Santander Offers $1.8 Billion to End Claims by Madoff Investors

Santander Offers $1.8 Billion to End Claims by Madoff Investors


Jan. 28 (Bloomberg) -- Banco Santander SA will offer 1.38 billion euros ($1.82 billion) to clients who lost money with Bernard Madoff, a settlement that may pressure banks worldwide to reimburse customers blindsided by the alleged Ponzi scheme.

Spain’s largest bank said yesterday it also will close seven hedge funds run by its Optimal Investment Services unit after the Madoff scandal triggered a surge in withdrawal requests. It didn’t disclose the size of the funds or amounts clients had sought to get back.

Santander, which said Dec. 14 it had 2.33 billion euros in client funds with Madoff, was sued in U.S. federal court in Miami by investors who accused the bank of failing to adequately vet Madoff. Its settlement offer may elicit similar proposals from firms such as Bank Medici AG, the Vienna-based firm that funneled $3.2 billion to Madoff, the most among European banks, and Geneva-based Union Bancaire Privee, with $700 million.

“Other banks are going to see this and customers are going to say, ‘What about us? Are you going to make a similar offer to us?’ ” said Marvin Pickholz, a litigation attorney at Duane Morris in New York and former U.S. Securities and Exchange Commission enforcement official.

Santander, based in the city of the same name, proposed issuing preferred shares with an annual payout of 2 percent to compensate clients, a bank spokesman said yesterday in a telephone interview. The bank would have the option to buy back the securities after 10 years, he said. Santander, which reports earnings on Feb. 5, will take a charge to 2008 pretax profit of 500 million euros to cover the settlement.

The company “acted at all times with due diligence” and “in accordance with all applicable laws,” Santander said in a statement.

Madoff, 70, was arrested Dec. 11 after allegedly confessing to his sons that his investment business was a fraud and cost clients as much $50 billion. In a Ponzi scheme, early investors are paid with money from subsequent victims.

‘Right Direction’

European banks sold Madoff-run investments to their clients and provided loans to hedge funds that aggregated money for the New York financier. Santander branch managers channeled customers into Madoff funds through Optimal, according to lawyers for the investors.

The offer is “a step in the right direction,” said Javier Cremades, chairman of Madrid-based law firm Cremades & Calvo- Sotelo, which filed the suit with U.S. partner Labaton Sucharow LLP. Still, “at first sight, it looks insufficient,” he said.

Investors who accept the offer wouldn’t be able to sue the bank over its Madoff investments, said Pickholz.

“It is obviously good public relations for the bank, and it is also very good legal judgment on their part,” he said.

Santander’s Geneva-based Optimal said in a separate statement it plans to shut down the Arbitrage, Multi-Strategy, European Opportunities, US Opportunities, Asian Opportunities, Global Opportunities and Global Trading funds.

Clients asked to pull money from these Optimal funds after the bank disclosed the losses in its Optimal Strategic U.S. Equity fund, which invested exclusively with Madoff.

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