* New York Post reports Madoff told inmates he was dying
* Madoff taking pills, not doing well - Post quotes inmate
* Prisons Bureau says Madoff not ill, does not have cancer (Adds comment from victims' lawyers)
By Joseph A. Giannone
NEW YORK, Aug 24 Wall Street super-swindler Bernard Madoff has not been diagnosed with cancer, the Federal Bureau of Prisons said Monday, knocking down a tabloid report that Madoff told fellow prison inmates that he was dying.
The New York Post reported that Madoff, 71, who since June has been serving a 20-year sentence at a North Carolina federal prison, told inmates he does not have long to live. The paper cited unnamed prison sources.
Federal Bureau of Prisons spokeswoman Traci Billingsley initially told Reuters the story was "full of inaccuracies."
Billingsley later, in a written statement, said "Bernie Madoff is not terminally ill, and has not been diagnosed with cancer," although the bureau did not address every detail in the story.
The Post story quoted one inmate at the Butner Medium Federal Correctional Institution as saying Madoff was taking "about 20 pills a day" and "not doing very well."
The newspaper said that earlier this year there had been speculation that Madoff was suffering from pancreatic cancer.
Madoff lawyer Ira Sorkin declined to comment on his client's "physical or emotional condition."
Madoff pleaded guilty in March to orchestrating a worldwide $65 billion Ponzi scheme that claimed thousands of victims over the course of 20 years. He was sentenced to 150 years, which has fueled speculation that any talk of terminal illness would be a ploy for leniency.
Legal experts said a grave illness could have guided Madoff's decision to plead guilty to the massive criminal fraud and not implicate other people.
"Some of the victims all along believed that he had a terminal illness and that was the only reason" he offered his guilty plea, said lawyer Barry Lax of Lax & Neville, which represents Madoff victims.
Joseph Cotchett, another victims' lawyer who last month visited Madoff in prison, said he never saw any indication that Madoff was sick.
"I asked him about his health, and he said he was fine, with the exception of his ankles, which were swelling because of new pair of shoes," Cotchett said. "Anybody faced with life imprisonment will have a little sorrow, but he was spry, bouncing into the room. He made no mention of any physical problems."
Cotchett, whose victims are trying to recover money lost in Madoff's fraud, said it is a strange coincidence this Madoff cancer claim came just days after the Lockerbie aircraft bomber was released by Scottish authorities on humanitarian grounds after he was diagnosed with cancer.
"If this were an excuse to get out of prison, his victims would have to be upset with it," Cotchett said.
"I read the story and found it hard to believe," said Helen Davis Chaitman, another Madoff victims' attorney. "I just hope it's not a set-up. Undoubtedly, Mr. Madoff has information that some people would hope would never be revealed."
SWEAT LODGES AND SANDWICHES
The Post story also reported that Madoff has begun engaging in a number of surprising new activities with some unexpected social circles in prison.
A shirtless Madoff has joined weekly "Native American religious purification ceremonies" that involve prayers in "sweat lodges," rooms with heated rocks that induce sweat, and smoking from a ceremonial pipe, the paper said.
Billingsley confirmed that Butner provides a sweat lodge as a religious structure for Native American prisoners.
The Post also reported that various "gangs" at the prison were trying to recruit Madoff. Some inmates have taken Madoff under their wing, preparing "sandwich wraps" for him at their cells.
Larry Levine, a former prison inmate and founder of Wall Street Prison Consultants, which prepares people for incarceration, said he would not be surprised if Madoff were finding friends among the Native American inmates.
Levine also said Butner is known as a "cheese factory," a nickname alluding to the many federal informants, or "rats," incarcerated there.
"I have talked to some people that said that (Butner) is supposed to be a nice place," he said.
As to toasting sandwiches, the Bureau of Prisons spokeswoman said inmates are not permitted to prepare food in their cells, though soup, beans and other items may be procured in the prison commissary and brought back to cells.
"They are not going to have a microwave oven in their cells," former inmate Levine said. (Reporting by Joseph A. Giannone and Steve Eder, additional reporting by Elinor Comlay, editing by Gerald E. McCormick and Tim Dobbyn)