NEW YORK — A judge allowed disgraced money manager Bernard Madoff to remain free on bail Monday, rejecting an attempt by prosecutors to send him to jail for mailing more than $1 million in jewelry to family and friends over the holidays.

The decision is sure to outrage investors who have been clamoring for Madoff to be sent to jail for allegedly carrying out the largest financial fraud in history — a fraud that authorities say he described as a Ponzi scheme.

Prosecutors said the gifts were grounds to have his bail revoked because what's left of Madoff's assets will have to be returned to burned investors.

But the judge not swayed by the their arguments that Madoff represents an economic danger to the community because of the size of the fraud and his actions in sending the gifts.

"The government fails to provide sufficient evidence that any potential future dissemination of Madoff's assets would rise to the level of an economic harm," Magistrate Judge Ronald L. Ellis wrote.

Ellis also acknowledged the widespread public interest in Madoff's bail and the case, but said that proper legal considerations must take precedence.

"The issue at this stage of the criminal proceedings is not whether Madoff has been charged in perhaps the largest Ponzi scheme ever, not whether Madoff's alleged actions should result in his widespread disapprobation by the public, nor even what is appropriate punishment after conviction," the judge wrote.

"The legal issue before the court is whether the government has carried its burden of demonstrating that no condition or combination of conditions can be set that will reasonably assure Madoff's appearance and protect the community from danger," the ruling said,

In a separate decision, another magistrate signed off on an extension for the deadline to indict Madoff until Feb. 11. That means Madoff will remain free for at least another month, provided he does not violate the terms of his bail during that time.

A bankruptcy judge, meanwhile, said a trustee can issue subpoenas to investigate the flow of money in an investment fund run by Madoff.

U.S. Bankruptcy Judge Burton Lifland gave permission to the trustee, Irving Picard, to subpoena witnesses, including directors and officers of Bernard L. Madoff Investment Securities LLC. The trustee is overseeing the liquidation of the fund for the bankruptcy court.

There were no objections to the trustee's request.

The anxiously awaited bail decision does put more restrictions on Madoff, including forcing him to come up with a list of items at his apartment and allowing a security firm to check on the items. The security company will also be allowed to search all outgoing mail from Madoff to ensure that no property has been transferred.

Defense lawyer Ira Sorkin says the "the opinion speaks for itself and we intend to comply with the judge's order." Sorkin has said the gifts were an innocent mistake and said he is neither a danger to the community nor a threat to flee.

Yusill Scribner, a spokeswoman for prosecutors, said the government had no comment on the ruling.