Two hedge funds managed by Optimal Investment Services, a wholly owned indirect subsidiary of Banco Santander, have agreed to return the USD235m they withdrew from their accounts with B
Two hedge funds managed by Optimal Investment Services, a wholly owned indirect subsidiary of Banco Santander, have agreed to return the USD235m they withdrew from their accounts with Bernard L. Madoff Investment Securities before the Ponzi scheme collapsed.
Under the agreement, the trustee Irving H. Picard will allow the funds’ claims in the liquidation proceeding and to reduce his clawback demands on the funds, in exchange for the funds’ payment of the reduced demands.
The funds are Optimal Strategic US Equity and Optimal Arbitrage. These are the only Optimal Funds that had customer accounts with Bernard L. Madoff.
The agreement provides that the funds’ claims against the Bernard L. Madoff estate would be allowed in their full amounts, calculated on a cash-in, cash-out basis, of USD1,540,141,277.60 and USD9,807,768.40, respectively, and the funds would be entitled to Securities Investor Protection advances of USD500,000 each.
The funds will pay 85 per cent of the clawback claims that the trustee has asserted so far against the funds. The payments will total USD129,057,094.60 for strategic US equity and USD106,323,953.40 for arbitrage.
Optimal and Santander would agree not to file any other claims against the BLMIS estate.
The agreement also contains an ‘equal treatment’ provision, so that if the trustee settles similar clawback claims for less than 85 per cent, the funds will receive a rebate of a portion of their payments to equalize the percentages applied to the funds.
The agreement followed the trustee’s investigation of Optimal’s conduct in dealing with Bernard L. Madoff, including a review of Optimal’s documents relating to due diligence conducted by Optimal, in which the trustee concluded that their conduct does not provide grounds to assert any claim against the Optimal companies or any other entity of the Santander group (other than the clawback claims described above). The funds’ potential clawback liability did not imply any wrongdoing by the funds.
The agreement contains releases of all clawback and other claims the trustee may have against the funds for any matters arising out of the funds’ investments with Bernard L. Madoff. The trustee’s release would apply to all potential claims against other Optimal companies, Santander companies and their investors, directors, officers and employees who agree to release the trustee and the Bernard L. Madoff estate, to the extent the claims arose out of the funds’ dealings with Bernard L. Madoff. It also releases both funds from potential clawback liability for any other withdrawals made by them.
Bernard L. Madoff Investment Securities is currently undergoing liquidation under the Securities Investor Protection Act of 1970 in the US Bankruptcy Court in New York. The firm’s principal, Bernard L. Madoff, has pled guilty to conducting what is most likely the largest Ponzi scheme in history. The agreement is subject to approval of the US Bankruptcy Court in New York. A hearing is scheduled for 16 June.
