Bahamas bank sued in relation to Madoff fraud

Thu, May 20th 2010, 12:00 AM

A Bahamas-based bank and trust company has been sued over losses sustained from alleged investments in Bahamian-domiciled investment funds, which invested the bulk of their assets with $50 billion fraudster Bernard Madoff.

Santander Bank & Trust (Bahamas), which is based at the Goodman's Bay Corporate Centre on West Bay Street, has been sued along with other entities and executives in the Spanish-headquartered banking group, by four Cayman Islands hedge funds in relation to investments that were made in Optimal Multiadvisors, a Bahamian-domiciled investment fund, and its sub-funds.

According to the complaint, which was filed in the US District Court for south Florida on March 8, 2010, the Bahamian bank is being sued on the grounds that it allegedly acted as the custodian for the hedge funds' investments in the Optimal structure.

Optimal Multiadvisors was described as a Bahamian Standard Fund that was incorporated as an International Business Company (IBC) in 1995, with its registered office allegedly being the Lennox Paton law firm. The latter is not named as a defendant in the hedge funds' action, and neither is PricewaterhouseCoopers (Bahamas), the funds' auditor.

The hedge funds alleged that the Santander group, which effectively managed the Optimal fund and sub-funds, failed to maintain the 'low risk' investment profile they wanted or properly diversify their investments.

And they claimed that the Santander group failed to spot the numerous warning signs that Madoff was running a Ponzi fraud, even alleging that they attempted to get private banking clients who had invested in Optimal's sub-funds to sign a waiver if they wanted to remain invested.

Alleging that, instead, they were advised to buy more shares in the Optimal equities sub-fund, the hedge fund alleged the 2008 waiver said: "Santander Bank & Trust (Santander Bahamas) has informed you that your investment in Optimal SUS may exceed the concentration limits recommended by the bank, based specifically in the investment profile selected for your account with the bank."

The funds alleged the message could not have been clearer: Invest in Optimal SUS at your own risk.

And they were particularly exercised by the $235 million that Optimal and its sub-funds agreed to pay to settle an action brought against them by the Madoff bankruptcy trustee, a sum representing 85 per cent of the claim, which alleged that they received 'preferences' by withdrawing $277 million from the fraudster in the 90 days before legal action was taken against him.

What appears to have added further fuel to the hedge funds' fire, though, was the Exchange Agreement proposed by the Santander group in a bid to settle any losses investors had suffered in Optimal, and prevent lawsuits against it.

Santander had some 2.33 billion worth of euros in exposure to the Madoff fraud itself via Optimal, and the hedge funds alleged that this agreement involved investors exchanging their Bahamian fund investments for preference shares issued by the Spanish banking group.

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