Most Santander clients hurt by Madoff fraud said to have accepted compensation

Most Santander clients hurt by Madoff fraud said to have accepted compensation
International Herald Tribune, ReutersPublished: February 19, 2009

MIAMI: About 70 percent of Banco Santander's clients hurt by Bernard Madoff's alleged fraud have signed compensation agreements with the bank, lawyers told a U.S. court here Thursday.

The disclosure was made at a hearing on a class-action lawsuit filed in Miami on behalf of people who lost money through investments in the Optimal Strategic U.S. Equity Fund, an arm of the bank that invested with Madoff.

"About 70 percent have already executed exchange agreements," one of the lawyers, Sam Danon, told Judge Paul Huck of U.S. District Court in Miami. "I believe somewhere in the area of 7 or 9 percent have rejected it. There's a percentage that are still considering the agreement."

The two sides in the lawsuit also told the court that they had agreed to send a notice to the Santander clients who had not yet settled. The notice says that the lawsuit demands that clients be made whole for their losses and that the compensation agreement releases all parties from further liability. The final version should be ready in a week, lawyers said.

Santander, based in Spain, offered to compensate all individual clients who invested in Optimal through the issuance of €1.38 billion in preferential shares with an annual payment of 2 percent. The offer would cost the bank less than the €2.33 billion it has said its clients may have lost through Optimal, plaintiffs' lawyers have said. The suit asked the court to halt the compensation plan, asserting that the settlement was "coercive" and fell far short of the compensation sought by the class action.

But Michael Hanzman, another lawyer for the plaintiffs, said many of the potential members of the class action had temporary residences in Miami and bank accounts with Santander in Miami. "There are significant contacts with this forum," he said.

The issue of whether a U.S. court has jurisdiction may be dealt with at a later hearing, lawyers said.

Huck also questioned whether Santander's "sophisticated" clients really needed the court to order that they be provided with more information on the class-action lawsuit, noting that it had been well publicized.

Hanzman said some were elderly people who had lost life savings. "These people were clients of a bank that took basically everything they had and invested it in a Ponzi scheme," he said. "Many of them are not sophisticated."

Members of the class action have a right to know "that there's an alternative potential remedy," he said.

Santander last month became the first, and so far only, bank to offer to compensate private clients for money lost in the alleged Madoff fraud. But lawyers for Spanish and Latin American investors said Tuesday that Santander had approached some of their clients in recent days, offering, in addition, to extend to them a loan equivalent to 85 percent of their original investment. The bank would charge 3 percent annual interest on the loan and the preferred shares would serve as collateral.

A spokesman for Santander, who spoke on the condition of anonymity in accordance with company rules, described the offer made in January as nonnegotiable. He declined to comment further.