Banco Santander Sued

Banco Santander is in the middle of a class action lawsuit over the growing Madoff scandal in which investors were swindled out of millions of dollars.  Bloomberg News is reporting that the lawsuit alleges that Banco Santander and others did not conduct sufficient due diligence to prevent losses in funds that invested money with Madoff.  Banco Santander SA is Spain’s largest bank.

Bernard Madoff’s Ponzi scheme has claimed victims worldwide and, now, investors in Spain are taking steps to recoup their money.  In addition to the class-action suit, over 100 Spanish investors are scheduled for talks with both Barclays Bank and Banco Santander, said the Times Online yesterday, in a bid to recover cash.  Fifty other investors are also involved in another action there.

Madoff is accused of running a massive pyramid scheme in which he used cash from new investors to cover payments to earlier clients.  The investors have lost at least €120 million, with amounts ranging between €150,000 and €10 million in the $50 billion Madoff fraud debacle that has plagued investors globally, said the Times Online.

The suit was filed in U.S. federal court in Miami by American and Spanish attorneys and alleges Banco Santander was negligent and reckless in allowing its Strategic U.S. Equity fund to invest with Madoff, reported Bloomberg News.  Attorneys handling the case said that if the bank had carried out appropriate and “diligent analysis” of Madoff and his firm, it “wouldn’t have lost billions of dollars belonging to investors,” quoted Bloomberg, which added that the complaint stated that the Optimal fund earned a “handsome compensation” for its claims to provide “intensive due diligence” and “detailed scrutiny” of its investments.  It seems, according to the complaint, said Bloomberg, the fund likely earned about $44 million annually in fees alone based on an average commission of 1.9 percent of assets under management.

The Santander fund was run by its Swiss-based hedge fund arm, Optimal Investment Services, said Bloomberg.  Optimal, its former Chief Executive Officer Manuel Echeverria, and some units of HSBC Holdings Plc are named as defendants.  Echeverria resigned in June and the timing of his resignation is one of many aspects of the Madoff scandal under investigation.  The Wall Street Journal said Echeverría presided over the Optimal fund while it built its relationship with Madoff; he left in June after 19 years there and five colleagues followed.

Bloomberg also quoted the complaint as stating that, “Despite the considerable fees charged to investors and the repeated representations that Optimal Investment would carefully select the management, all of the Plaintiffs’ and the Class’ funds were stolen.  This theft could have been avoided if Defendants had fulfilled their duties.”  The complaint also states that Santander missed a “plethora of red flags” pointing to the Ponzi and, “Defendants paid themselves tens of millions of dollars in fees, and perhaps hundreds of millions of dollars, predicated on phony profits,” reported Bloomberg.

Just weeks before Madoff’s scheme collapsed, managers at Santander were praising Madoff’s supposedly “impeccable” market timing, according to a report on FT.com.  Once Madoff was arrested for securities fraud, Optimal fund investors lost over $3.1 million because of investments made with the alleged swindler.

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