Posted Feb 07, 2009 01:50 am CST
It’s a bad time to be a bank with any connection to the alleged $50 billion Ponzi scheme that Bernard Madoff is accused of running, or any other such claimed investment swindle.
Seeking to recover from banks assets that may not be recoverable from those alleged to be directly responsible for investment losses, lawyers representing cleaned-out investors are making a number of legal arguments in an effort to hold the financial institutions liable.
Among them is a federal lawsuit in the Southern District of Florida is raising questions about “the flow of fees and information” between Banco Santander and its subsidiary, Optimal Investment Services, which invested with Madoff, reports the National Law Journal. The litigation, which is being pursued on a class action basis, asserts claims including federal securities laws violations, breach of fiduciary duty, negligent misrepresentation, gross negligence and unjust enrichment.
And, even though it recently scored a trial court victory in federal court in Massachusetts, another Santander subsidiary, Sovereign Bank, is still being pursued by a receiver for allegedly ignoring obvious red flags concerning funds held there by convicted Ponzi schemer Bradford Bleidt, the article continues.
Boston solo practitioner David Fine is seeking a new trial on breach of fiduciary duty and negligence claims. The bank should have known that the deposits of investor funds being made by Bleidt didn’t conform with requirements of the U.S. Securities and Exchange Commission, he contends. “This clearly was the wrong kind of account.”
A Santander attorney didn’t respond to a request for comment from the NLJ.
Meanwhile, Westport National Bank is on the hot seat after investing some $60 million of customer funds with Madoff in a single account in the bank’s own name, reports the New York Times.
The problem is, this scenario may result in the Securities Investor Protection Corp. applying its six-figure insurance limit concerning misappropriated cash and securities to the one account in the bank’s name, rather than applying the same limit to each individual’s holdings. The latter approach obviously would be likely to result in exponentially increased protection for investors. (Questions have been raised in earlier news accounts, however, about whether the SIPC will be able to pay out the full amount insured to all investors, given the massive claimed losses from the Madoff fund and the SIPC’s relatively limited assets.)
Westport National Bank has said in earlier statements that customers knew what they were doing and emphasized that it did not provide any investment advice. It also told customers in a recent letter that it plans to urge the SIPC to treat customers’ funds as though they had been in separate accounts, according to the Times.