on his alleged dissipation of assets while on release in United States v. Madoff, 08 Mag 2735 (S.D.N.Y. January 12, 2009), Judge Ellis held that these changed circumstances did not alter the calculus on Madoff’s risk of flight, did not indicate a serious risk that he would obstruct justice in the future, did not rise to the level of danger to the community as contemplated under the Bail Reform Act, and, in any event, could easily be addressed by additional bail restrictions. The case is notable for its rejection of the government’s claim that “economic harm” in the form of potential dissipation of restitution assets constitutes “danger to the community” in the context of bail determinations – a concept that usually means physical harm. It is also an important iteration of the principle that release is the presumptive option under the Bail Reform Act. Those who find the decision disappointing can take solace in the fact (if solace is to be gained from this fact) that imprisonment is the presumptive option upon conviction in the federal system. As noted here, in fact only 7.7% of federal offenders sentenced in 2007 received a sentence of straight probation.
Background
As our readers no doubt need no introduction, Madoff has apparently admitted to orchestrating the largest Ponzi scheme ever, and after being arraigned on a federal complaint charging him with one count of securities fraud on December 11, 2008, he was released on bail that day with the government’s consent on a secured $10M bond. About a week later, a number of bail conditions were added, including home detention under the supervision and protection of 24-hour armed security guards. On Christmas Eve, Madoff and his wife mailed approximately $1M worth of valuable jewelry and other items to friends and relatives. Arguing that this was in violation of a restraining order in place in a related SEC proceeding, and that it represented obstruction of justice and danger to the community (i.e. the community of Madoff’s victims who seek restitution), the government moved to revoke Madoff’s bail. The government conceded, however, that Madoff had not actually violated the specific conditions of his bail in the criminal case.
Holding
The court begins its analysis by pointing out that bail is not about punishment, however much the media and Madoff’s victims may wish it is – it’s about assuring Madoff’s continued appearance in court and protecting the community from danger. The court reminds us that “[i]n most cases, release is the presumptive state,” and that “only a limited group of offenders [.] should be denied bail pending trial.” With that caveat, the court proceeded to the first step of the inquiry: to determine if Madoff presented a serious risk of flight or obstruction of justice.
1. Risk of Flight or Obstruction of Justice
The problem for the government in the risk of flight analysis is that most of the facts justifying detention for this reason (the extraordinary size and depth of Madoff’s fraud scheme, the likely sentence he faced, the fact that most of his ties to the community – including his relationship with his sons – had apparently been severed, and the fact that almost $200M in signed checks to relatives, friends and charities were discovered in his desk) were known to the government when the current bail conditions were set, and clearly, did not impact its decision to consent to bail at that point. (Of course, the government consented to release before the public outcry, and a cynic would say that the revocation motion has less to do with assets than reputations.) As a result, in its revocation motion, the government needed to argue changed circumstances, but the only changed circumstance here was the holiday mailing, and “the Government fails to explain how the transfers in question change the calculus with respect to the risk of flight.” In any event, the Bail Reform Act requires a “serious risk of flight,” and the government effectively conceded no such risk existed when it argued that the bail conditions in existence “[did not] make the flight risk zero.” This is not the correct legal standard, Judge Ellis points out: “The Act does not require that the risk be zero, but that conditions imposed ‘reasonably assure’ appearance.”
Alternatively, the government argued that the holiday mailing represented obstruction of justice, either on the theory that it makes it harder for the government to recover forfeitable assets for victims, or because it violated an injunction in place in the related SEC proceeding. Even if the government was right, Judge Ellis points out, this only gets the government halfway: “The question is not simply whether Madoff’s actions can be considered obstruction, but whether there is a serious risk of obstruction in the future. The statute, by its nature, is always looking forward.” Noting it was a substantial question whether the government had met its burden of showing a serious risk of obstruction in the future, the court held it was not necessary to decide that issue, since the government had failed to satisfy the second prong of the bail inquiry: whether any conditions may be set to reasonably assure the safety of the community and the presence of the defendant at trial.
