Disgraced financier Bernie Madoff planned to use $173 million of his allegedly ill-gotten gains to pay bonuses to select employees, family members and friends at the time he was arrested, according to court papers filed Thursday.

Investigators found about 100 signed checks in Madoff's desk "ready to be sent out," prosecutors wrote in a letter seeking revocation of Madoff's bail.  

A federal magistrate judge is expected to rule on Friday whether Madoff broke his bail conditions by mailing the items, supposedly worth more than $1 billion, and should be immediately thrown in jail.

The legal back-and-forth over whether Madoff's bail should be revoked continued, with prosecutors and defense attorneys arguing over the value and purpose of expensive jewerly and other items the alleged mastermind of a $50 billion Ponzi scheme sent to family members around Christmas.

Prosecutors seeking Madoff's incarceration are arguing that the scope of his alleged crimes makes him a dangerous flight risk, and that his "blatant disregard" of his bail conditions suggests he's capable of more damage. 

Madoff's attorney contended in a letter to U.S. Magistrate Judge Ronald Ellis that the packages were "an effort to reach out to (Madoff's) immediate family and close friends with whom contact had been cut off."

The packages contained "sentimental personal items," according to attorney Ira Sorkin, and were not an effort to hide valuable assets that could be used to recover funds for investors who lost money in Madoff's alleged fraud.

Bernard Madoff’s attempt to hide valuable assets adds insult to injury to the many victims of the mastermind of an alleged $50 billion Ponzi scheme.

Moreover, Madoff can’t be trusted, and he has too many reasons to run.

That’s the crux of prosecutors’ arguments for having Madoff’s bail revoked and throwing him in jail.

“The scope of the defendant’s crime is vast, and it is likely that thousands of victim-investors have lost sums in the billions of dollars. It is likewise clear that the defendant does not have sufficient assets to make those victims whole,” Assistant U.S. Attorney Mark Litt wrote in a letter to U.S. Magistrate Judge Ronald Ellis.

Scroll down to read the filing submitted by Madoff's attorney

“Accordingly, it is of vital importance that the victims of defendant’s offenses be protected from once again suffering losses as a result of the transfer of the defendant’s valuable assets to third parties.”

Madoff sent packages to family members containing jewelry and other items prosecutors have said could be worth more than $1 million.

One package included about 13 watches, a diamond necklace, an emerald ring and two sets of cufflinks. Two other packages contained a diamond bracelet, a gold watch, a diamond Cartier watch, a diamond tiffany watch, four diamond brooches, a jade necklace, and other items of jewelry.

Prosecutors contend Madoff was trying to hide assets in violation of his parole conditions, a breach that should land him in jail.

First, the packages show Madoff’s “willingness to disobey an explicit court order” barring him from shedding any of his assets. Second, Madoff represents a danger to society because if he’s shedding assets those assets cannot be used to pay restitituion to victims.

“The need for detention is this case is clear,” Litt wrote.

Madoff’s attorney has said the packages were innocent gifts. In a response tot he court from Madoff's attorneys Wednesday evening, they said the packages were simply meant to "reach out to their immediate family and close friends with whom contact had been cut off." Madoff "simply did not realize" that the order barring him from transferring assets "pertained to these personal items," the statement said.

In the filing, Madoff's attorneys reiterated that he wasn't a flight risk, that he wasn't a danger to the community and he did not -- and will not -- obstruct justice, seeking to avoid having the court send Madoff to jail.

Madoff, 70, faces a single count of securities fraud for allegedly running a global Ponzi scheme in which potentially thousands of investors were defrauded of billions of dollars.

He was arrested on Dec. 11 after two senior members of his trading and investment firm alerted authorities that Madoff had told them his fraud had collapsed as investors sought billions of dollars in redemptions Madoff couldn’t cover.

The employees who blew the whistle were reportedly were Madoff’s two sons, both of whom received packages containing some of the valuable items now in the custody of prosecutors.

It was the two sons, Mark and Andrew, who alerted prosecutors to the existence of the packages.

Madoff was released on $10 million bail after putting up as collateral his East Side Apartment, valued at $7 million, and properties on Long Island and Palm Beach, Fla. He is currently under house arrest.

His original bond requirements had to be modified because his original conditions required four signatures of “financially responsible” cosigners. He could only get two -- his wife and his brother. The sons apparently refused to sign.

Madoff's Attorney's Filing