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Case 1:10-cv-20695-FAM Document 1 Entered on FLSD Docket 03/08/2010 Page 1 of 69
FILED by D.C.
MAR 0 8 2010
UNITED STATES DISTRICT COURT
STEVEN 1% LARM4ORE
FOR THE SOUTHERN DISTRICT OF FLORIDA CLERK Li S. DIST CT
3, p. of FLA MIfli
CASE NO.
JURY TRIAL DEMANDED
SOLYMAR INVESTMENTS,
LTD, a Cayman
Islands Corporation, ASTROLITE INVESTMENTS,
LTD., a Cayman Islands corporation, ETERNALITE
INVESTMENTS, LTD., a Cayman Islands
corporation, SUNRAYS INVESTMENTS, LTD., a
Cayman Islands corporation,
Plaintiffs,
against
BANCO SANTANDER, S.A., BANCO:
SANTANDER INTERNATIONAL, SANTANDER:
BANK AND TRUST, LTD., OPTIMAL:
INVESTMENT SERVICES S.A., MANUEL:
ECHEVERRIA FALLA, MANUEL SANCHEZ:
CASTILLO, and ANA MARIA JAUREGUIZAR
Defendants.
BANK OFAMERICA TOWER WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND S'FREET LASH &GOLDBERG,
ATTORNFY, AT I AW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1 Entered on FLSD Docket 03/08/2010 Page 2 of 69
CASE NO.
TABLE OF CONTENTS
Page
I. NATURE OF THE ACTION 4
II. THE PARTIES 7
III. RELEVANT NON-PARTIES 12
IV. SUBJECT MATTER JURISDICTION AND VENUE 13
A. The Court Has Subject Matter Jurisdiction Pursuant
to TheEdge Act 14
B. The Court Has Subject Matter Jurisdiction Pursuant
to the Securities Exchange Act of 1934 15
C. The Court Has Subject Matter Jurisdiction and
Personal Jurisdiction Over Echeverria Because BMIS Acted
as Agent and Attorney-In-Fact of Optimal SUS 23
V. SUBSTANTIVE ALLEGATIONS 24
A. Plaintiff's Relationship With Santander 24
B. The Madoff Fraud 52
COUNT I BREACH OF FIDUCIARY DUTY AGAINST
SANTANDER SPAIN, SANTANDER MIAMI, SANTANDER BAHAMAS,
SANCHEZ CASTILLO, AND JAUREGUIZAR 92
COUNT II GROSS NEGLIGENCE AGAINST SANTANDER SPAIN,
SANTANDER MIAMI, SANTANDER BAHAMAS,
SANCHEZ CASTILLO, AND JAUREGUIZAR 96
COUNT III NEGLIGENCE AGAINST SANTANDER SPAIN,
SANTANDER MIAMI, SANTANDER BAHAMAS,
SANCHEZ CASTILLO, AND JUAREGUIZAR 99
COUNT IV BREACH OF FIDUCIARY DUTY AGAINST OIS, ECHEVERRIA,
AND SANTANDER SPAIN 102
COUNT V GROSS NEGLIGENCE AGAINST, OIS, ECHEVERRIA, AND
SANTANDER SPAIN 108
BANK OF AMERICA TOWER 2 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERGHT
ATTt-TNEW AT LAW
2500 WESTON ROAD
MIAMI, FI.ORIDA 3313i-2158 FT. LAUDERDALE, FI.ORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1 Entered on FLSD Docket 03/08/2010 Page 3 of 69
CASE NO.
COUNT VI NEGLIGENCE AGAINST OIS, ECHEVERRIA,
AND SANTANDER SPAIN 111
COUNT VII UNJUST ENRICHMENT AGAINST OIS, SANTANDER
MIAMI AND SANTANDER BAHAMAS 114
COUNT VIII PURSUANT TO FLORIDA STATUTE SECTIONS 517.301
AND 517.211 AGAINST SANTANDER MIAMI,
SANTANDER BAHAMAS, OIS, SANCHEZ CASTILLO,
AND JAUREGUIZAR RELATED TO MADOFF INVESTMENTS... 116
COUNT IX FOR VIOLATIONS OF RULE 10b-5(b) AND SECTION 10(b)
OF THE EXCHANGE ACT AGAINST SANTADER MIAMI,
SANTANDAR BAHAMAS, OIS, AND ECHEVERRIA 121
COUNT X FOR VIOLATIONS OF SECTION 20(a) OF THE EXCHANGE
ACT AGAINST SANTANDER SPAIN AND ECHEVERRIA 126
COUNT XI FOR DECLARATORY RELIEF RELATED TO THE
"EXCHANGE AGREEMENT" 127
PRAYER FOR RELIEF 138
JURY TRIAL DEMAND 139
BANK OF AMERICA TOWER 3 WESTON CORPORATE CENTER
SIAM 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG„,,
A-Eall(NF, S AT I AW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldherg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1 Entered on FLSD Docket 03/08/2010 Page 4 of 69
CASE NO.
COMPLAINT
Plaintiffs SOLYMAR INVESTMENTS, LTD., ASTROLITE INVESTMENTS, LTD.,
ETERNALITE INVESTMENTS, LTD., and SUNRAYS INVESTMENTS, LTD. (collectively
"Plaintiffs") herby sue Defendants BANCO SANTANDER, S.A. ("Santander Spain"), BANCO
SANTANDER INTERNATIONAL ("Santander Miami"), SANTANDER BANK AND TRUST,
LTD. ("Santander Bahamas"), OPTIMAL INVESTMENT SERVICES S.A. ("OIS") (collectively
the "Santander Entities"), MANUEL ECHEVERRiA FALLA ("Echeverria"), MANUEL
SANCHEZ CASTILLO ("Sanchez Castillo"), and ANA MARIA JAUREGUIZAR ("Jaureguizar")
(collectively, the "Santander Individuals") for compensatory damages, punitive damages,
declaratory relief, pre-judgment interest, post-judgment interest, attorneys' fees and costs and
other relief as set forth herein as follows.
I. NATURE OF THE ACTION
1. Plaintiffs are and were at all times relevant hereto personal investment holding
companies based in the Cayman Islands owned by two related shareholders who are citizens and
residents of the Republic of Panama. The companies' only business is the holding of financial
assets.
2. Plaintiffs seek redress for Defendants' violations of their statutory and common
law duties and responsibilities as Plaintiffs' investment managers, advisers and custodian.
3. Plaintiffs' claims arise from two sources. First, Defendants recommended and
implemented an investment strategy that directly contravened Plaintiffs' stated objectives and
risk tolerance in order to generate substantial fees in total disregard of Defendants' fiduciary
duties to Plaintiffs. This is the principal basis for Plaintiffs' claims from which the most
substantial damages arise.
BANK OFAMERICA TOWER 4 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
Too SOUTHEAST 2N1) STREET LASH &GOLDBERG.
A 1-TORNEY,, 1- LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
303 347 4040 305 347 4050 FAX
W/Ww.lashgoldberg.com 954 384 2300 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1 Entered on FLSD Docket 03/08/2010 Page 5 of 69
CASE NO.
4. Second, Defendants violated state and federal securities laws and regulations by
negligently, recklessly, and/or intentionally making deceptive and untrue statements and
omissions of material fact to induce Plaintiffs to purchase shares of fraudulent investments
placed with Bernard L. Madoff ("Madoff') through his investment firm Bernard L. Madoff
Investment Securities LLC ("BLMIS"). As a result of Defendants' intentional, reckless and/or
negligent conduct, Plaintiffs have suffered substantial damages.
5. With regard to the first source of harm, Defendants Santander Miami, Santander
Bahamas and their officers, employees and agents Jaureguizar, Javier Echave, Sanchez Castillo,
Miguel Barron and Sandra Reif promised to: (a) construct a well diversified and low volatility
investment program; (b) continually monitor and rebalance the program to track a modest 3 month
LIBOR plus 3% benchmark (the "3L3 Benchmark"); and (c) "preserve capital and achieve a
modest rate of return."
6. Instead, Defendants Santander Miami, Santander Bahamas, Jaureguizar, Echave
and Sanchez Castillo, Miguel Barron and Sandra Reif utterly failed to deliver the competent or
comprehensive investment advisory services, low volatility, broad diversification and rebalancing to
closely track the 3L3 Benchmark they promised Plaintiffs, resulting in significant financial losses
well in excess of what Plaintiffs would have suffered had Defendants fulfilled their duties and
promises. These losses are in addition to and exceed the losses Plaintiffs suffered as a result of the
Madoff fraud further described below. As a result, Plaintiffs incurred substantial damages for
which they seek redress.
7. With regard to the Madoff related claims, BLMIS operated as a Ponzi scheme in
that the money received from investors, including Plaintiffs, was not set aside to buy securities as
purported, but instead, was primarily used to make the distributions to, or payments on behalf of,
BANK AMERICA TOWER
OF 5 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
WO SOUTHEAST 2ND STREEr LASH &GOLDBERG,
AF1A, RNEYS AI I AW
2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMIFIDRIDA 33131-2158
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1 Entered on FLSD Docket 03/08/2010 Page 6 of 69
CASE NO.
other investors. The money sent to BLMIS for investment was simply used to keep the operation
going and to enrich Madoff, his associates and others, including the Defendants, until the
requests for redemptions in December 2008 overwhelmed the flow of new investments and
caused the Ponzi scheme to collapse.