2. Safety of the Community
As a threshold issue, the court considered the government’s relatively novel claim that economic harm – specifically the harm that Madoff would distribute restitution assets – is a danger to the community recognized by the Bail Reform Act. Judge Ellis was hesitant to adopt the government’s “broad construction” of the Act’s “safety of the community” language, pointing out that the legislative history relied upon by the government suggested that Congress’s focus was only on activities that are in fact crimes. Moreover, the only cases where courts have acknowledged economic harm as a possible detention factor have ultimately made their decisions based on flight risk.
Judge Ellis concludes, however, that while there is some support for the position that economic harm may be considered in evaluating a defendant’s danger to the community in the bail context (and that the presumption of innocence should be factored into how much weight this factor gets), the government “fails to provide sufficient evidence that any potential future dissemination of Madoff’s assets would rise to the level of an economic harm cognizable under . . . the Bail Reform Act.”
Finally, even if dissipation of assets was harm to the community for bail purposes, the government failed to carry its burden (by “clear and convincing evidence”) that no conditions or combination of conditions will reasonably assure the safety of the community. Madoff’s lawyers pointed out in their papers that he was effectively imprisoned in his home both by the hired guards and his notoriety, without access to bank accounts or any power to dispose of his real property, which had already been pledged as collateral to the government. In addition, his wife had voluntarily agreed not to dispose of any of her personal property. Under these circumstances, it was hard to see “why Madoff’s detention would markedly ameliorate any alleged danger to the community that may result from dissipation of his assets.” The court added some additional bail conditions, including the requirement that the security firm providing Madoff’s round-the-clock supervision will do a regular inventory of valuable items in his home and search all outgoing mail.
Comment
Legally, this was an easy case, but symbolically it was a hard one – afterall, the image of a confessed fraudster living in luxury, gifting to friends and relatives the very kinds of heirlooms his victims are now struggling to pawn, is not easy to swallow. If a cursory review of the comments on the New York Times website is anything to go by, it took courage to deny the government’s motion here. There would have been no public outcry if Judge Ellis had sent Madoff directly to jail, in a decision that could have changed the bail landscape for many far more deserving non-violent offenders. Those who criticize the decision are unlikely to take the trouble to read his carefully analyzed 22-page decision. But if the principle of the presumption of innocence is to have any meaning, the presumption of bail must have meaning, and certainly, bail should not be revoked because of a defendant’s violation of an economic order in a related civil proceeding, particularly where restrictions can be added to ensure that he does not have the opportunity to do this again. The case will no doubt become an important precedent in support of bail in non-violent, non-presumption cases generally, and white collar cases in particular.
Background
As our readers no doubt need no introduction, Madoff has apparently admitted to orchestrating the largest Ponzi scheme ever, and after being arraigned on a federal complaint charging him with one count of securities fraud on December 11, 2008, he was released on bail that day with the government’s consent on a secured $10M bond. About a week later, a number of bail conditions were added, including home detention under the supervision and protection of 24-hour armed security guards. On Christmas Eve, Madoff and his wife mailed approximately $1M worth of valuable jewelry and other items to friends and relatives. Arguing that this was in violation of a restraining order in place in a related SEC proceeding, and that it represented obstruction of justice and danger to the community (i.e. the community of Madoff’s victims who seek restitution), the government moved to revoke Madoff’s bail. The government conceded, however, that Madoff had not actually violated the specific conditions of his bail in the criminal case.
Holding
The court begins its analysis by pointing out that bail is not about punishment, however much the media and Madoff’s victims may wish it is – it’s about assuring Madoff’s continued appearance in court and protecting the community from danger. The court reminds us that “[i]n most cases, release is the presumptive state,” and that “only a limited group of offenders [.] should be denied bail pending trial.” With that caveat, the court proceeded to the first step of the inquiry: to determine if Madoff presented a serious risk of flight or obstruction of justice.
