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Banco Santander May Have Had Madoff Warnings, Yet its Compensation Offer Comes with Strings

In an effort to stave off litigation and save its reputation, Spain's Banco Santander has offered to compensate its private banking clients who lost money as a result of Bernard Madoff's alleged Ponzi scheme. However, Santander's offer of compensation comes with a lot of strings attached.

It remains to be seen just how many Banco Santander clients will be willing to accept any of the bank's conditions, especially in light of recent revelations that its hedge fund unit used a risk software program that may have raised red flags about Madoff in time to save investors from their catastrophic losses.

Numerous individuals, institutions and hedge funds lost money because of Madoff’s alleged scheme.  But according to the Associated Press, losses for Banco Santander’s clients were among the highest of any bank linked to Madoff’s investment advisory business.  Those clients were invested in the Optimal Strategic US Equity Fund, which is managed by the bank's Optimal hedge fund unit.

That fund has lost more than  $3.1 billion as a result of investing with Madoff, the Associated Press said. Yet just weeks before Bernard Madoff’s alleged Ponzi scheme collapsed, managers at Banco Santander’s Optimal hedge fund investment arm were praising Madoff’s supposedly “impeccable” market timing.

Angry Santander clients have filed a class action lawsuit against the bank in Miami, charging it did not perform enough due diligence in regards to its Madoff investments. That lawsuit was quickly followed by Santander's offer of compensation. Under the proposal, Santander would issue preferred shares with an annual payout of 2 percent to compensate private banking clients for their Madoff losses. The bank would have the option to buy back the securities after 10 years. 

But according to, investors might not ever be able to trade those shares, and there is no guarantee that Santander would actually buy them back in 10 years. They would also have to forgo taking any legal action against Santander, and agree to keep it as their “preferred” bank as long as the shares stay in circulation, which may be indefinitely, Bloomberg said.

Another report from Reuters said the compensation would only cover clients’ initial investments, and not any of the gains Madoff had reported.  Institutional investors, which Santander said  should have been aware of the risks involved, will not be eligible for the compensation program.

Many clients who feel betrayed by Santander probably won't like those provisions. And they have every right to feel betrayed. According to another Bloomberg report, Santander's Optimal hedge fund unit might have had warning signs that it's Madoff investments were headed for trouble.

The unit apparently used software developed by Riskdata SA to spot risky investments, and the CEO of that company told Bloomberg that it "definitely" would have raised red flags over Madoff. In fact, the CEO said that Riskdata has already received thanks from some of its 80 customers for raising Madoff warnings.

According to Bloomberg, Santander's Optimal Unit said the Riskdata’s product was key to “quantitative risk analysis” for hedge fund investments in a 30-page due-diligence questionnaire dated last April. “Risk profiles are calculated for each hedge fund in order to estimate the systematic factors influencing the returns of the fund,” Optimal said in the document. “Deviation from expected risk profiles need to be explained.” According to Bloomberg, the document also said that both Optimal's CEO and COO would be notified if any funds breached the risk parameters.

If the Riskdata program was used, the Madoff warning signs would have been evident. According to Bloomberg, when the program ran through 2,281 comparable funds, it highlighted 20 with “suspicious” performance, including those linked to Madoff. A Santander spokesperson would not comment to Bloomberg about Optimal's use of the software.


Banco Santander SA Optimal Strategic US Equity Fund

The lawyers / attorneys at our firm are offering Free Consultations to investors in the Optimal Strategic US Equity Fund. This fund, which is managed by a unit of the Spanish bank Banco Santander SA, has lost more than $3.1 billion as a result of investing clients' money with accused Ponzi schemer Bernard Madoff.

Our investigation revolves around whether Global Cash Holdings, certain of its officers and directors, and the Company's underwriters included, or allowed the inclusion of, materially false and misleading statements in the Registration Statement and Prospectus issued in connection with the Company's IPO, in violation of the Securities Act of 1933. Recent corrective disclosures have caused the price of shares of Global Cash Holdings to fall precipitously.

According to the Associated Press, Banco Santander is one of the companies most exposed in the $50 billion Ponzi scam allegedly run by Madoff. Clients' losses from Madoff investments are by far the largest reported at a single bank. It now appears that in many cases, the fund was not a suitable vehicle for all of the Banco Santander clients recruited to invest in it.

Our Banco Santander securities fraud lawyers believe the bank failed in its fiduciary duty to clients by steering many to what was obviously an unsuitable investment vehicle. Yet in spite of its failure to protect clients, Banco Santander has said it won't compensate anyone for Madoff losses because they involve fraud. If you sustained losses because of investments in the Optimal Strategic US Equity Fund, we urge you to call one of our Banco Santander securities fraud lawyers as soon as possible to protect your legal rights.

Relationship to Bernard Madoff

New York-based investment advisor Bernard Madoff was arrested on one count of securities fraud late in December 2008. Madoff - once a chairman of the Nasdaq stock exchange - oversaw an investment-advisory business that managed money for high-net-worth individuals, hedge funds and other institutions. The funds linked to Madoff included the Banco Santander Optimal Strategic US Equity Fund. According to the FBI complaint against Madoff, his investment advisory business was nothing more than a Ponzi scheme. 

The same month Madoff was arrested, Spain's anticorruption prosecutor began investigating the relationship between Banco Santander and the accused swindler. Among other things, the prosecutor wants to know why Santander Chairman Emilio Botín sent one of his chief lieutenants to see Madoff in New York just weeks before the alleged Ponzi scheme collapsed.

Investigators in Spain also want to know whether managers of the Optimal Strategic US Equity Fund knew of problems at Madoff's operations when they marketed the vehicle to investors. They are also looking at the timing of the resignation of Manuel Echeverría, who The Wall Street Journal said presided over the Optimal fund while it built its relationship with Madoff. He left the bank on June 30, 2008 after 19 years there. Five colleagues also quit at the same time.

The Madoff scandal has been catastrophic for many Optimal Strategic US Equity Fund investors, some of whom had invested 80 percent of their assets in the fund. What's more, wealthy individuals and institutions were not the only investors hit by the losses. According to a report on, Santander branch managers channeled customers with money from property sales or inheritances to private banking salespeople, who convinced them to sink their money into the Optimal Strategic US Equity Fund. These investors reportedly included a retired school teacher who put $388,000 - half her savings - in the fund. In another case, a street vendor was convinced to invest more than $400,000 in lottery winnings in the fund.

Legal Help for Victims of Banco Santander Securities Fraud

The Banco Santander securities fraud lawyers at our firm are investigating the tactics used by the bank to lure investors to the Optimal Strategic US Equity Fund. Despite Banco Santander's claims that only "qualifying investors" were steered towards the Optimal Strategic US Equity fund, we have concluded that this fund was not a suitable investment for many clients.

If you lost money as a result of Banco Santander's Madoff-linked Optimal Strategic US Equity Fund, you may have valuable legal rights. Please fill out our online form, or call 1 800 LAW INFO (1-800-529-4636) to discuss your case with one of the Banco Santander securities fraud lawyers at our firm.

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