In the filing, Assistant U.S. Attorney Marc Litt said Madoff cannot be trusted because he had long engaged in a "scheme that required the defendant to lie routinely to thousands of people and a scheme which has caused extraordinary damage to individuals, families, and institutions all over the world."
The judge was expected to rule Friday or Monday whether Madoff should be sent to jail or remain free on bail, confined to his luxury Upper East Side penthouse with an electronic ankle bracelet and under 24-hour guard.
Defense lawyers say bail should not be revoked because he is not a risk to flee or a danger to the community.
The court developments came as regulators in Britain opened an investigation into the British business operations of Madoff, raising the prospect that he could face charges there. The fraud office, which is cooperating with its U.S. counterparts, said its investigation would focus on British victims and "any criminal offenses that might have been committed in the U.K."
Madoff delivered impressive returns to investors for decades before authorities say he told his sons that it was "all just one big lie" and "basically, a giant Ponzi scheme." He's accused of blowing more than $50 billion, paying early investors with proceeds from those who entered his investment scheme later.
Investigators previously have said that Madoff had planned on distributing $200 million to $300 million to his closest friends and family after he realized his scheme had unraveled. He was also accused of sending more than $1 million worth of jewelry as gifts to friends and family over the holidays, prompting prosecutors to ask a judge to revoke his bail.
The $173 million in checks appears to represent part of that $200 million to $300 million.
Prosecutors say he presents "grave" economic harm to the community because of the wide range of his alleged fraud, and they cited the attempt to distribute some of his wealth in the past month as proof of the damage he could do.
The letter was a response to a letter defense lawyers had submitted to Magistrate Judge Ronald L. Ellis in federal court in Manhattan on Wednesday.
The defense lawyers had noted that Madoff and his wife had offered to give up their assets, including four properties in Manhattan, Montauk, N.Y., Palm Beach, Fla. and Antibes, France, along with four boats and three cars. The U.S. properties alone were estimated to be worth more than $19 million.
"Mr. Madoff's conduct ... is not the conduct of a man who is unwilling to face justice in this matter," the lawyers wrote, noting that Madoff encouraged his sons at the outset to tell the authorities of the exact nature of his fraud and that he planned to turn himself in.
Litt wrote that Madoff's "effort to paint his pre-arrest actions in heroic terms should be viewed with great skepticism."
The prosecutor said the defense claim that Madoff's holiday gifts were merely an attempt to reach out to his immediate family and close friends with whom contact had been cut off was "preposterous."
"That's what telephones, e-mails, and personal letters are for," Litt wrote. "Given the many ruptured relationships of the defendant, and their depth, one only can imagine the value of the items that might have been included in the defendant's next set of mailings, had he determined that his attempted transfers in late December had failed to achieve their purpose."
Madoff's lawyer, Ira Sorkin, declined to comment Thursday.