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Spanish bank settles with Madoff trustee

By David B. Caruso
Associated Press / May 27, 2009
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NEW YORK - A Spanish bank that was among the biggest losers in the Bernard Madoff swindle has cut a deal to avoid a legal brawl with the trustee trying to unwind the Ponzi scheme.

The settlement calls for Banco Santander to pay $235 million to resolve potential legal claims over withdrawals a subsidiary made from its investments with Madoff in the 90 days before the fraud collapsed.

In exchange, the trustee has agreed to recognize that Santander's hedge fund subsidiary, Optimal Investment Services, lost far more in the scam than it withdrew. Two funds managed by the Geneva-based firm had a net loss of $1.55 billion.

Official recognition of that loss will allow Optimal to recover a share of whatever money is available for Madoff's victims.

Counting the millions that Santander has now agreed to contribute, that pool of reimbursement assets is now worth about $1.2 billion.

The settlement, which still needs to be approved by a US court, represents the latest step Santander has taken to resolve its entanglements in the case.

About 93 percent of the bank's clients have already signed on to a separate settlement in which the bank agreed to refund all of their lost principal.

Madoff has pleaded guilty to running one of the largest Ponzi schemes in history. The trustee, Irving Picard, was appointed by the courts to recover whatever was left of the victims' assets and return as much money as possible to its rightful owners.

Picard has filed lawsuits against several feeder funds that steered customers into the fraud, saying that they should have known Madoff's operation wasn't legitimate. Yesterday's deal guarantees that the trustee will take no such action against Santander or Optimal.

US bankruptcy law often requires investors receiving money from an insolvent brokerage to return all money they withdrew in the 90 days before a collapse. Under the settlement, Optimal will be required to return only 85 percent of the money.

Picard said he hoped the deal with Optimal would spur other companies to settle.