A group of Latin American investors scammed in the US$65bn Ponzi scheme run by disgraced US financier Bernard Madoff, and who filed a lawsuit in Florida in 2009 against Santander (NYSE: SAN) that was later dismissed, could get another chance in court, a source with direct knowledge of the matter told BNamericas.

Earlier this year, another group of investors in Santander’s Swiss-based hedge fund unit Optimal Investment Services filed a second class action in New York.

On May 2, the US Court for the Southern District of New York sustained the claims for fraud under federal securities laws.

Judge Shira Scheindlin discussed the reasoning for her decision at a May 10 conference with the parties. According to documents obtained by BNamericas, the court found a “strong inference of scienter,” or a strong inference of intent to defraud by Optimal.

“A fair inference that flows from the facts alleged is that if they failed to see the perceptible signs of fraud, it may have been because they chose to wear blinders,” Judge Scheindlin said.

“The competing inferences that defendants urge this court to draw from Madoff’s secrecy, refusal to identify counterparties, or known deception of the SEC fall resoundingly short of being more compelling than the inferences to be drawn in [the] plaintiffs’ favor.”

Scheindlin also dismissed a variety of other claims, saying that they should be litigated in the Bahamas, where Optimal is incorporated.

Law firm Labaton Sucharow, on behalf of the lead plaintiffs against Santander, replied that the forum selection clause “is at the heart of the Bahamas account agreement, which is the basis for dismissing the Santander plaintiffs,” and asked Judge Scheindlin to reconsider that clause.

Scheindlin agreed and asked Labaton Sucharow to file the request on Monday (May 16) and Santander’s attorney to respond on the following Monday.

SECOND CHANCE

If Judge Scheindlin gives the go-ahead to the lawsuit filed in New York, all investors defrauded by Madoff, whether they are Santander customers or not, could join the class action.

This could lead to significant consequences for the Spanish bank, which up until now has only taken a 500mn-euro (US$707mn today) charge related to the Miami lawsuit for a controversial compensation plan that was charged against its 2008 8.8bn-euro earnings.

The bank’s plan sought to persuade clients to waive their right to sue over the losses by offering them a total 1.38bn euros worth of preferential shares that pay a 2% annual coupon and are callable after 10 years.

Santander admitted in December 2008 to losing more than 2.33bn euros that it had invested in Madoff funds. More than half these losses incurred by Santander clients were reportedly suffered by Latin American investors, who had been tempted by the above-average returns offered.

Santander did not return requests for comment when contacted by BNamericas.

Madoff, now 73, pleaded guilty to running the Ponzi scheme in March 2009, and is serving a 150-year sentence in a North Carolina federal prison.

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