The judge ordered both sides to submit written arguments this week and said he would rule later.
Madoff's lawyer, Ira Sorkin, said his client did not violate a court-imposed asset freeze by mailing heirlooms including $25 cufflinks, pens and a $200 pair of mittens through the post office to his brother, a son and daughter-in-law and a New York couple vacationing in Florida.
Sorkin called it an innocent mistake and said Madoff and his wife sought the return of the items they had sent on Dec. 24 as soon as they were told they could not send them out. He also suggested that some of the items mailed belonged to Madoff's wife, and therefore were not subject to a court order at that time.
"We maintain it happened innocently," Sorkin said. "He's not a threat to the community, and there's no danger he's going to flee."
The last-minute court hearing was the latest chapter in an ongoing struggle between prosecutors and Madoff over his bail.
Madoff was released without restrictions after his arrest, angering critics who thought it was unfair that a man accused of such a large fraud could walk the streets. Prosecutors later tightened conditions of his bail to the point that Madoff is now under constant surveillance and confined to his Manhattan penthouse around the clock, the only exception being court hearings.
His $10 million bail was secured by his homes in Manhattan, Long Island and Florida.
The 70-year-old Madoff, a former Nasdaq stock market chairman, was arrested Dec. 11 on securities fraud charges alleging he duped investors out of as much as $50 billion in a giant Ponzi scheme.
At some point during his home confinement, Madoff and his wife decided to start sending the personal items to relatives and friends, including cufflinks that had been given to him by his granddaughter.
Sorkin said lawyers learned for the first time that the watch and jewelry had been sent to relatives and the couple in Florida when they were preparing a statement of Madoff's assets on Dec. 30 that had to be turned over to the Securities and Exchange Commission a day later.
Litt said the government has taken possession of the most of the items, including the most expensive ones.
The issue of Madoff's assets is an important part of the investigation because authorities are trying to determine what is left and use it as restitution for burned investors.
The defense lawyer offered to let the government take custody of any jewelry or other small assets belonging to Madoff, an offer that Litt said would be impossible to carry out because there might be valuable small assets such as paintings and sculptures "scattered around the country and the world."
The effort by the Madoffs to send property to family and friends was not the first time that Madoff sought to help out members of his inner-circle since his alleged scheme unraveled.
The FBI said in a complaint at the time of Madoff's arrest that he had sought to distribute $200 million to $300 million he had left to certain selected employees, family and friends.
The prosecutor urged the magistrate judge to consider the "totality of actions" as Madoff carried out a sweeping fraud.
"Mr. Madoff has lied to many people over the years," Litt said as he alleged that the mailing of assets after his arrest made a lie of his promise to the courts not to disturb his assets.
The prosecutor told the judge the case against Madoff "is strong and getting stronger."
Madoff went to court in a gray suit with a white shirt and a long black tie. As the magistrate judge entered court, Madoff straightened his suit coat and tie. He looked forward throughout the proceeding.
Afterward, court officers cleared the way for him as he hurried to a car in front of the courthouse. He kept his lips closed as several questions were shouted at him by reporters.
He has not yet entered a plea in the case because an indictment had not been returned, though it was due within a week.
In court, the prosecutor had argued that Madoff obstructed justice by trying to dissipate assets and said that he was a danger to the community because he was liquidating assets needed by his investors.
The judge said he was concerned whether any previous cases have claimed that potential economic harm represented a danger to the community.
"In some instances, economic danger may be more severe than physical danger," he said.
---
Associated Press writer Tom Hays contributed to this report.
