Banco Santander Painted a Rosy Madoff Picture Just Weeks Before His ArrestJan 23, 2009 | Parker Waichman LLP
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, according to a report on FT.com. Once Madoff was arrested for securities fraud, investors in Banco Santander's Optimal Strategic US Equity Fund lost more than $3.1 million because of investments made with the alleged swindler.
The glowing evaluation of Madoff was made in a report issued by Optimal managers to institutional investors in the fund. According to FT.com, the report said the managers were "impressed" by Madoff’s ability “to find great entry and exit points to benefit investors”.
But that rosy assessment conflicts with the actions of some other Banco Santander officials. According to FT.com, they were "sufficiently concerned about Optimal’s client exposure to Madoff" that a director of the bank was sent to meet with Madoff in New York in November.
There are conflicting reports about what happened at that meeting, FT.com said. One account has Banco Santander attempting to withdraw Optimal’s funds. It is speculated that the withdraw request may have been behind Madoff's reported confession of the Ponzi scheme to his sons. But according to FT.com, other sources have called the November meeting "routine".
A Spanish prosecutor is already trying to get to the bottom of the Banco Santander mess, having opened an investigation shortly after Madoff's December arrest. In addition to trying to ascertain what happened at that November meeting, the prosecutor is investigating 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 investigation is also looking into the methods used by Banco Santander to recruit investors for the Optimal fund. While the funds were meant for wealthy private banking clients, Santander branch managers reportedly 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 were often of modest means. They included a former street vendor who was convinced to invest more than $400,000 in lottery winnings in the Optimal fund. That client had to return to street vending after Santander lost his winnings.