Despite drawing repeated comparisons to the house arrest of Bernard Madoff, attorneys for a Florida hedge fund manager accused of losing millions of dollars in client investments were unable to persuade a judge on Friday to offer him similar confinement as he awaits trial on federal securities and wire fraud. After a nearly four-hour hearing in Tampa federal court, the judge ordered 76-year-old Arthur Nadel held without bond. The US Attorney's Office argued Nadel earned millions in management fees over the years, much of it still unaccounted for, and that he couldn't be trusted to return to court.
They pointed to his disappearance on January 14, just as a partner insisted that an outside accountant review their books and in anticipation that his assets would be frozen.
"He left his company, his co-workers, his investors, everybody, high and dry," said Assistant U.S. Attorney Terry Zitek, who called Nadel's handing of six hedge funds "at least a partial Ponzi (pyramid) scheme."
Barry Cohen, one of Nadel's three attorneys, argued his client should be released, especially given that Madoff was allowed house arrest, even though he is accused of a significantly larger scheme. But US Magistrate Judge Mark Pizzo said the risk of flight was still too great.
Nadel surrendered to the FBI in Tampa on Tuesday, two weeks after disappearing from his Sarasota home. He left behind a note to his wife in which he expressed regret and threatened to kill himself. Police found his green Subaru the next day in an airport parking lot.
In addition to the federal charges, the Securities and Exchange Commission has charged Nadel with fraud, saying he misled investors and overstated the value of investment in the six funds by about $300 million. The SEC also alleges that Nadel transferred at least $1.25 million from two funds to secret bank accounts that he controlled.
Cohen gave a partial account of the money manager's 13 days on the run. He said Nadel left town knowing there would be "a lot coming down," wanting to get away and think about things. On January 20, Nadel contacted a Sarasota attorney, who put him in touch with Cohen. He said Nadel was in "bad state of mind" and referred him to a psychiatrist, who recommended that Nadel go to a hospital.
Four days later, Nadel flew into Tampa and checked into a hotel under his own name, Cohen said. At that point, there was still no warrant for his arrest. Nadel continued seeing the psychiatrist and wanted to check into a hospital but turned himself in at the request of authorities on January 27, Cohen said.
"Mr Nadel is humiliated about this whole experience," Cohen said.
He said his client wants to cooperate with the investigation and help investors recuperate any lost finds. He said it is likely that, with his age and poor health, Nadel will finish his days in prison and wants to do the right thing.
"He's just a lost, pathetic soul to be honest with you, your honor," Cohen said.
Despite having possibly earned tens of millions in management fees, Nadel's attorneys said he doesn't have the money to post bail, nor do family members who were in court to support him. Cohen pointed to Nadel's notes to his wife before his disappearance in which he told her there was no money left, and that she should sell his Subaru if she needed cash.
Nadel will now likely be transferred to New York, where he will be tried on federal securities and wire fraud.
Nadel's saga follows two other high-profile financial fraud cases. Madoff is accused of costing investors some $50 billion in what may be the largest Ponzi scheme in history. Indiana money manager Marcus Schrenker was apprehended in Florida earlier this month, accused of trying to stage his death in a plane crash as investors probed his businesses.