8. On December 11, 2008, Madoff's Ponzi scheme was disclosed to the public. The
U.S. Government filed criminal charges against Madoff to which Madoff plead guilty, and the
SEC is investigating BLMIS and related entities. Madoff is now incarcerated in federal prison.
9. Madoff could not perpetrate the fraud on his own. Defendants facilitated
Madoff's fraud by investing billions of dollars of their clients' money, including Plaintiffs'
money, with Madoff and his related entities without conducting adequate due diligence, despite
the existence of obvious "red flags" that did or reasonably should have revealed the fraudulent
nature of Madoff's operations to Defendants, who touted themselves as highly skilled and
professional investment advisers and investment fund managers.
10. Optimal Multiadvisors, Ltd. ("Optimal Funds"), through its sub-fund Optimal
Strategic US Equity, Ltd. ("Optimal SUS"), acted as one of the "feeder funds" that helped
Madoff perpetuate the fraud. The vast majority of the capital of the Optimal SUS sub-fund was
invested with Madoff and his related entities. OIS was the fund manager for the Optimal SUS
fund. Echeverria was the Chief Executive Officer and Chief Investment Officer of OIS.
Santander Spain, in turn, owned OIS.
11. On December 14, 2008, Santander Spain issued a press release in response to
Madoff's arrest. The press release disclosed that Santander Spain's clients' exposure to Madoff
through the Optimal SUS Fund reached approximately 2.33 billion ($3.1 billion). Santander
Spain's clients' losses from Madoff investments are by far the largest reported by a single bank.
BANK OF AMERICA TOWER 6 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTIIEAST 2ND STREET LASH &GOLDBERG
ATTOI2NEYS AI I AV/
LI l' 2500 WESTON ROAD
FT. LAUDERDALE, FIORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 305 347 4050 FAX WWW.lashgoldbcrg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1 Entered on FLSD Docket 03/08/2010 Page 7 of 69
CASE NO.
Santander Spain itself reported losses of only 17 million 22.61 million) due to the Madoff
fraud.
12. Similarly, Santander's Proprietary Optimal Arbitrage Fund had monies invested
with Madoff, and those funds were also lost.
13. Plaintiffs invested and retained substantial sums with Optimal SUS and Optimal
Arbitrage based on the recommendation of Defendants Santander Miami, Jaureguizar, Sanchez
Castillo, and non-parties Javier Echave, Miguel Baron and Sandra Reif. Echave, Sanchez
Castillo, Baron and Reif were Plaintiffs' investment advisors during the course of Plaintiffs'
relationship with Santander Miami. Plaintiffs' investments in the Optimal SUS Fund are
worthless and a portion of their investments in the Optimal Arbitrage Fund are worthless because
they were invested with Madoff. As a result, Plaintiffs suffered substantial damages.
14. In addition, as explained in detail below, Plaintiffs seek a declaratory judgment
declaring the "Exchange Agreement" that was negotiated in connection with the parties' initial
settlement discussions regarding the Madoff related claims, to be void ab initio because the parties
never reached a final, enforceable agreement and because the Exchange Agreement, in general, and
the arbitration provision, in particular, were procured by fraud. A copy of the Exchange Agreement
is attached hereto as Exhibit "I."!
II. THE PARTIES
15. Plaintiffs are and were at all times relevant hereto personal investment holding
companies based in the Cayman Islands. Their only business is the holding of financial assets.
The two individual shareholders are citizens and residents of the Republic of Panama.
Certain confidential personal and financial information has been redacted from the exhibits and in the attachments
to the Complaint filed with the Court to protect Plaintiffs' privacy. In addition, only the first name of Plaintiffs'
director is disclosed in the Complaint to protect privacy. Reference to "Victor" is to Plaintiffs' U.S. corporate
counsel.
BANK OF AMERICA TOWER 7 WESTON CORPORATE CENTER
SUITE 12.00 SUITE 317
100 SOUTHEAST 2ND STREEJ LASH &GOLDBERG',
Al ILILNEYS WI LAW
2500 WESTON ROAD
FT. LAUDERDALE, FI.ORIDA
MIAMI, FLORIDA 33131-2158 33331
305 347 4040 305 347 4050 FAx
www.lashgoldberg.com 954 384 2.500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1 Entered on FLSD Docket 03/08/2010 Page 8 of 69
CASE NO.
16. Defendant Banco Santander, S.A. is the parent bank of Grupo Santander, the
leading financial institution in Spain„ and one of the largest financial conglomerates in the world.
As of the end of the second quarter 2009, Santander had total assets exceeding $1.5 trillion
dollars, more than 132, 000 employees, and the largest market capitalization of any bank in
continental Europe. Through wholly owned subsidiaries, Santander has numerous offices in the
United States, including Miami, New York, Houston, Los Angeles, San Diego and Seattle. Its
corporate headquarters are located in Ciudad Grupo Santander, Avda. de Cantabria s/n, 28660
Boadilla del Monte (Madrid), Spain.
17. Santander Spain conducts substantial and not isolated activity in the state of
Florida and either directly or through its agents committed tortious acts in and from the State of
Florida as alleged herein. Santander's continuous and not-isolated contacts with the United
States and Florida are further evidenced by the following:
a. Santander has submitted annual reports to the SEC pursuant to the
Exchange Act since 1999 by filing Forms 20-F. As set forth in the Form 20-F filed on June 30,
2009, for the annual period ending December 31, 2008, Santander had three different securities
registered with the SEC: (i) American Depositary Receipts, each representing the right to receive
one Share of Capital Stock of Santander ("ADRs"), (ii) shares of Capital Stock, and (iii) non-
cumulative guaranteed preferred stock of Santander Finance. The ADRs trade on the New York
Stock Exchange. There were 8.0 billion shares of capital stock outstanding as of December 31,
2008.
b. Santander's contacts with and business activities in the United States and
the State of Florida are further established by the following:
BANK AMERICA TOWER
OF 8 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH OLDBERGILI
ATTORNEYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1 Entered on FLSD Docket 03/08/2010 Page 9 of 69
CASE NO.
Santander has permanent offices located at 45 East 53rd Street,
New York, New York 10022. Santander also has a permanent office located at 1401 Brickell
Avenue, Miami, Florida 33131.
An SEC No Action Letter, dated August 18, 2008, states that
Santander also conducts securities business in the continental U.S. through Santander Investment
Securities Inc., Banesto Securities, Inc., and Abbey National Securities, Inc.
Santander has at least 28 different subsidiaries in the United States,
as set forth in its 2007 Form 20-F.2
iv. On January 30, 2009, Santander acquired Sovereign Bank.
Sovereign Bank was the 19th largest financial institution in the United States, by assets, as of
December 31, 2007, per its last annual report. Sovereign Bank's current home page on the
2
The 28 subsidiaries (1) Abbey National (America) Holding, Inc., 100% indirectly owned,
are:
holding company; (2) Abbey National Employment Services Inc., 100% indirectly owned,
employment services; (3) Abbey National North America Corporation, 100% indirectly owned,
finance; (4) Abbey National North America LLC, 100% indirectly owned, finance; (5) ANSI,
100% indirectly owned, Broker-Dealer; (6) ANFP (US) LLC, 100% indirectly owned, finance;
(7) Santander Miami, 95.89% directly owned, banking; (8) Santander Puerto Rico, 90.59%
indirectly owned, banking; (9) Banesto Delaware Inc., 89.19% indirectly owned, finance; (10)
Banesto Securities, 89.19% indirectly owned, finance; (11) BST International Bank, Inc.,
99.72% indirectly owned, banking; (12) Crefisa, Inc., 100% directly owned, finance; (13) Island
Insurance Corporation, 90.59% indirectly owned insurance; (14) NW Services CO, 88.40%
indirectly owned, e-commerce; (15) Santander Asset Management Corporation, 90.59%
indirectly owned, asset management; (16) Santander BanCorp, indirectly owned, holding
company; (17) Santander Central Hispano Finance (Delaware) Inc., 100% directly owned,
finance; (18) Santander Consumer USA Inc., 90% directly owned, finance; (19) Santander
Financial Services, Inc., 90.59% indirectly owned; lending company; (20) Santander Insurance
Agency, Inc., 90.59% indirectly owned; insurance brokerage; (21) Santander International Bank
of Puerto Rico, Inc., 90.59% indirectly owned; banking; (22) SIS, 100% indirectly owned,
registered broker-dealer; (23) Santander Overseas Bank, Inc., 100% indirectly owned; banking;
(24) Santander PR Capital Trust I, 90.59% indirectly owned, finance; (25) Santander Private
Advisors, Ltd., 100% directly owned, holding company; (26) Santander Securities Corporation,
90.59% indirectly owned; broker-dealer; (27) Totta & Acores Inc. Newark, 99.72% indirectly
owned; banking; and (28) Universia Puerto Rico, 100% indirectly owned; internet. (See 2007
Form 20-F at F-206-217).
BANK OF AMERICA TOWER 9 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,
AIL,
NRNEYS Ar LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1 Entered on FLSD Docket 03/08/2010 Page 10 of 69
CASE NO.
internet states, at the top and in bold red letters, "Santander, Sovereign is now part of one of the
world's largest and safest banks." (emphasis in original). Sovereign has 750 branches and
2, 300 ATMs in the United States.
v. Santander has been registered to conduct business in Florida since
May 9, 1980, and files annual reports with the Florida Department of State. Santander's
registered agent is John Villamil Morel, c/o Santander Miami, 1401 Brickell Avenue, Suite 1500,
Miami, Florida 33131.
vi. Santander is planning to build a new 84-story office tower in
downtown Miami.
