Madoff victims sue Santander

Date: Wednesday, January 28, 2009
Author: Victor Mallet in Madrid and Peggy Hollinger in Paris, FT.com

Victims of the alleged $50bn fraud by US broker Bernard Madoff have filed the first lawsuit against Santander of Spain, the eurozone’s biggest bank, claiming damages and accusing the bank and other defendants of gross negligence.

The civil class action suit, filed on Monday in Miami, names Banco Santander — along with Santander International, Optimal Investment Services, the bank’s Swiss-based hedge fund arm, and three Optimal managers — as defendants.

PwC, the auditors, and two HSBC units in Ireland are also named for their administration and custodianship of the investments.

Plaintiffs in the case include Inversiones Mar Octava, a Chilean company that lost $300,000 and “paid substantial advisory fees for illusory services”, and Marcelo Guillermo Testa, an Argentinian.

Santander has said that its clients around the world may have lost €2.33bn ($3bn) with Mr Madoff, but declined to make any comments on Tuesday about the lawsuit. Only US money managers Fairfield Greenwich and Tremont have said their customers lost more. At least 19 civil lawsuits seeking to recover Madoff-related losses have been filed in four countries since the broker’s December 11 arrest.

The Santander suit accuses all the defendants of violating US securities regulations, of gross negligence, of negligent misrepresentation and of unjustly enriching themselves.

“Despite the considerable fees charged to investors and the repeated representations that Optimal Investment would carefully select the managers, all of the Plaintiffs’ and the Class’ funds were stolen through the Madoff Ponzi scheme,” the plaintiffs claim in a complaint filed in federal court in Miami.

“Defendants paid themselves tens of millions of dollars in fees, and perhaps hundreds of millions of dollars, predicated on phoney profits,” the claim asserts.

Javier Cremades, senior partner of Cremades & Calvo-Sotelo, the Spanish law firm that announced the lawsuit on Tuesday, said the action related to clients who had invested in the funds through Miami.

The firm is hoping to negotiate for a global settlement with Santander executives in Madrid, according to Mr Cremades.

“They are very willing to talk. We still hope a settlement is going to be possible,” he said.

He has estimated that there are around 3,000 investors in Spain — individual and institutional — affected by the collapse of Mr Madoff’s scheme.

Meanwhile, a group of French private investors plans to file the first lawsuit there against UBS Zurich, the parent of the Luxembourg arm which ran Madoff feeder funds.

Veronique Lartigue, a lawyer representing roughly 10 people who invested in these funds, told the Financial Times that her clients were demanding €7m in compensation and would file on Wednesday in France. The investors are claiming reimbursement and interest from the parent bank, which they say is ultimately responsible. “In the prospectus the name UBS . . . was the determining element for investor confidence,” she said.

UBS has said that these funds were established at the request of clients.