Banco Santander Said to Have Improved Compensation Offer for Madoff VictimsFeb 17, 2009 | Parker Waichman LLP
Some Banco Santander clients who lost money because of its investments with Bernard Madoff may have received a better compensation offer from the Spanish Bank. A previous offer of restitution made by Banco Santander last month was seen by many as inadequate.
Numerous individuals, institutions and hedge funds lost money because of Madoff’s alleged Ponzi 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 a unit of Banco Santander. 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.
As we reported last month, Santander clients 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 equal in value to their original Madoff investments. The shares would have an annual payout of 2 percent. The bank would have the option to buy back the securities after 10 years.
But the proposal didn't sit well with many. Because of the low yield of the securities offered, it is questionable as to whether clients might ever be able to trade those shares on the open market, and there is no guarantee that Santander would actually buy them back in 10 years. Anyone who accepted the Santander offer 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.
Now, The Wall Street Journal is reporting that Santander is upping its compensation offer. Some wealthy clients are being given the possibility of using the preferred shares as collateral for a loan charging 3 percent annual interest. The loan, which can amount to 85 percent of clients' original investment with Madoff, can be taken in cash or reinvested in bonds that pay 6 percent interest. Santander has also dropped the requirement that clients would have to maintain their bank accounts in Santander to be eligible for compensation, the Journal said.
A lawyer advising some of Santander's clients told the Journal that the improved offer illustrates that the bank is worried about potential lawsuits.