18. Defendant Banco Santander International is a wholly owned subsidiary of
Santander Spain, which conducts business in the United States as an Edge Act corporation
organized under Section 25A of the Federal Reserve Act, 12 U.S.C. 611 et seq. Santander
Miami is supervised by the Federal Reserve Board. Its headquarters are in Miami, at 1401
Brickell Avenue, Miami, Florida 33131. It also has offices in New York, Houston, Los Angeles,
San Diego, and Seattle. In 2007, it earned $233 million in net income, had total assets of $42
billion, and had loans outstanding of approximately $32 billion. Santander Miami conducts
substantial and not isolated activities in the State of Florida and, either directly or through the
acts of its officers, employees, and/or agents committed tortious acts in and from the State of
Florida as alleged herein.
19. Defendant Santander Bank and Trust, Ltd. is an indirect wholly owned subsidiary
of Santander Spain, which is located at P.O. Box N-1682 Bahamas Financial Center, Charlotte &
Shirley Streets, Nassau, Bahamas. Santander Bahamas was the custodian for Plaintiffs' accounts.
Santander Bahamas served as the custodial bank for the Plaintiffs' funds, but its relationship with
BANK OFAMERICA TOWER 10 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG'',
Ant /RNEYS Al I AW
2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 303 347 4050 FAX www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1 Entered on FLSD Docket 03/08/2010 Page 11 of 69
CASE NO.
Plaintiffs was managed exclusively by employees, officers and/or directors of Santander Miami
located in Miami, Florida. Business and communications between Plaintiffs and Santander
Bahamas were conducted almost exclusively through mail, email and facsimile between Plaintiffs
and Santander Miami's employees, officers and/or directors, including, but not limited to, Patrick
Villolda, Ana Jaureguizar, Manuel Sanchez Castillo, Javier Echave, Miguel Barron, Sandra Reif,
and Francisco "Felix" Rodriguez, all of whom also acted as agents for Santander Bahamas.
Santander Bahamas conducts substantial and not isolated activities in the State of Florida and,
either directly or through the acts of its officers, employees, or agents committed tortious acts in
and from the State of Florida as alleged herein
20. Defendant Optimal Investment Services S.A. is an investment management
company, incorporated in Switzerland in July 2001, with almost $10 billion in assets under
management as of January 7, 2008. Its principal offices are located at 5-7 Rue Ami-Lévrier, CH-
1201, Geneva, Switzerland, with additional offices located in New York, Miami, and Madrid.
OIS was, and continues to be, the investment manager for Optimal Multiadvisors, Optimal SUS,
and Optimal Arbitrage and either directly or through the acts of its officers, employees or agents
located in Miami, committed tortious acts in and from the State of Florida as alleged herein.
21. OIS served as the investment manager for the Optimal SUS fund. The Optimal
SUS fund was marketed by Santander Spain and its affiliates, including Santander Miami.
Santander Spain owns 99% of OIS through which it has absolute control over the Optimal family
of funds.
22. Defendant Manuel Echeverria FaIla was the Chief Executive Officer and Chief
Investment Officer of OIS from its inception in June 2001 until June 2008, when Echeverria left
OIS. Echeverria was also one of three Directors of Optimal Multiadvisors during the majority of
BANK OF AMERICA TOWER 11 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
TOO SOUTHEAST 2ND STREET LASH &GOLDBERG,,,,
ATTORNEYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldherg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1 Entered on FLSD Docket 03/08/2010 Page 12 of 69
CASE NO.
the time relevant to this Complaint. Prior to that, beginning in 1989, he was Executive Vice
President of Santander (Suisse) S.A. and served as manager of the Portfolio Management and
Fund Management Group for the International Private Banking Division of Grupo Santander.
During this time, Echeverria built Santander's expertise in alternative investment strategies, i.e.,
hedge funds. On November 11, 2009, Mr. Echeverria was criminally charged by a Swiss court
in Geneva for criminal mismanagement in connection with his management of OIS.
23. Defendant Manuel Sanchez Castillo is the Director for Advisory Services for
Santander Private Bank. Sanchez Castillo is based out of Santander Miami's office located at
1401 Brickell Avenue. Upon information and belief, Sanchez Castillo is a resident of Miami,
Florida, owns real property in Miami, Florida and conducts substantial and not isolated business
activities in Miami, Florida.
24. Defendant Ana Maria Jaureguizar is a Vice President of Santander Miami.
Jaureguizar is based out of Santander Miami's office located at 1401 Brickell Avenue. Upon
information and belief, Jaureguizar is a resident of Miami, Florida, owns real property in Miami,
Florida and conducts substantial and not isolated business activities in Miami, Florida.
III. RELEVANT NON-PARTIES
25. Optimal Multiadvisors, Ltd. ("Optimal Multiadvisors"), which is not a
Defendant in this action, was incorporated in 1995 as an International Business Company under
the laws of the Commonwealth of the Bahamas. Optimal Multiadvisors is an investment fund
classified as a Standard Fund pursuant to the provisions of the Investment Funds Act and
Regulations of The Bahamas. The registered address of Optimal Multiadvisors is Fort Nassau
Centre, Marlborough Street, P.O. Box N-4875, Nassau, Bahamas.
BANK OF AMERICA TOWER 12 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
IOU SOUTHEAST 2N1) STREET LASH6zGOLDBERG,,
ATTORNEYS AT LAW
2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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CASE NO.
26. Anthony L.M. Inder Reiden is a Director of Optimal Multiadvisors. Inder
Rieden served as a director of the prior administrator of Optimal SUS, Fortis Fund Services
(Bahamas) Ltd., until 2002. Inder Rieden's address is Euro-Dutch Trust Company (Bahamas)
Ltd., Charlotte House, Charlotte Street, P.O. Box N-9204, Nassau, Bahamas.
27. Brian Wilkinson together with Echeverria and Inder Rieden is a Director of
Optimal Multiadvisors and upon information and belief is a resident of Ireland.
28. Miguel Barron ("Barron") is a former officer and employee of Santander Miami
who provided investment advisory services to Plaintiffs on behalf of Santander Miami and
Santander Bahamas from 2006 through early March 2008.
29. Sandra Reif ("Reif") is a former officer and employee of Santander Miami who
provided investment advisory services to Plaintiffs on behalf of Santander Miami and Santander
Bahamas from March 2008 through early December 2008.
30. Francisco J. Faraco ("Faraco") is a Vice President of Santander Miami. Faraco
took over the management of the Plaintiffs' portfolios as of January 2009.
31. Francisco "Felix" Rodriguez ("Felix") is the Director of Latin America for
Santander Private Banking and works from Santander Miami's offices.
IV. SUBJECT MATTER JURISDICTION AND VENUE
32. This Court has jurisdiction pursuant to Section 632 of the Edge Act, 12 U.S.C.
632, and Section 27 of the Securities Exchange Act, 15 U.S.C. 78aa, and 28 U.S.C. 1331.
33. This Court has jurisdiction over the state law claims pursuant to the Court's
supplemental jurisdiction, 28 U.S.C. 1367(a); and
BANK 01 AMERICA TOWER 13 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,
ATTORNEYS AT LAW
i, 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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CASE NO.
34. This Court also has jurisdiction over the state law claims pursuant to the Court's
diversity jurisdiction under 28 U.S.C. §1332(a). Plaintiffs' damages, exclusive of attorneys' fees
and costs, exceed $75, 000.
35. Venue in this judicial District is proper pursuant to 15 U.S.C. 78aa, and 28
U.S.C. 1391(b), because substantial acts in furtherance of the alleged fraud and the other
claims asserted herein and/or their effects have occurred within this District. Additionally,
certain of the Defendants maintain offices and conduct substantial and not isolated business in
this District.
36. Jurisdiction is further established for the reasons set forth below.
A. THE COURT HAS SUBJECT MATTER JURISDICTION PURSUANT TO
THE EDGE ACT
37. The Court has subject matter jurisdiction pursuant to Section 632 of the Edge Act,
12 U.S.C. 632, which provides that:
Notwithstanding any other provision of law, all suits of a civil
nature at common law or in equity to which any corporation
organized under the laws of the United States shall be a party,
arising out of transactions involving international or foreign
banking, or banking in a dependency or insular possession of the
United States, or out of other international or foreign financial
operations, either directly or through the agency, ownership, or
control of branches or local institutions in dependencies or insular
possessions of the United States or in foreign countries, shall be
deemed to arise under the laws of the United States, and the district
courts of the United States shall have original jurisdiction of all
such suits.
38. Plaintiffs meet all elements required by 632. First, this suit brings common law
claims. Second, Santander Miami is an Edge Act banking corporation organized under Section
25A of the Federal Reserve Act, 12 U.S.C. 611 et seq. Third, the suit herein arises out of
transactions involving international or foreign banking and out of other international or foreign
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financial operations. Accordingly, this Court has original jurisdiction of all common law claims
which are deemed to arise under the laws of the United States.
