I don't understand why anyone would convert their crypto to a crypto tied to the price of fiat rather than just selling crypto for fiat, or gold, or whatever.

The only plausible reason I can think of would be to try to avoid paying taxes on the crypto you sold. I can absolutely believe that Madoff is looking for a crypto-like tax shelter without the crypto price variance.

Good luck. The IRS will subpoena Tether for customer records just like they've subpoenaed Coinbase and others. This definitely smells like a scam to me.