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.Â 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.Â Banco Santander SA is Spainâ€™s largest bank.
Bernard Madoff’s Ponzi scheme has claimed victims worldwide and, now, investors in Spain are taking steps to recoup their money.Â 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.Â 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.Â The investors have lost at least â‚¬120 million, with amounts ranging between â‚¬150,000 and â‚¬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.Â Attorneys handling the case said that if the bank had carried out appropriate and â€œdiligent analysisâ€ of Madoff and his firm, it â€œwouldnâ€™t have lost billions of dollars belonging to investors,â€ quoted Bloomberg, which added that the complaint stated that the Optimal fund earned a â€œhandsome compensationâ€ for its claims to provide â€œintensive due diligenceâ€ and â€œdetailed scrutinyâ€ of its investments.Â 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.Â Optimal, its former Chief Executive Officer Manuel Echeverria, and some units of HSBC Holdings Plc are named as defendants.Â Echeverria resigned in June and the timing of his resignation is one of many aspects of the Madoff scandal under investigation.Â The Wall Street Journal said EcheverrÃa 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, â€œDespite the considerable fees charged to investors and the repeated representations that Optimal Investment would carefully select the management, all of the Plaintiffsâ€™ and the Classâ€™ funds were stolen.Â This theft could have been avoided if Defendants had fulfilled their duties.â€Â The complaint also states that Santander missed a â€œplethora of red flagsâ€ pointing to the Ponzi and, â€œDefendants paid themselves tens of millions of dollars in fees, and perhaps hundreds of millions of dollars, predicated on phony profits,â€ reported Bloomberg.
Just weeks before Madoffâ€™s scheme collapsed, managers at Santander were praising Madoffâ€™s supposedly â€œimpeccableâ€ market timing, according to a report on FT.com.Â Once Madoff was arrested for securities fraud, Optimal fund investors lost over $3.1 million because of investments made with the alleged swindler.