B. THE COURT HAS SUBJECT MATTER JURISDICTION PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934
1. Defendants Purposefully Availed Themselves Of The Benefits Of
Having Plaintiffs Invest 100% Of Optimal SUS In The United States;
It Was Foreseeable That Defendants Would Be Hailed Into Court In
The United States
39. The Optimal Funds' Explanatory Memoranda ("EM") explained that the Optimal
SUS fund was to be invested, exclusively and entirely, in the United States with a U.S. registered
Broker-Dealer. The sole purpose of investing in Optimal SUS was to invest in the United States
and in United States equities that are part of the Standard & Poor's 100 Index. The name itself,
Optimal Strategic U.S. Equity, denotes a U.S. based investment. The June 2004 EM, and every
subsequent EM, in sum or substance, said:
the Fund [Optimal Multiadvisors] and Optimal SUS have
established a discretionary account with a US broker-dealer
("Broker-Dealer") registered with both the U.S. Securities and
Exchange Commission (the "SEC") and the National Association
of Securities Dealers, Inc. ("NASD").
The assets of the fund are deposited with the Broker-Dealer [in the
United States].
Most of the stocks for which [the Broker-Dealer] acts as a market
maker are also listed on the New York Stock Exchange.
The strategy utilized by the Broker-Dealer... entails...
purchasing a basket of thirty to forty large-capitalization S&P 100
stocks.... purchasing... S&P Index put options.... selling S&P
100 Index call options.
In practice the Broker•Dealer [in the United States] usually invests
in US Treasury Bills [when not executing the split strike
conversion strategy].
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40. The EM further reassured investors that the investments by the Broker-Dealer
were made pursuant to the regulations and the laws of the United States: "[Optimal
Multiadvisors], Optimal SUS, [OIS], and the Broker-Dealer must comply with various legal
requirements, including requirements imposed by the federal securities laws, tax laws and
pension laws."
41. Defendants, thus, knew that the sole objective of Optimal SUS was for 100% of
the monies to be invested with Madoff in New York. All significant conduct (including trading
and due diligence on Madoff) was supposed to take place in New York. Defendants understood
that Optimal SUS was run by a Broker-Dealer in New York, and Plaintiffs were advised by
Defendants that Optimal SUS principally invested in U.S. equities.
42. Further, in creating a fund whose sole objective was to invest in the United States,
Defendants took advantage of the exemplary reputation of the laws and securities markets of the
United States as being the best regulated and most efficient markets in the world. Having
benefited from the advantages of the United States, they are now subject to the laws of the
United States.
43. Accordingly, all Defendants availed themselves of the benefits and privileges of
investing in the United States, pursuant to its laws and regulations. It was foreseeable that,
having chosen to operate an investment fund that was 100% invested in the United States, and
acknowledging that Plaintiffs' accounts would be subject to U.S. securities laws, all Defendants
could be hailed into Court in the United States.
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2. The Conduct And Effects Tests for Jurisdiction Are Both Met:
Defendants' Conduct In The United States Was "More Than Merely
Preparatory, And The "Culpable Failures To Act Within The United
States Directly Caused The Losses"
a. Santander Spain, Santander Miami, OIS, And Echeverria Had
A Substantial Presence In New York And Miami And Their
Conduct In New York and Miami Establishes Subject Matter
Jurisdiction
44. Santander Spain and Santander Miami had offices located at 45 East 53rd Street
in New York City and at 1401 Brickell Avenue in Miami. OIS had offices on the 6th floor of the
building in New York and upon information and belief conducted business from the building in
Miami.
45. OIS's presentations and EMs all confirmed that OIS had offices and personnel
based in New York City. Many of the presentations prepared by OIS, including those
concerning Optimal SUS, listed on the cover of the presentations the cities in which OIS had
offices, and always included New York.
46. Another presentation titled, "Optimal Investment Services: Optimal Strategic US
Equity, and dated October 2008, showed that OIS had raised the number of analysts dedicated
to due diligence in New York from four to six. This was the highest number of professionals,
together with London, dedicated to due diligence outside of OIS's headquarters in Geneva. (Id.).
47. Because of OIS's presence in New York, Madoff sent the trade confirmations to
OIS's offices there. A trade confirmation that appears in the January 2008 internal presentation
made by OIS to Santander sales officers shows that the trade confirmations were addressed as
follows:
Optimal SUS
Banco Santander
45 East 53rd Street, 6th Floor
New York, New York 10022
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48. OIS also had key senior officers based in New York, including officers
specifically dedicated to due diligence of US based funds e.g., Optimal SUS. According to a
presentation prepared by OIS in or about 2006, the following OIS analysts were based in New
York:
Hugh Burnaby Atkins, CFA, FRM, Senior Research Analyst
Mr. Burnaby-Atkins is based in New York and responsible for
research, due diligence, fund monitoring and selection of a full
range of hedge fund strategies....
Balkir Zihnali, CFA, Senior Research Analyst
Mr. Zihnali is based in New York and responsible for research,
due diligence, fund monitoring and selection of US-based
managers focusing on equity strategies....
Jonathan Clark, Research Analyst
Mr. Clark is a Research Analyst in New York responsible for
research, due diligence, and fund monitoring of US-based
managers, focusing on relative value and event-driven strategies.
Tom Lileng, Research Analyst
Mr. Lileng is a Research Analyst based in New York responsible
for research, fund monitoring and due diligence of US-based
managers, focusing on long/short equity and event driven
strategies.
(OIS 2006 Presentation; emphasis supplied).
49. As set forth in detail herein, the due diligence conducted in New York did not
meet the adequate standard of care and, thus constituted conduct that than
was more merely
preparatory to the wrongdoing and directly caused Plaintiffs' losses related to their Madoff
related claims.
b. Santander Miami Sent Communications And Information
From Miami, Even To Clients With Accounts Not Based In
Miami
50. Santander Miami and Santander Geneva were the two headquarters for
Santander's International Private Bank. Santander Miami's office on Brickell Avenue in Miami,
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Florida, served as the headquarters for Santander's International Private Bank in Latin America.
Santander Miami began selling OIS investments as early as 1996, before OIS was created in
2001. In 1996, the Santander funds were sold under the brand name BPI, which stood for Banca
Privada Internacional Spanish for International Private Bank. Optimal SUS at the time was
called "BPI M.STRATEGIC."
51. Santander Miami sent investment offers and proposals, performance data, fact
sheets, and other documents relating to Optimal SUS, including to Plaintiffs, regardless of
whether they had an account at Santander Miami or at a non-U.S.-based Santander banking
affiliate.
c. Santander Miami Opened Plaintiffs' Bank Accounts in the
Bahamas
52. Santander Miami employees, including Jaureguizar, Patrick Villoldo, Susan
Casal, Javier Echave and Sanchez Castillo, all of whom were based in Miami, offered to and did
open Plaintiffs' bank accounts at Santander Miami's affiliate in the Bahamas. Initially,
Santander Miami prepared the account opening documents as United States based accounts with
Santander Miami. Villoldo wrote to Plaintiffs' counsel: "Initially, you were incorrectly
provided the Miami version of this document [the Terms and Conditions] so we worked from the
Bahamas version [resulting] in some minor changes".
53. From the outset, Santander Bahamas was the custodian bank and Santander
Miami was to provide the advisory services and oversee and coordinate all transactions in the
accounts. Prior to signing the account opening agreements, Plaintiffs' counsel confirmed the
nature of the relationship by correspondence with Patrick Villoldo stating: "My client has elected
to open the Account in the Bahamas, notwithstanding that it will be administered by the Miami
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office." Thus, while the accounts were opened at Santander Bahamas, they were documented
(and maintained throughout) to comply with United States' laws and regulations.
54. Plaintiffs thus had no contact whatsoever with any person at Santander Bahamas
during the negotiation process. Once the negotiations were completed, the signed account
opening documents were sent by Santander Miami to Santander Bahamas for signature.
Santander Bahamas signed the account opening documents and all other documents prepared and
negotiated by Santander Miami during the course of the relationship.
d. Santander Bahamas Account Statements Were Mailed From
Miami
55. Plaintiffs regularly received monthly and quarterly reports via e-mail transmitted
from Santander Miami's office. The monthly bank statements were also sent via overnight
courier from Miami or the Bahamas, but the sealed envelopes contained in the overnight courier
deliveries all had Miami return addresses. Upon information and belief, all statements were
printed in Miami.
56. Further, virtually every facsimile sent to Plaintiffs regarding their accounts was
sent from a facsimile number in Miami, namely 305-539-5154. Similarly, virtually every
facsimile sent by Plaintiffs to Santander regarding their accounts, including to authorize and
confirm orders for the purchase and sale of securities for their accounts, were sent to the same
facsimile number in Miami, namely 305-539-5154.
57. All but a handful of emails sent by Plaintiffs to the Santander Entities,
Jaureguizar, Echave, Sanchez Castillo, Miguel Barron and other officers and employees of
Santander Miami regarding their accounts at Santander Bahamas were sent to Santander Miami's
office in Miami. Similarly, all emails sent by the Santander Entities, Jaureguizar, Echave,
Barron, Sanchez Castillo and other officers and employees of the Santander Entities to Plaintiffs
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regarding their accounts were emailed by Santander Miami's officers, employees and agents
from Miami.
58. This course of conduct continued throughout the time relevant to this Complaint.
3. Santander Miami Officers Offered to Sell and Sold Optimal SUS To
Plaintiffs From Miami.
59. Santander Miami's officers and employees based in Miami, Florida offered to sell
and sold Optimal SUS and Optimal Arbitrage to Plaintiffs.
