By Martha Graybow and Grant McCool

In Massachusetts, a key middleman who helped investors place billions of dollars with Madoff failed to appear before state regulators. He was under subpoena but a spokesman said later he was in a doctor's care and could not attend.

Madoff, a 70-year-old investment adviser accused of running a worldwide fraud that authorities say may have cost investors $50 billion, is out on bail and living in his $7 million Manhattan penthouse apartment, under guard.

A court hearing was set on Tuesday for the next day for U.S. federal prosecutors to try to persuade a judge to revoke Madoff's bail.

The government wants him jailed pending trial or a guilty plea, saying he had sent valuables including diamond watches to family and friends in violation of a court order.

Madoff's attorneys argued that the mailings were innocent mistakes and that Madoff, who has surrendered his passport, posed no risk of flight.

Judge Lawrence McKenna in U.S. District Court in Manhattan will hear the government's argument at 2:30 p.m. (1930 GMT) on Wednesday, court officials said.

Madoff's lawyer Ira Sorkin said Madoff would appear in court for the hearing. "The government will make its application and we will oppose it," Sorkin said.

Madoff has become one of the country's most vilified figures since authorities arrested him on December 11 and said he had confessed to a long-running, $50 billion Ponzi scheme. The fraud has wiped out wealthy investors' fortunes and forced charities whose endowments were managed by Madoff to close.

Massachusetts officials had subpoenaed Madoff business associate Robert Jaffe in December but he failed to show up on Tuesday.

Brian McNiff, Galvin's spokesman, said he did not know why Jaffe missed the meeting but the "Securities Division is preparing to enforce the subpoena and take all necessary actions to protect Massachusetts investors.

Jaffe has said through his spokesman, Josh Hochberg, that he had no knowledge of the fraud and was a victim like so many others.

Jaffe has worked for nearly two decades at Cohmad Securities, a firm that marketed Madoff's investment products. Massachusetts Secretary of State William Galvin, one of the first state regulators to probe the fraud, had subpoenaed Cohmad Securities and ordered Madoff to turn over all records relating to money he managed for state residents.

NEW YORK STATE PROBE

New York's attorney general, Andrew Cuomo, said on Tuesday his office had launched an investigation into frauds perpetrated on charities that lost money on their Madoff investments.

"I don't want to comment on who we are investigating, or not by name," he said, adding that the probe was "not looking at Mr. Madoff" himself.

Cuomo, whose office had not previously publicly declared any investigation related to the affair, said the alleged scam's impact on charities and other groups in New York had given his office "great cause of concern."

"These are important charities and not-for-profits to the state of New York," he said. "We have a particular interest in protecting charities in the state and regulating charities."

Also on Tuesday, the president of the agency overseeing the liquidation of Madoff's brokerage firm said claims from investors who lost money in the alleged fraud are starting to be analyzed.

The claim forms "are going into a central processing area and I believe there are some in, and the trustee is starting to analyze them," Securities Investor Protection Corp President Stephen Harbeck told Reuters.

SIPC, a nonprofit group set up by Congress to maintain a fund to help investors who had accounts at brokerage firms that have failed, has sent more than 8,000 claim forms to Madoff investors.

Harbeck said SIPC and the U.S. Securities and Exchange Commission have not yet resolved how some of the claims will be resolved. Investors have until the end of June to file claims.

European investors and banks continue to feel the impact of the scandal.

Shares in Spain's biggest bank, Santander, closed lower on Tuesday after the Wall Street Journal reported that Spanish prosecutors were probing the bank over exposure of more than 2.3 billion euros ($3.06 billion) in client funds to Madoff.

The newspaper said Spain's anti-corruption prosecutor would examine the relationship between Santander, the investment fund Fairfield Greenwich Group and Madoff. A Santander spokesman declined to comment, as did Spain's public prosecutors office.

(Reporting by Martha Graybow; Additional reporting by Svea Herbst-Bayliss in Boston, Rachelle Younglai in Washington and Judy MacInnes in Madrid; Editing by Gary Hill)