Bernard Madoff appeared in court Tuesday in an attempt to clear his lawyer of any potential conflicts of interest.
The government is detailing their case for Madoff's lawyer's personal conflicts in a letter from the prosecutors, which was made public just before Tuesday's hearing.
Prosecutors noted in the document that Madoff's lawyer, Ira Sorkin, once invested $18,860 with Madoff through a retirement account in the early 1990s.
Prosecutors also said Sorkin's parents had invested approximately $900,000 with Madoff to create trust accounts for Sorkin's two sons. They said Sorkin has told the government that he is a trustee of the sons' trust accounts but has never had a beneficial interest in the money.
Prosecutors said a potential conflict of interest could arise because Sorkin's loyalties might become divided between his sons and Madoff.
They said, for example, that Sorkin might be less likely to challenge restitution that the government might seek from Madoff because restitution could be in the interests of his sons.
"There are numerous situations that could arise, and that the parties cannot now predict, that could put Mr. Sorkin in a position where his loyalties are divided between Madoff on the one hand and his sons and their financial interest on the other hand," prosecutors said.
They added that the government believes Madoff can waive any potential conflict of interest arising out of the financial interests of Sorkin's sons.
The government said it also believes Madoff can waive any potential conflict of interest caused by Sorkin's prior representation of Frank Avellino and Michael Bienes and their accounting firm, Avellino & Bienes.
The government said the firm was dissolved after it settled accusations in 1993 by the Securities and Exchange Commission that it had sold unregistered securities and operated as an unregistered investment company from 1962 to 1992.
Prosecutors said Madoff has had a long-standing business relationship with Avellino and Bienes and that money Avellino and Bienes raised from their clients was invested with Madoff.
They also said Avellino and Bienes are potential trial witnesses against Madoff because Madoff took over many of their clients after their firm folded.
Prosecutors said this potential conflict could severely curtail Sorkin's ability to cross examine his former clients in a trial.
The government noted, however, that Avellino and Bienes have not sought to disqualify Sorkin from representing Madoff.
Despite all of this evidence, Madoff is expected to say he isn't bothered by the potential conflict of interest and wants to go ahead with Sorkin as his attorney.
Prosecutors have sought a hearing Tuesday before Judge Denny Chin in federal court.
Hours before the hearing, Madoff was seen leaving his apartment building under a large umbrella even though it wasn't raining.
Madoff, who wears a bulletproof vest, was brought to the courthouse in lower Manhattan early for security reasons, to avoid any confrontations with any investors who might show up for the hearing.
The court appearance is expected to be a warmup to Madoff's Thursday plea hearing when he is expected to plead guilty in the case. At least 25 investors have indicated they'd like to speak Thursday.
The 70-year-old Madoff was arrested in December and accused in a $50 billion fraud scheme.