60. Jaureguizar and Sanchez Castillo offered to sell Plaintiffs shares in Optimal SUS
from Santander Miami's office in Miami, via telephone, facsimile, mail and email. For example,
by email dated March 14, 2005, just days before Plaintiffs' accounts were opened, Jaureguizar
sent Plaintiffs an email advising that the Optimal SUS Fund, which was previously closed to
Plaintiffs, had opened and was available for Plaintiffs' investment over the next few weeks.
(March 14, 2005 email and attachment, Ex. 2 hereto). Plaintiffs accepted this offer and initially
purchased shares in Optimal SUS based on this offer.
a. OIS's Documents State That Santander Miami Was Not
Authorized To Distribute Any Information About Optimal
SUS From Miami
61. Despite Santander Miami's pervasive and continuous activity selling Optimal
SUS from Miami, Florida, OIS's documents clearly state that such activity was prohibited. OIS
provided monthly booklets to investors of its various funds. The cover page typically explained
the contents of the booklet: "This booklet contains detailed and relevant monthly data about
Optimal funds. In particular, it groups in one printable page the following information [for each
fund]: NAV, fund description, portfolio allocation, structure, monthly performance, statistical
analysis, cumulative return, distribution of returns and distribution by strategy." In each one of
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those pages, including the page dedicated to Optimal SUS and the page dedicated to Optimal
Arbitrage, the booklet stated:
Units in the Optimal Funds and any other funds described in this
document may not be offered, sold or distributed in or from the
UK, the USA and their territories. Not FDIC insured no bank
guarantee may lose value.
(Emphasis supplied).
62. These booklets were distributed to some investors, but they were not provided to
Plaintiffs by OIS or Santander Miami. Rather, OIS and Santander Miami simply disregarded the
fact that they were not authorized to offer, sell or distribute the Optimal Funds to Plaintiffs from
the United States and did so anyway, thereby committing tortious acts in the State of Florida.
63. All the Santander Entities functioned as one, regardless of location and local
regulations. The advisory services were provided by Santander Miami, and the custody services
were provided by Santander Bahamas. OIS served as fund manager for the Optimal Funds, and
Santander Spain owned and controlled all of these entities as subsidiaries. Together, they
worked as an integrated unit.
b. Santander Miami Officers Made Offers and Negotiated
Agreements On Behalf of Santander Bahamas
64. Santander Miami officers and employees made offers and negotiated legal
agreements on behalf of Santander Bahamas. Specifically, after December 2008, when
Santander Spain announced that all monies in Optimal SUS had been lost, Santander Miami's
officers and employees offered to settle any claims arising from that loss. They offered to do so
through an "Exchange Agreement." Pursuant to that agreement, investors in Optimal SUS were
to exchange their Optimal SUS shares (now worthless) for a Santander hybrid security that was
worth a fraction of the original Optimal SUS investment.
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65. The Exchange Agreement was to be executed between the account holder (i.e.,
the investor in Optimal SUS) and the Santander affiliate at which the account was held. Drafts
of the Exchange Agreement reflected Santander Bahamas as the Santander entity making the
agreement, but it was proposed, negotiated, and delivered by Santander Miami.
66. Officers of Santander Miami met with Plaintiffs and their counsel in Miami and
attempted to negotiate, unsuccessfully, the settlement agreement which was to settle Plaintiffs
Madoff related claims against Defendants.
67. Specifically, Plaintiffs and their counsel met on January 5 and 6, 2009 with
Sanchez Castillo, Jaureguizar and Francisco Faraco to discuss Plaintiffs' Madoff losses. At that
meeting, Sanchez Castillo stated that Santander Spain was working on a plan to fully reimburse
Plaintiffs for their initial investment in Madoff. Plaintiffs believed this reimbursement would be
a cash reimbursement. The Exchange Agreement was not discussed.
68. In late January 2009, Sanchez Castillo and Jaureguizar called Plaintiffs' director,
Elias, from Miami, and asked him to return to Miami to receive the offer regarding the Madoff
losses. Elias met with Sanchez Castillo and Jaureguizar on January 29, 2009 at Santander
Miami's office on Brickell Avenue At that meeting, Sanchez Castillo handed Plaintiffs the
proposed Exchange Agreement in Spanish.
C. THE COURT HAS SUBJECT MATTER JURISDICTION AND
PERSONAL JURISDICTION OVER ECHEVERRIA BECAUSE BMIS
ACTED AS AGENT AND ATTORNEY-IN-FACT OF OPTIMAL SUS AND
OIS
69. Pursuant to the EMs dated June 2004 and thereafter, BMIS acted as the agent and
attorney-in-fact of Optimal SUS. Echeverria served as a director of Optimal SUS and/or OIS
during the time that BMIS served as agent and attorney-in-fact of Optimal SUS. BMIS thus
acted in New York for the benefit o f, on behalf of, and with the knowledge and consent of the
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OIS and Echeverria. Accordingly, this Court has personal jurisdiction over Echeverria. In
addition, the Court has subject matter jurisdiction pursuant to the Exchange Act over Echeverria
because BMIS's conduct in New York can be imputed to Echeverria.
V. SUBSTANTIVE ALLEGATIONS
A. PLAINTIFFS' RELATIONSHIP WITH SANTANDER
1. The History of Plaintiffs' Relationship with Santander
70. Plaintiffs were clients of Coutts & Co. (Cayman) Ltd ("Coutts Cayman"). Coutts
Cayman was owned by the Royal Bank of Scotland ("RBS"). When Plaintiffs were clients at
Coutts Cayman, they had 87% of their funds invested in the Coutts Orbita hedge funds (the "Orbita
Funds"). The Orbita Funds were fully diversified funds of funds that provided consistent returns
with low volatility year after year. The Orbita Funds had no exposure to Madoff or BLMIS and,
during the relevant times in this Complaint, they continued to meet their investment objectives of
consistent returns with low volatility relative to the markets.
71. On or about May 13, 2003, Santander Spain purchased Coutts (USA)
International ("Coutts Miami"), the Miami-based Latin American private banking operations of
the Coutts Group, from RBS. Coutts Cayman was not part of the sale.
72. Jaureguizar was Plaintiffs' account representative at Coutts. Jaureguizar worked
at Coutts Miami at its Miami office located at 701 Brickell Avenue, Suite 2300, Miami, Florida
33131. As a result of the acquisition, Jaureguizar became an officer and employee of Santander
Miami located at its Miami office at 1401 Brickell Avenue, Suite 1500, Miami, Florida 33131.
73. After Santander acquired Coutts Miami, Jaureguizar represented to Plaintiffs that
Coutts had sold all its Latin American operations to Santander and that Coutts Cayman would no
longer be able to service Plaintiffs' accounts. Jaureguizar represented that Plaintiffs would be
required to leave Coutts Cayman. Jaureguizar urged Plaintiffs to transfer their accounts to
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Santander and to retain Jaureguizar, Plaintiffs' long-standing account representative, and
Santander Miami to provide Plaintiffs with comprehensive account management and investment
advisory services for all of Plaintiffs' accounts, including accounts at CIBC Bank & Trust Company
(Cayman) Ltd ("CIBC").
74. Jaureguizar told Plaintiffs that Santander had better and safer hedge funds than
Coutts and that Plaintiffs would be well-served moving their relationship to Santander. Plaintiffs
were very pleased with their Coutts Orbita funds and informed Jaureguizar of their desire to retain
the Coutts Orbita funds indefinitely.
75. Plaintiffs, having been informed they were required to leave Coutts Cayman, having
invested substantial resources and time in negotiations with Santander, being promised Santander
had better and safer hedge funds than Coutts Orbita funds, and based on the long-standing
relationship with Jaureguizar, decided they would negotiate with Santander Miami (for advisory
services) and Santander Bahamas (for custodial services), but would not transfer their assets to
Santander Bahamas until a formal agreement was finalized.
76. Jaureguizar and other employees of Santander Miami then assisted Plaintiffs to
instruct Coutts Cayman on the liquidation of the Plaintiffs' portfolios and the transfer of the
proceeds to CIBC, with the intention that Plaintiffs would transfer the funds to Santander Bahamas
once the negotiations with Santander were completed.
77. Given Jaureguizar's long standing relationship with Plaintiffs, she was well aware of
Plaintiffs low risk tolerance and had, in fact, recommended and implemented a low risk investment
program for Plaintiffs at Coutts Cayman. Based on this relationship and her knowledge and
understanding of Plaintiffs' low risk tolerance, Plaintiffs decided to continue their relationship with
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Jaureguizar at Santander Miami. She promised Plaintiffs that the low risk investment program she
helped create at Coutts would be continued and improved upon at Santander.
78. Negotiations on the account opening documents with Santander Bahamas
commenced in mid 2004. All negotiations between Plaintiffs and Santander Miami regarding the
creation of accounts to be held at Santander Bahamas were conducted by officers, employees and
agents of Santander Miami, including, without limitation, Patrick Villoldo, Susan Casal and
Jaureguizar.
79. Santander Miami told Plaintiffs that Jaureguizar would manage the relationship from
Miami, just as she had at Coutts Cayman. Santander Miami prepared marketing materials and
proposals in Miami and sent the documents to Plaintiffs via mail, e-mail, facsimile and overnight
courier from Miami.
