Banco Santander, the Spanish bank whose customers may have suffered as much as $3.1 billion in Madoff-related losses, is reportedly offering some clients compensation for their losses. Reports of this compensation proposal follow one day after investors filed a securities class action lawsuit against Banco Santander and related entities in federal court in Miami.


According to a January 27, 2009 Wall Street Journal article (here), Banco Santander is offering its private banking clients up to $1.79 billion in compensation for losses from the Madoff scheme. The offer would not apply to institutional investors.


According to the Journal, the bank has approached its Latin American clients, offering them preferred stock with a 2% coupon in exchange for an agreement not to sue and an agreement to keep their deposits with the bank. (The great majority of Santander customers who suffered Madoff losses were Latin American, perhaps as many as 70%.) UPDATE: Banco Santander’s January 27, 2009 statement regarding the proposed compromise can be found here.


Meanwhile, according to their January 27, 2009 press release (here), on January 26, 2009 plaintiffs’ lawyers initiated a Madoff-victim securities class action lawsuit in the Southern District of Florida.


The class action complaint (which can be found here) was filed by a Chilean company and an Argentinean individual. Both named plaintiffs claim they lost money through their investment in the Optimal Strategies U.S. Equity Fund, a subfund managed by Optimal Investment Services ("Optimal SUS") and marketed by Banco Santander S.A. in the United States. The complaint alleges that substantially all of the Optimal SUS fund was invested with Madoff’s firm.


The complaint is filed on behalf of persons who owned Optimal SUS shares on December 10, 2008 or who purchased shares of Optimal SUS between January 23, 2004 and December 10, 2008.


The complaint names as defendants Banco Santander S.A., Banco Santander International, Optimal Investment Services S.A. (Santander’s Geneva-based hedge fund unit) and certain individuals related to Optimal.


In addition, the complaint also names as defendants PricewaterhouseCoopers, whose Dublin office serves as the Optimal Fund’s auditors. The complaint also names as defendants two related HSBC entities, HSBC Securities Services (Ireland) Ltd. and HSBC Institutional Trust Services (Ireland) Ltd., which acted as administrator, registrar, transfer agent and custodian for the Optimal Funds.


According to the press release, the complaint alleges that the defendants violated the U.S. securities laws by


issuing materially false and misleading statements about their due diligence and oversight of Madoff and BMIS. Among the allegedly false statements made in the Explanatory Memorandum dated January 7, 2008, that was distributed to investors, was the assurance that Optimal "bases its investment decisions on a careful analysis of many investment managers." The complaint further asserts that had the Defendants conducted a reasonably "careful analysis" of Madoff and BMIS, Defendants would not have lost billions of dollars belonging to the investors.


In addition to the securities claims, the complaint also alleges common law causes of action including breach of fiduciary duty, negligence, negligent misrepresentation, and unjust enrichment. The complaint also alleges professional negligence against PricewaterhouseCoopers.


The new Banco Santander lawsuit is similar in many respects to the other securities class action lawsuits that have been filed against Madoff "feeder funds." What makes the case interesting is that both the named plaintiffs and the defendants are foreign domiciled (or at least owned by a foreign parent company). To be sure, one of the named plaintiffs, the Chilean company, specifically alleges that it invested in the Optimal SUS subfund through a Banco Santander International bank account in Miami, Florida.


Notwithstanding the lawsuit’s international flavor, the class action against Banco Santander may be unsurprising, as the bank has disclosed that its clients’ exposure to Madoff through the Optimal SUS fund was as much as $3.1 billion, which the Journal reports is the largest loss by any single bank. (Only investment companies Fairfield Greenwich and Tremont, both of which already face securities litigation, had larger losses).


It remains to be seen where Santander’s proposed compromise leaves the newly filed lawsuit. At least according to the Journal’s account, the proposed compromise does not apply to institutional investors. The Journal also reports that "some of those who have privately received the offer were unhappy with its terms and vowed to hold out for a better deal."


The Journal does report that the Spanish law firm that joined in bringing the suit is scheduled to meet with bank officials on February 6, 2009. Bloomberg quotes the Spanish attorney (here) as saying that the Santander offer is " a step in the right direction"; he added, however, that "at first sight, it looks insuficient."


In any event, I have added the Banco Santander suit to my list of Madoff-related securities class action lawsuits, which can be accessed here. According to my tally, there have now been eleven Madoff-related securities class action lawsuits filed.


Special thanks to the several readers who forwarded me copies of the Banco Santander complaint.