Spanish banking giant affected by US securities scam

December 16th, 2008 - 1:29 pm ICT by IANS  

Madrid, Dec 16 (IANS) Spain’s largest, and Europe’s second largest, banking consortium Grupo Santander has said it may stand to lose some $3.09 billion of its clients’ deposits in a $50 billion securities scam reportedly engineered by Wall Street broker Bernard L. Madoff, EFE reported Tuesday.Spokespersons for Santander put the number of clients involved at fewer than a thousand, adding that the money was diverted to the fraudulent securities scheme through a Santander fund called Optimal Strategic US Equity.

Most of the money exposed to the scam through the fund was from institutional investors and international private banking groups, they said.

The Spanish group said it will take appropriate legal action in defence of the interest of shareholders in the Optimal Strategic US Equity Fund, whose investments were managed by Madoff Securities.

Santander noted that Madoff Securities is an entity authorized, registered and supervised by the US Securities and Exchange Commission, and, therefore, Optimal’s actions have been “beyond reproach” at all times.

Madoff, former Nasdaq chairman, was arrested Thursday and charged with defrauding clients through a pyramid scheme, in which early investors reportedly earned benchmark-beating returns largely because of money filtered through from funds placed by later investors.

The scheme, called the Ponzi scheme after the infamous Charles Ponzi responsible for one of the biggest bank frauds in US, are destined to collapse because no real economic activity or underlying earnings exist to justify the exorbitant initial payout.

The collapse of the funds and the allegations of fraud that ensued is another blow for the US financial regulatory system, which is already facing the wrath of American tax-payers for allowing banks to build up massive exposure to the sub-prime lending market.

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