80. Plaintiffs asked Jaureguizar about the financial strength of Santander Bahamas
and requested that Santander Spain issue a Comfort Letter standing behind Santander Bahamas
as a condition precedent to opening the accounts at Santander Bahamas. Santander Miami
negotiated the terms of the Comfort Letter on Santander Spain's behalf, which approved the
form of the Comfort Letter as a condition precedent to Plaintiffs signing account opening
documents. Santander Spain issued the requested Comfort Letter dated May 9, 2005.
81. The Comfort Letter confirms, inter alia, that "Santander Bank & Trust Limited
(SB&T) is a 100% indirectly controlled subsidiary of Santander Spain Central Hispano, S.A., a
Spanish chartered bank ("Banco")"; that "Banco does not presently envisage a situation whereby
SB&T would not be able to meet its liabilities as they become due; and Banco agrees to inform you
in writing as soon as legally permissible of any change of ownership of SB&T, if such change of
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ownership would result in Banco no longer controlling SB&T." The Comfort Letter was a material
inducement to Plaintiffs moving their accounts to Santander Bahamas.
82. Another material inducement Santander Miami's officers and employees offered
Plaintiffs so they would move their accounts from Coutts Cayman to Santander Bahamas was that
Santander Miami would provide advisory services for Plaintiffs' financial holdings at three financial
institutions so Plaintiffs could obtain comprehensive portfolio management services and full
diversification. Santander stated this was a significant "value added" benefit to moving the
relationship from Coutts Cayman to Santander. Once the custodial accounts were established at
Santander Bahamas, the account statements sent to Plaintiffs provided analysis of all of Plaintiffs'
accounts at the three financial institutions as one well diversified portfolio.
83. In sum, Santander Miami's officers, employees and agents and Santander Spain
promised Plaintiffs that Santander Miami and Santander Bahamas and their affiliates had better
and safer Optimal hedge funds than the Coutts Orbita Funds; they would improve on the low
risk, low volatility investment program started at Coutts Cayman; they would provide
comprehensive investment advisory services for Plaintiffs' accounts at three financial institutions
and, therefore, Plaintiffs would be better off moving to Santander and purchasing Santander's
proprietary Optimal Funds.
2. Santander Miami and Its Officers and Employees' Investment
Proposals and Offers
84. Before Plaintiffs opened their accounts at Santander Bahamas, Sanchez Castillo,
Mariano Escolar and Jaureguizar, all employees of Santander Miami, visited with Plaintiffs in
Panama City, Panama, to discuss investments to replace the Orbita Funds which Plaintiffs had not
yet sold. The Santander Miami officers and employees told Plaintiffs that Santander's proprietary
Optimal Funds were superior to the Coutts Orbita Funds.
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100 SOUTHEAST 2ND STREET LASH &GOLDBERG,
ATTORNEYS AT LAW
I P 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
WWW.1ashgoldberg.com 954 384 2500 954 384 2510 FAX
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85. Plaintiffs had an excellent experience with the Orbita Funds and believed that,
based on Santander's written and oral representations, Santander was substituting its proprietary
Optimal Funds for the Coutts Orbita funds and that by doing so, Santander would continue or
improve upon the same low risk, low volatility investment program that was so successful at
Coutts Cayman.
86. Specifically, the presentation, entitled "Investment Management: Evaluating
Alternatives", reviewed Plaintiffs current holdings at Coutts Cayman which were allocated as
follows:
o 87.2% in Coutts Orbita hedge funds;
o 11.5% in fixed income; and
o 1.3% in preferred shares.
87. Santander Miami, Sanchez Castillo, and Jaureguizar recommended that Plaintiffs
keep the same Coutts asset allocation, but substitute different products to replace the Coutts
Orbita Funds, as follows:
Based on the current portfolio [i.e., the Coutts portfolio], we propose a portfolio
which continues the same structure and management.
For that, we propose similar investment vehicles in which we have tried to
optimize the risk-reward ratio compared to those previously held.
In Alternative Investments [i.e., hedge funds], we can provide you not only better
returns and less volatility compared to prior positions (Orbita), but [we can
also offer] greater liquidity (monthly) and more transparency in the securities
held in the Optimal funds recommended. Finally, it is worth noting the possibility
of constructing portfolios with weightings and rebalancing which permit
additional flexibility to the client not only as to asset allocation but also as to
management of the portfolio.
(Emphasis supplied).
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P 2500 WESTON ROAD
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305 347 4040 305 347 4050 FAX WWW
lashgoldberg.com 954 384 2500 954 384 2510 FAX
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88. The presentation then describes market cycles, showing that portfolio adjustments
are required to reflect different market cycles. Santander Miami, as the investment advisor,
promised to make these adjustments.
89. The presentation further stated (in translation from Spanish):
Santander Central Hispano puts at your disposition through its International
Private Bank [located in Miami] the best team of portfolio managers.
Our teams, with headquarters in Miami and Geneva, have a profound
understanding of portfolio management ...with more than 80 specialized analysts.
We optimize and bring current this management constantly thanks to the support
of the local offices of Grupo Santander, which permits us to understand with
perfection the changing needs of our clients and adapt to them. (Emphasis
supplied).
90. The presentation describes Santander's three-step investment process. The first
phase is to do an individual analysis and determine the client's investment parameters. The
second phase is to define the investment strategy, structure the portfolio, and then implement the
investment strategy. The third phase is to provide oversight and control results.
91. The presentation states that the "pivot point" of the entire investment process is
the client's risk tolerance.
92. With regard to hedge funds, the presentation stated:
We present series of analysis in which we show with real results based on actual
a
assets how a fixed income portfolio is benefitted by the inclusion of an
alternative investment component. (Emphasis in original).
The conclusions of the analysis permit us to affirm that not only are returns
optimized, but more importantly, there is a reduction in volatility, optimizing
the risk-reward ratio. (Emphasis in original).
93. The presentation describes the three types of hedge funds, explaining that relative
value hedge funds had "low volatility (5-7%) and little correlation with equity markets." It also
states:
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The inclusion of absolute return instruments, correctly implemented, reduces
volatility at the same time as it optimizes returns. The percentages will be
adjusted based on the expectations of the different markets environments and the
portfolio makeup will also be subject to adjustments and modifications in the
strategies selected based on the markets. (Emphasis supplied).
94. Santander Miami, Sanchez Castillo, and Jaureguizar were clearly representing to
Plaintiffs that the investment program they were recommending would have low volatility, optimize
returns, and be periodically rebalanced.
95. The presentation further confirmed that Santander Miami, Jaureguizar, and Sanchez
Castillo agreed to accept Plaintiffs' trust and confidence in connection with the
management of
Plaintiffs' investment portfolios, establishing a fiduciary duty to so in good faith and for the benefit
of Plaintiffs' best interests.
96. The presentation also provided five different asset allocation models, with
standard deviations ranging from 1.97% to 3.65%. Standard deviation measures risk. The
higher the standard deviation, the higher the risk. According to the presentation, the historical
standard deviation of the S&P 500, an all equity U.S. index, at that time was 17.46%. Given the
substantial difference in the standard deviations for the proposed asset allocations models and the
S&P 500, Plaintiffs understood that Santander was offering them a low risk, low volatility
portfolio.
97. The presentation then discussed the "value added" services provided by Santander:
The investment process is not complete without a professional analysis and
explanation of the cause and effect which are produced by the portfolio. This
double function of oversight and control is vital for the control of exposure [to
markets], structure, risks and results, in a triple dimension, client, manager and for
the bank entity itself It is a process which is undertaken for all and each one of the
investment proposals and which we will be seeing examples with the different
portfolios which are proposed. We articulate them in four phases:
Periodic revision of the objectives and strategies.
Readjust the distribution of Assets.
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FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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Causes for the results obtained.
Information on the results.
(Emphasis in original).
98. Plaintiffs instructed Santander Miami, Sanchez Castillo and Jaureguizar to develop a
proposal based on the low volatility represented. Plaintiffs relied on the truth and accuracy of
Santander Miami's information. Based their prior experience Coutts Cayman and their
on at long
standing relationship with and trust in Jaureguizar, Plaintiffs had no reason to believe that any
information provided by Santander Miami was false or materially misleading. Santander Miami
and Jaureguizar were simply continuing and improving upon the low risk, low volatility, fully
diversified investment program that had been so successful at Coutts Cayman.
99. Santander Miami's presentation, upon information and belief, was prepared by
Santander Miami in Miami. The basis for Plaintiffs' belief is that all of the representatives who
visited Panama were employed at Santander Miami in its Miami office and all came to Panama
from Miami.
100. Santander Miami then prepared, in Miami, a second presentation to propose
investments for Plaintiffs to purchase once their accounts at Coutts Cayman were liquidated and
the accounts at Santander Bahamas were established.
101. The second presentation compared a host of alternative hedge funds which
Plaintiffs asked Santander Miami to consider. In almost all cases, Santander Miami provided
statistical information showing that the Optimal Funds, including Optimal SUS and Arbitrage,
were safer and better alternatives. Santander Miami, Jaureguizar and Sanchez Castillo
represented that the Santander Optimal Funds superior because of their lower and
were
volatility
better risk-reward ratio, as measured by the Sharpe ratio.
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2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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102. The second presentation then proposed two recommended portfolios made up
predominately of Santander proprietary hedge funds. The first portfolio had a standard deviation of
2.85% and a Sharpe Ratio of 1.95. The second portfolio had a standard deviation of 3.09% and a
Sharpe Ratio of 1.87.
