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Madoff's Ponzi Scheme Claims Spanish Victims

Jan 26, 2009 | Parker Waichman LLP

Bernard Madoff's Ponzi scheme has claimed victims worldwide and now investors in Spain are taking steps to recoup their money.  Over 100 Spanish investors are scheduled for talks with both Barclays Bank and Banco Santander, said the Times Online, in a bid to recover cash.  Fifty other investors are also involved in another action there.

Madoff is accused of running a massive so-called Ponzi scheme, a type of pyramid scheme in which Madoff used cash from new investors to cover payments to earlier clients.  The investors have lost at least €120 million, with amounts ranging between €150,000 and €10 million in the $50 billion Madoff fraud debacle that has plagued investors globally, said the Times Online.  The Spanish investors are part of The Association of Victims of Madoff, which represents Spanish, and also Latin American, small- and medium-sized investors.  Talks are scheduled for next week with Banco Santander, reported the Times Online; additional meetings are scheduled with Barclays, Fortis of Holland, and Espirito Santo, a Portuguese bank.

The Association was created “to reach extra-judicial agreements with the banks which sold these products in order to get back €120m,” its law firm told the Times Online.  Of issue is if clients received adequate investment details from the banks involved and if the banks did or did not act “irresponsibly and negligently” in its due diligence and monitoring of Madoff’s “activities,” the paper added.  The Times Online also reported that Spain’s anti-corruption prosecutor is investigating Santander and the BBVA.

Meanwhile, just weeks before Madoff’s 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 over $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 other Banco Santander officials.  According to FT.com, they were “sufficiently concerned about Optimal’s client exposure to Madoff” that a bank director was sent to meet with Madoff in New York in November.

The American law firm described Optimal as one of the "feeder funds" which moved monies into Madoff Securities for so-called "lucrative commissions," explained the Times Online.  While Santander faces loses of €17 million euros, its clients were exposed to loses of €2.3 billion euros, it added.

The prosecutor is investigating Optimal Strategic US Equity Fund managers knew of problems at Madoff’s operations when they marketed the vehicle to investors, the timing of Manuel Echeverría’s resignation, and Banco Santander methods to recruit investors for the Optimal fund.  The Wall Street Journal said Echeverría presided over the Optimal fund while it built its relationship with Madoff; he left in June after 19 years there and five colleagues followed.  Also, the fund was meant for wealthy private banking clients, but 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, said FT.com.


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