TAMPA — A federal judge Friday ordered that Sarasota hedge fund manager Arthur Nadel remain behind bars without bond, finding the risk is too high that he would try to flee prosecution.
“He had access to millions and millions and millions of dollars,” U.S. Middle District of Florida Magistrate Mark A. Pizzo said following a more than three hour bail hearing in Tampa. “There is no explanation of the money trail, and the risk of flight is out there.”
Federal prosecutors and the Securities and Exchange Commission have charged Nadel, 76, with securities and wire fraud. He is accused of fleecing more than 600 investors nationwide who invested hundreds of millions of dollars in several hedge funds he managed. Investigators are calling it a Ponzi scheme.
During the hearing, federal Prosecutor Terry Zitek had argued that Nadel — who turned himself on a warrant in Tampa on Wednesday, more than two weeks after he disappeared — should remain in jail without bond while awaiting trial.
“He already fled once rather than face the consequences of his actions,” said Assistant U.S. Attorney Terry Zitek.
Zitek said Nadel has access to private airplanes as he invested $3 million from the funds in Sarasota aviation business Venice Jet Center and Trade Winds.
He also said he should remain incarcerated because at his age, any prison term would amount to a life sentence.
His most emphasized point: millions and millions of dollars are unaccounted for.
“Where they are, we don’t know,” Zitek said.
Tampa-based defense attorneys Todd Foster and Barry Cohen argued Nadel should be allowed to be released on his own recognizance, claiming his client is broke and does not have access to any money for a bond.
“He doesn’t have a bunch of money somewhere,” Foster said.
Cohen, who said his client’s wife had no knowledge of the fund issues, read aloud portions of a note Nadel left for his wife, Peg.
She and her daughter sat in the courtroom, occasionally glancing at Nadel, who sat in handcuffs huddled next to his lawyers.
Police found the note at his office near a shredding machine. In it, he instructed her to use money from her personal trust fund or to sell their 2006 Subaru to get by.
The note added that he felt guilty about losing other people’s money and threatened to kill himself.
“Why would he tell his wife in a confidential note if he is no longer around that there is nothing left,” Cohen said.
Cohen said his client did not learn about the warrant until Jan. 26.
“His spirit is broken,” said Cohen, who added his client has been seeing Tampa-based psychologist Robert Fernandez. “He didn’t intend to do this.
“His intent is to cooperate with the authorities and do everything he can to help these investors recoup as much money as possible,” Cohen added. “Whatever life he has left at 76, whatever sentence he gets, his life will end in the federal penitentiary but he wants to help these investors so he can close his eyes and say he did the right thing.”
Their client, they said, is not a flight risk, shown by his voluntary surrender to the FBI.
“If he wanted to run, he would have run by now,” Foster said.
In the end, the judge disagreed.
“Your lawyers said you don’t have anything,” Pizzo said to Nadel. “I don’t know that frankly. There is a quantifiable risk, and simply house arrest with an electronic monitor doesn’t resolve this situation.”
Because Nadel is charged with two counts of securities fraud and wire fraud in the Southern District of New York, his Tampa-based attorneys said they plan to hold his trial there.
Pizzo said he will issue a written order of today’s ruling Monday.
He also said he plans to issue a warrant of removal, putting the case out of the jurisdiction of the Middle District of Florida.
Pizzo also said that when Nadel gets to New York his bail conditions can be reviewed by a judge there.
Until then, Nadel will remain incarcerated without bond at the Pinellas County jail.
Nadel disappeared Jan. 14, the same day he was to remit $50 million to investors.
On Tuesday, he surrendered at the FBI office in Tampa.
Meanwhile, a judge has issued orders preventing two banks from honoring two checks totaling $170,000 that Nadel wrote in the days before his Jan. 14 disappearance, court records show.
U.S. District Judge Richard Lazzara issued a temporary restraining order at 7:30 a.m. Friday at the request of a court-appointed receiver.
The receiver, Burton Wiand, sought the order late Thursday after obtaining copies of two checks for $50,000 each. Wiand was appointed to seize the assets of Nadel and his hedge funds on behalf of creditors and investors.
The first check, from the account of Nadel’s Scoop Capital LLC, was written by Nadel to Wachovia Bank. The check’s memo line said “Official ck - B.O.A.”, which Wiand said indicated it was being used to purchase an official check. The check was dated Jan. 9, five days before Nadel disappeared.
Wiand said he also obtained a copy of a $50,000 official check credit issued by Wachovia, also dated Jan. 9. However, the check had not cleared and Wiand sought to restrain Wachovia from honoring it.
Later in the day, Lazzara granted Wiand’s motion to seize $120,000 believed to be in a Colonial Bank account.
Wiand said Nadel wrote a check on a Scoop Capital account for that amount to Wachovia on Jan. 13, again apparently to acquire an official check.
Records obtained from Wachovia indicate an official check for that amount was issued the same day to a “Shaul and Annie Blumenfeld.”
Wiand said he did not know them, but that he had found no records indicating that they were investors of Nadel’s.
The check later was cashed at Colonial.
“The receiver believes the $120,000 is composed of investor funds,” wrote Carl Nelson, an attorney for Wiand.
Following Friday’s hearing, Zitek said Nadel is scheduled to be interviewed Monday in connection to the civil case.