103. Based on this statistical information provided to Plaintiffs, Santander Miami,
Sanchez Castillo and Jaureguizar clearly understood that Plaintiffs wanted their investment profile
to be low risk. Plaintiffs relying the statistical analysis and the promised low
were on
volatility
when reviewing the investment program recommended by Santander Miami. Low volatility/risk,
diversification and rebalancing were the key factors for Plaintiffs. Santander Miami made it clear,
in writing, that the proposed investment program was structured to meet these objectives.
104. The second presentation then reviewed the investments in the existing portfolios and
made recommendations, comparing existing positions primarily to Santander proprietary products.
It recommended "a structural position based on fund of fund hedge products... we will proceed to
substitute the actual funds [Coutts Orbita] for those alternatives [Optimal], but that process will be
done selectively and optimizing the exposure to the current market."
105. The presentation then presented a correlation coefficient analysis and concluded:
In this manner weobtain additional protection against losses not only of the markets
but also of [against] the managers....
3. Plaintiffs State That They Want A Conservative Investment Profile
106. As stated above, while at Coutts Cayman, Jaureguizar was instrumental in
promoting the Coutts Orbita Capital Return Fund, which was Plaintiffs' largest holding and
provided consistent returns. It was classified by Coutts as a conservative investment.
107. While Jaureguizar clearly understood Plaintiffs' conservative investment objectives
from her prior management of Plaintiffs' portfolios at Coutts, and despite Santander Miami's
BANK OF AMERICA TOWER 32 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
TOO SOUTHEAST 2ND STREET LASH &GOLDBERG',
ATTORNEYS AT Ly, \W
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
wWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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presentations proposing low risk and low volatility investment programs, Jaureguizar and others at
Santander Miami attempted to document Plaintiffs' accounts as high risk.
108. For example, Plaintiffs' counsel sent Patrick Villoldo, Santander Miami's Vice
President and Director of Risk Management and Compliance, who acted in the capacity of in-
house counsel for Santander Miami from Miami, Florida, a draft of the First Amendment to
Terms and Conditions (the "First Amendment"). Plaintiffs' counsel wanted to document
Plaintiffs' conservative investment mandate, which was consistent with the previous Santander
Miami presentations.
109. Mr. Villoldo responded that the conservative mandate could not be included in the
account opening documents and that "These matters can be addressed in the non-discretionary
agreement and the investment profile."
110. Villoldo followed-up with an email stating: "I also need to discuss with Ana
[Jaureguizar] and Manuel [Sanchez Castillo] the investment profile, to ensure it captures your
client's investment objectives, risk tolerance, and other related factors." Villoda then expressly
acknowledged that Plaintiffs had requested a conservative investment profile as follows:
The matter with the investment profile is one that I will leave to
your client's assigned officer [Jaureguizar] and our investment
manager [Sanchez Castillo]. I, however, will insist that the profile
be respected according to this Bank's definitions; i.e., if you [sic]
client's investment objectives and risk tolerance falls under a
conservative profile as per our definition, the investments
recommended will have to follow the diversification requirements
established within that profile, etc.
111. Villoldo concluded by stating: "Victor, at the end of the day what truly matters is
the level of service the client is provided, and a piece of paper does not necessarily measure such
service one way or the other."
BANK OFAMERICA TOWER 33 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH 6,1GOLDBERG
ATTORNEYS AT LAW
I I P 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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112. As Plaintiffs had clearly stated they wanted a "conservative" portfolio, by
Villoldo's admission, the investments recommended by the Santander Entities and Santander
Individuals had to conform to the conservative profile.
113. However, Santander Miami, Sanchez Castillo, Jaureguizar, Echave and other
officers and employees of Santander Miami knew or shown have known that the investment
program recommended and subsequently implemented by Santander Miami, Sanchez Castillo,
Echave, Jaureguizar, Barron and Reif, consisting primarily of Optimal hedge funds, did not, in
fact, qualify under the definition of a conservative profile. Santander Miami, Sanchez Castillo,
Jaureguizar, Echave, Barron and Reif failed to disclose this material fact to Plaintiffs.
114. Rather, Santander Miami, Villoldo, Sanchez Castillo, Echave, Jaureguizar, Barron
and Reif aggressively promoted investments that, unknown to Plaintiffs, did not qualify as
conservative under Santander's own definition, yet they represented these investments as low
risk, low volatility and fully diversified in order to generate significant fees for themselves in
reckless disregard for Plaintiffs' stated investment objectives.
115. On February 15, 2005, Jaureguizar finally sent Plaintiffs' counsel the investment
profile via fax, which included a one page "Special Profile" followed by a five page investment
profile (in Spanish, "Analisis de Cartera").
116. The investment profile incorrectly stated that Plaintiffs had a high risk tolerance
and referred to a 3 month LIBOR + 4% benchmark ("3L4 benchmark"), which Plaintiffs never
agreed to. This benchmark was selected by Santander in direct contravention of Plaintiffs' stated
risk tolerance.
117. Plaintiffs' counsel called Jaureguizar and objected to the Special Account and
investment profile Santander Miami sent as not reflecting Plaintiffs' stated risk tolerance and
BANK OF AMERICA TOWER 34 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,
T(, RNILY`, AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 ATFT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2.510 FAX
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informed Jaureguizar that Plaintiffs would not sign the Special Account and rejected the investment
profile she sent.
118. Jaureguizar explained that Plaintiffs could not buy Optimal funds and thereby obtain
the promised low volatility without signing the Special Account profile. At no time did Jaureguizar,
Sanchez Castillo, or Echave state that the investment program being recommended did not comply
with Plaintiffs' low risk investment objectives and, in fact, it was clear from their statistical analysis
and written representations that the investment program they promoted was low risk.
119. On March 14, 2005, Jaureguizar responded to Plaintiffs refusal to sign the Special
Account and the 3L4 benchmark investment profile as follows:
The profile copies that I faxed to you included the investment program that we
had implemented last year. I propose that if you sign the "Special Account"
Profile, once Elias/you? and Javier agree on the distributions, I will then include
that approved presentation to the Special Account Investment Profile. This is if
you accept that the Special Account, just states that it is a special account,
and the specifics will be agreed upon?
(Emphasis supplied).
120. During March 2005, Plaintiffs worked with Echave to finalize the investment
program and made adjustments to it. Plaintiffs agreed the investment program would track the 3L3
Benchmark and not the 3L4 benchmark set forth in the investment profile sent by Jaureguizar. On
March 11, 2005, Plaintiffs requested that Santander Miami and Echave prepare a formal investment
profile corresponding to the 3L3 Benchmark with full statistical analysis.
121. In sum, Jaureguizar told Plaintiffs to ignore the contents of the Special Account
document and to rely instead on the underlying investment progyam and profile to be sent by
Echave, which would reflect the purportedly low risk, low volatility investment program previously
represented by Santander Miami as having a standard deviation of approximately 3%. Santander
Miami thereby confirmed that the investment profile requested on March 11, 2005 would be in line
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II, 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
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with the purportedly low risk, low volatility, well-diversified investment proposals that Santander
Miami had previously recommended and which Plaintiffs had requested.
122. On April 15, 2005, Echave sent Plaintiffs the proposed investment program. In the
transmittal e-mail, Echave promised to send Plaintiffs the statistical analysis requested by Plaintiffs
in the next few weeks. Echave never sent it despite Plaintiffs repeated requests that it be provided.
123. Beginning April 19, 2005, Plaintiffs authorized commencement of the investment
program prepared by Santander Miami based on the express understanding that the investment
program was to comply with the proposed low risk, low volatility diversified profile tracking the
3L3 Benchmark. Plaintiffs never agreed to any investment profile other than the low risk, low
volatility, highly diversified profile which Plaintiffs consistently advised Jaureguizar, Echave,
Sanchez Castillo, Villoldo and Santander Miami reflected Plaintiffs' risk tolerance and which
was reflected in Santander's statistical analysis of its proposed investment programs.
124. Plaintiffs therefore commenced the investment program based on the following
conditions: (i) it would cover Plaintiffs' investments at Santander and CIBC as one integrated
portfolio (investments at a third bank initially monitored by Santander were eventually transferred
to Santander); (ii) the hedge funds, predominately held at Santander, and initially comprising 72%
of the portfolios (of which 51.75% were Santander proprietary funds), would have low volatility
that would offset the higher volatility of the CIBC portfolios; (iii) together, the two portfolios would
track the 3L3 Benchmark; (iv) together, they would have low volatility; (v) together, they would be
fully diversified; (vi) Santander Miami would periodically rebalance the investments in all accounts
to keep the portfolios in line with the 3L3 Benchmark; (vii) Santander would be compensated for its
advisory services through the fees generated by the Optimal funds and commissions on trades; and
(vii) the "Special Account" document did not apply.
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2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
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4. Plaintiffs Agree To Transfer Funds To Santander Bahamas in March
2005 And Accept Defendants' Offers to Sell Them Shares in the
Optimal Funds in April 2005.
125. Based on the Santander Entities and their officers and employees' representations
and omissions, Plaintiffs opened accounts with Santander Bahamas on March 16, 2005.
