Sarasota Hedge Fund Manager Ordered Held Without Bail

A Sarasota hedge fund manager who went missing for 13 days after being accused of misleading investors will be held without bail pending trial, a federal magistrate ruled today.

Arthur Nadel, 76, faces charges of securities and wire fraud, which each carry a maximum sentence of 20 years in federal prison.

In denying bail, U.S. Magistrate Mark Pizzo said he was concerned about Nadel's access to "millions and millions and millions of dollars." He also said Nadel had not provided a sufficient explanation as to his whereabouts while missing.

As much as $300 million is missing from funds Nadel controlled, officials say. He is accused of exaggerating the amount of money in his investment funds and transferring millions of dollars of investors' money to his bank accounts.

Assistant U.S. Attorney Terry Zitek said Nadel and his companies were paid $95 million in asset- and performance-based fees over the years for earnings that didn't exist.

As some investors cashed out, they were paid with other investors' money, Zitek said, describing the situation as "at least a partial Ponzi scheme."

A court-appointed receiver overseeing Nadel's investment companies said in a court filing that Nadel's "scheme" dates at least to 2003. Zitek said it might go as far back as 1999.

After Nadel turned himself in Tuesday, he was asked by an FBI agent where he had been, Zitek said: "Been on vacation," was the response.

Nadel's attorneys, Barry Cohen and Todd Foster, tried to persuade Pizzo to release their client on his own recognizance and place him on electronic monitoring.

They argued that Nadel has no money and that the millions prosecutors say were transferred to him are gone - paid to the IRS and his partners, given to charity and put back into the business to pay investors.

Cohen said Nadel did not flee prosecution because there were no warrants for his arrest when he left Sarasota on Jan. 14.

Nadel knew his business was collapsing and that there would be repercussions, Cohen said, so he left to "get his head together." He described Nadel as suicidal.

Cohen said Nadel called him Jan. 20. He said he tried to persuade Nadel not to commit suicide and put him in touch with Tampa psychiatrist Robert Fernandez, who conducted a number of sessions over the telephone.

Cohen said Nadel "flew back to this area" Jan. 24, using his own name to fly and check into an airport hotel.

"Where did he fly from?" Pizzo asked.

"I don't know the answer to that question," Cohen said.

Cohen said Nadel's stepdaughter called him Monday to say an FBI agent had told her there was a warrant for Nadel.

Cohen said he contacted the U.S. Attorney's Office in New York, which brought the charges against Nadel, and was instructed to have his client turn himself in. Cohen said he accompanied Nadel when he surrendered.

"Mr. Nadel is humiliated about this whole experience; being locked up here in shackles in front of his whole family," Cohen told Pizzo. "His intentions are to cooperate with the authorities and do everything he can to help these investors recoup as much as he can."

One issue in the bail hearing was a note Nadel wrote to his wife, Peg, which she gave to law enforcement when she reported her husband missing.

In it he wrote: "My ego, stupidity and self deception crept in slowly and I could not resist the temptation to 'gild the lily' with my stock trading. The funds did not reflect their true performance. Despite all my efforts and belief that I could turn the tide, they are gone. My addled brain kept believing that I could trade my way out of it ... There are many people who would like to kill me, but you can assure them that I will do the job myself."

Zitek said Nadel's note was a form of confession and an attempt to deceive the public and investors into believing he had killed himself, in order to give him a chance to flee.

Cohen said the note was proof of Nadel's severe depression and of the fact that Nadel had no money left.

Nadel's case is being prosecuted by the same Manhattan federal prosecutor's office that is prosecuting Bernard Madoff, who is accused of the largest Ponzi scheme in history.

Defense attorneys argued that Nadel should be granted the same freedom given to Madoff, who is under house arrest.

But Zitek said there are key differences, including the fact that Madoff did not flee to avoid prosecution. In addition, Madoff had to post $20 million in secured bond, something Nadel says he is unable to do. Madoff also is paying for 24-hour guards to ensure he does not flee.

Zitek said there is evidence Nadel planned his flight because there were numerous financial transfers in late 2008 and in the days before he left, as well as e-mails suggesting Nadel's children were preparing to have to live for the first time without money from his scheme.

Peg Nadel is considered a "subject" of the case brought by Manhattan federal prosecutors, Zitek said, and may be implicated in the illegal financial transactions.