NEW YORK (AP) – Bernard Madoff will remain confined to his posh Manhattan penthouse after a judge on Monday rejected the government’s effort to put him behind bars, enraging investors who had their life savings wiped out by the disgraced financier.

Prosecutors say Madoff should be sent to jail because he sent more than $1 million in jewelry to family and friends over the holidays and could try to shovel other small but valuable assets to those closest to him.

To ensure he doesn’t, Magistrate Judge Ronald L. Ellis required the 70-year-old Madoff to create an inventory of all valuable items in his $7 million Manhattan apartment and to let a security company check all outgoing mail to make sure nothing is sent away.

The restrictions did little to quell the anger among Madoff’s investors, who believe he is receiving special treatment and should be thrown in jail as he awaits trial on what could be the largest financial scam in history. One New York newspaper editorial last week called for his incarceration with the headline “Burn, Bernie, burn.”

“There is a thirst for blood that transcends just those who have been victimized. There is a feeling … that folks like Bernard Madoff get a different brand of justice than the guy in the street,” said attorney Stephen A. Weiss, who added that some of his several dozen Madoff investors “just want to have this guy’s head.”

But the magistrate judge swept aside the emotions of the case, saying his ruling was consistent with laws requiring that defendants be permitted to await trial on bail unless they are a danger to the community or a threat to flee.

Such standards typically make it difficult for prosecutors to jail white-collar defendants before trial, with the judge noting that suspects in nearly 75 percent of federal fraud cases are granted bail. Even defendants charged with more violent crimes – mob scion John Gotti Jr. among them – have been granted bail in recent years.

And Ellis said it did not matter that Madoff was charged in perhaps the largest Ponzi scheme ever or that a conviction might result in a long prison term.

He said that prosecutors simply did not prove that Madoff is an economic harm to the community, determining that they had a real shaky case on the economic argument and noting that his current bail conditions are already extremely restrictive and make him unlikely to flee.

Even if he ordered him to prison, Ellis said “the object would not be to punish him,” but rather to ensure he was not a danger and would not flee.

He added: “Aside from the bare assertion that there remains some risk of flight, the government has failed to articulate any flaw in the current conditions of release.”

Conditions of Madoff’s $10 million bail require him to wear an electronic bracelet, submit to 24-hour private security guards and post the Manhattan apartment and homes in Montauk, N.Y., and Palm Beach, Fla. He can leave the apartment only for court appearances.

Prosecutors had no immediate comment on the ruling or whether they would appeal the decision.

Defense lawyer Ira Sorkin said the bail opinion “speaks for itself and we intend to comply with the judge’s order.” Sorkin has said the gifts, including at least 16 watches, a jade necklace, an emerald ring and four diamond brooches, were an innocent mistake.

The judge took note of the gifts in putting the tougher restrictions on Madoff.

“It is highly suspect that a man as sophisticated as Madoff appears to be did not pause to consider the possible ramifications of this proposed course of action on his release conditions,” the judge wrote. “Given Madoff’s failing in this regard, it is appropriate that his ability to transfer property be restricted as completely as possible.”

The decision means Madoff will avoid having to leave the comfort of his $7 million penthouse for a cramped jail cell with nothing but bunkbeds, a sink and toilet.

His swank confinement has drawn throngs of reporters and gawkers to his elegant-but-understated Upper East Side apartment building, a 1926 brick-and-limestone structure with just two spacious apartments per floor. His neighbors include “Today” show co-host Matt Lauer and prominent players in finance, law and advertising.

The commotion spurred Madoff to send his neighbors a note last month expressing “profound apologies for the terrible inconvenience that I have caused over the past weeks,” according to residents who confirmed the development, first reported in The New York Times

The sending of the gifts and the bail decision only heightened the outrage that has surrounded Madoff since his arrest one month ago.

Attorney Harry Sussman in Houston said his clients who invested with the former Nasdaq stock market chairman want justice, but they want their money back more.

“If putting him in jail would put pressure to help the government find money, then people want him in jail. If he stays out, the pressure to cooperate is less,” Sussman said.

In a separate decision, another magistrate signed off on an extension for the deadline to indict Madoff until Feb. 11. That means Madoff can remain free for at least another month, provided he does not violate conditions of the bail or the ruling is not overturned.

In another development, a bankruptcy judge ruled that a trustee can issue subpoenas to investigate the flow of money in the investment fund run by Madoff. U.S. Bankruptcy Judge Burton Lifland gave permission to the trustee, Irving Picard, to subpoena witnesses. The trustee is overseeing the liquidation of the fund for the bankruptcy court.

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Associated Press writers Tom Hays and Jennifer Peltz and AP Business Writer Vinnee Tong in New York contributed to this report.

AP-ES-01-12-09 1736EST

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