1. Risk of Flight or Obstruction of Justice
The problem for the government in the risk of flight analysis is that most of the facts justifying detention for this reason (the extraordinary size and depth of Madoff’s fraud scheme, the likely sentence he faced, the fact that most of his ties to the community – including his relationship with his sons – had apparently been severed, and the fact that almost $200M in signed checks to relatives, friends and charities were discovered in his desk) were known to the government when the current bail conditions were set, and clearly, did not impact its decision to consent to bail at that point. (Of course, the government consented to release before the public outcry, and a cynic would say that the revocation motion has less to do with assets than reputations.) As a result, in its revocation motion, the government needed to argue changed circumstances, but the only changed circumstance here was the holiday mailing, and “the Government fails to explain how the transfers in question change the calculus with respect to the risk of flight.” In any event, the Bail Reform Act requires a “serious risk of flight,” and the government effectively conceded no such risk existed when it argued that the bail conditions in existence “[did not] make the flight risk zero.” This is not the correct legal standard, Judge Ellis points out: “The Act does not require that the risk be zero, but that conditions imposed ‘reasonably assure’ appearance.”
Alternatively, the government argued that the holiday mailing represented obstruction of justice, either on the theory that it makes it harder for the government to recover forfeitable assets for victims, or because it violated an injunction in place in the related SEC proceeding. Even if the government was right, Judge Ellis points out, this only gets the government halfway: “The question is not simply whether Madoff’s actions can be considered obstruction, but whether there is a serious risk of obstruction in the future. The statute, by its nature, is always looking forward.” Noting it was a substantial question whether the government had met its burden of showing a serious risk of obstruction in the future, the court held it was not necessary to decide that issue, since the government had failed to satisfy the second prong of the bail inquiry: whether any conditions may be set to reasonably assure the safety of the community and the presence of the defendant at trial.
2. Safety of the Community
As a threshold issue, the court considered the government’s relatively novel claim that economic harm – specifically the harm that Madoff would distribute restitution assets – is a danger to the community recognized by the Bail Reform Act. Judge Ellis was hesitant to adopt the government’s “broad construction” of the Act’s “safety of the community” language, pointing out that the legislative history relied upon by the government suggested that Congress’s focus was only on activities that are in fact crimes. Moreover, the only cases where courts have acknowledged economic harm as a possible detention factor have ultimately made their decisions based on flight risk.
Judge Ellis concludes, however, that while there is some support for the position that economic harm may be considered in evaluating a defendant’s danger to the community in the bail context (and that the presumption of innocence should be factored into how much weight this factor gets), the government “fails to provide sufficient evidence that any potential future dissemination of Madoff’s assets would rise to the level of an economic harm cognizable under . . . the Bail Reform Act.”
Finally, even if dissipation of assets was harm to the community for bail purposes, the government failed to carry its burden (by “clear and convincing evidence”) that no conditions or combination of conditions will reasonably assure the safety of the community. Madoff’s lawyers pointed out in their papers that he was effectively imprisoned in his home both by the hired guards and his notoriety, without access to bank accounts or any power to dispose of his real property, which had already been pledged as collateral to the government. In addition, his wife had voluntarily agreed not to dispose of any of her personal property. Under these circumstances, it was hard to see “why Madoff’s detention would markedly ameliorate any alleged danger to the community that may result from dissipation of his assets.” The court added some additional bail conditions, including the requirement that the security firm providing Madoff’s round-the-clock supervision will do a regular inventory of valuable items in his home and search all outgoing mail.
Comment
Legally, this was an easy case, but symbolically it was a hard one – afterall, the image of a confessed fraudster living in luxury, gifting to friends and relatives the very kinds of heirlooms his victims are now struggling to pawn, is not easy to swallow. If a cursory review of the comments on the New York Times website is anything to go by, it took courage to deny the government’s motion here. There would have been no public outcry if Judge Ellis had sent Madoff directly to jail, in a decision that could have changed the bail landscape for many far more deserving non-violent offenders. Those who criticize the decision are unlikely to take the trouble to read his carefully analyzed 22-page decision. But if the principle of the presumption of innocence is to have any meaning, the presumption of bail must have meaning, and certainly, bail should not be revoked because of a defendant’s violation of an economic order in a related civil proceeding, particularly where restrictions can be added to ensure that he does not have the opportunity to do this again. The case will no doubt become an important precedent in support of bail in non-violent, non-presumption cases generally, and white collar cases in particular.
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