126. Jaureguizar offered to sell Plaintiffs the Optimal SUS funds by email dated March
14, 2005 sent from Miami, in which she advised that the Optimal SUS fund was now open for new
investment and offered Plaintiffs the opportunity to participate in the fund. Jaureguizar attached a
one page fact sheet to the email. The fact sheet, prepared by OIS, describes the Optimal SUS fund
as:
The preservation and increase of capital with a minimum ofvolatility through liquid
investments in U.S. stocks and options. The fund invests in U.S. large cap stocks
that are part of the S&P 500. A permanent characteristic of this fund are puts, as
protection against losses. Calls can also be purchased for increased returns. The
fund uses leverage. It puts emphasis on investments that are very liquid. To achieve
its investment results, the fund invests 100% of its assets in the USD class series of
Optimal Strategic U.S. Equity, a subfund of Optimal Multiadvisors, Ltd. In
Bahamas.
See Exhibit 2 attached hereto. (Emphasis supplied).
127. Santander Miami, its officers and employees, and OIS's representations about
Optimal SUS were false when made, and the representations were known to be false, reasonably
should have been known to be false or were made with reckless disregard of the truth of the
representations.
128. In April 2005, Plaintiffs transferred a substantial amount of funds to the new
accounts at Santander Bahamas, and Plaintiffs accepted Santander Miami's offers and investment
recommendations based on the quantitative analysis and representations as to the low risk, low
volatility and diversification of the investments offered by the Santander Entities, Jaureguizar,
Echave, and Sanchez Castillo.
BANK OF AMERICA TOWER 37 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG.,
ATTORNE1S AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 2300 954 384 2510 FAX
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129. Plaintiffs purchased the Santander proprietary Optimal Funds, including Optimal
SUS and Arbitrage. Plaintiffs sent their written requests to purchase these funds by facsimile to
Santander Miami's office.
130. Plaintiffs followed-up their written request with formal investment order
confirmations prepared by Jaureguizar in Miami and faxed to Plaintiffs for signature (a practice
that would be followed throughout the relationship).
131. The investment orders asked Plaintiffs to check off one of two boxes either
confirming their receipt of prospectuses for the funds being purchased or confirming that they
declined to review the materials. Specifically, the order confirmation form states that, "the
undersigned MUST initial ONE alternative." (Emphasis in original).
132. Plaintiffs did not check off either box on any order confirmation form because
they were neither offered nor delivered prospectuses for the funds being purchased. Nor did
Plaintiffs decline to review the materials. Instead, Plaintiffs relied on the representations made
by the Santander Entities and their respective officers, employees and agents that the investments
were low volatility, low risk and well diversified in line with Plaintiffs' stated risk tolerance.
The Santander Entities and their respective officers, employees and agents simply never
provided or offered any additional materials, including prospectuses, to Plaintiffs.
133. Plaintiffs sent the signed order confirmation forms to Santander Miami's office in
Miami, Florida, and the Santander Entities purchased the Optimal Funds, including SUS and
Arbitrage, on behalf of Plaintiffs in New York in April 2005.
5. Plaintiffs Placed Their Trust and Confidence in the Santander
Entities and Their Officers and Employees.
134. At all relevant times, Plaintiffs placed their trust and confidence in the Santander
Defendants and their respective officers, directors and agents.
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2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 305 347 4050 FAX WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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135. From April 2006 to early March 2008, Plaintiffs' assigned investment advisor was
Miguel Barron ("Barron"). Barron was an employee of Santander Miami whose office was
located at Santander Miami's office at 1401 Brickell Avenue.
136. On April 6, 2007, Plaintiffs' counsel wrote to Barron and Jaureguizar requesting a
portfolio rebalancing for the Plaintiffs' accounts. The letter reads, in part, as follows:
I'm reviewing the portfolio analysis you sent to Elias as of March 2007. We would
like to have a telephone conference with Miguel anytime between 3 pm and 5 pm of
next week. We want to discuss the following topics:
1. Taking into account SPB [Santander Private Bank] and CIBC [other bank where
Plaintiffs had investments managed by Santander], what recommendations can
Miguel make in general?
2. How much would volatility risk increase if we increased the benchmark by 100
or 200 basis points? Answer both scenarios.
While the returns are meeting the objectives, we want to consider what adjustments
can be made going forward on a risk-adjusted basis. We noted Miguel's comments
about the volatility of the CIBC portfolio. We interpret his comments to mean Elias
can get the same returns in CIBC with much lower volatility. If this is true, what
specific recommendations can Miguel make to get these returns so that Elias may
implement them?
In the future, please add section on specific recommendations (i.e., changes) so
a
that Elias can have information to act upon. By specific, I mean sell X and buy Y
and in specific amounts, giving the statistical information to substantiate the
recommendation. Look at all accounts that you have information for (SPB, CIBC,
UBS, etc.), but don't [make] recommendations on what is already "tied up" (such as
UBS note).
We see this as tuning of the portfolio, taking into account market
constant fine
changes sector changes and, in general, making it a better performing portfolio.
This is the only area where we believe the report can be made better....Remember,
we're just fine tuning, but we do want to see the statistical analysis to support the
recommendation.
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MIAMI, FLORIDA 33131-2158
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137. Barron had alerted Plaintiffs of the volatility of the CIBC portfolios and implied he
could restructure them to obtain the same returns with less volatility. Plaintiffs requested that he do
SO.
138. In June 2007, Barron sent Plaintiffs a rebalance recommendation. Barron states that
the objective of the rebalance was to:
Reduce exposure to those assets with less gains and worst [performance]
perspective in the short term; and
Increase exposure to emerging market equities, where the actual exposure [in the
portfolios] is excessively low and where the long term growth prospects are
superior.
139. Barron never sent Plaintiffs a statistical analysis of the impact his recommendations
would have on the portfolios. However, given the relationship of trust and confidence between
Plaintiffs and Santander Miami, Jaureguizar and Barron, Plaintiffs implemented Barron's
recommendations.
140. From June 2007 through December 2008, Barron, Sanchez Castillo and Reif
recommended additional incremental changes to the Plaintiffs' portfolios without first providing
Plaintiffs with a statistical analysis to assure such changes would track Plaintiffs' low risk, low
volatility and well diversified investment profile or track the 3L3 Benchmark.
141. In carrying out their "advisory" duties to Plaintiffs, Santander Miami, Barron,
Sanchez Castillo, and Reif had a fiduciary duty to assure their recommendations were consistent
with Plaintiffs' conservative investment objectives and low risk tolerance.
142. On February 22, 2008, Plaintiffs' counsel asked Barron to provide further analysis of
Plaintiffs' portfolios. Barron advised Plaintiffs on February 28, 2008 that he had resigned from
Santander Miami and would be leaving shortly.
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SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,
ATI MiNLYS AT LAW
2300 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 303 347 4050 FAX WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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143. Barron had previously advised Plaintiffs he would make recommendations to
rebalance the portfolio to reflect his view of asset classes that he expected to perform well going
forward. Plaintiffs wanted to obtain Barron's recommendations prior to his departure since he had
already begun the requested analysis, and waiting for a new advisor to take over the portfolios and
restart the process would be time consuming.
144. On March 3, 2008, Barron sent Plaintiffs a document entitled "Proposed Portfolio
Rebalancing." The portfolio rebalancing provided recommendations for both the Santander and
CIBC accounts for which Santander Miami and Barron had provided investment advisory services.
145. Based on Barron's advice and the relationship of trust between him, Plaintiffs and
Santander Miami, Plaintiffs followed Barron' s advice. Jaureguizar prepared the investment
orders in Miami and sent them to Plaintiffs. Plaintiffs returned the investment orders to
Santander Miami via facsimile to 305-539-5154. The transactions were confirmed as completed
by Santander Miami's office in Miami. Plaintiffs carried out Barron's recommendations with the
understanding that their portfolios would continue to follow the low risk, low volatility, well
diversified strategy to track the 3L3 Benchmark.
6. Defendants Abused Plaintiffs' Trust and Confidence
146. In January 2008, Plaintiffs contacted Barron to voice concern about the
concentration of risk in the Optimal family of funds. Barron informed Plaintiffs that the Optimal
funds were well diversified, were performing well and they should keep all of them, although he
agreed to advise as to which Optimal flinds to sell if Plaintiffs wanted to do so.
147. On January 6, 2008, based on Barron's recommendations of which Optimal funds to
sell, Plaintiffs placed sale orders through Santander Miami's Miami office for those Optimal funds.
Barron did not recommend the sale of Optimal SUS or Optimal Arbitrage.
BANK OF AMERICA TOWER 41 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
I00 SOUTHEAST 2ND STREET LASH &GOLDBERG
ATR,RNLYS AT LAW
LIT 2500 WESTON ROAD
MIANII, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
30$ 347 4040 305 347 4050 FAX
WWW.lashgoldherg.com 954 384 2500 954 384 2510 FAX
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148. After Barron's departure, Plaintiffs' relationship was transferred to Sanchez Castillo
and Sandra Reif. Sanchez Castillo was the head of Santander Private Banking's worldwide
advisory services division and was based in Miami. Reif, who also work from Miami, became
Plaintiffs' investment advisor replacing Barron. Upon information and belief, she reported to
Sanchez Castillo.
149. In June 2008, Sanchez Castillo and Reif, through Jaureguizar, sent Plaintiffs the
May investment report that included recommendations for purchases and sales, again without any
statistical analysis of the impact the recommendations would have on Plaintiffs' portfolios. The
June 2008 report reflected the increase in volatility in the markets, but failed to recommend any
action to rebalance the portfolios to keep them within the promised low risk, low volatility and
well diversified investment profile.
150. Instead, the June 2008 reports, unbeknownst to Plaintiffs at the time, recommended
investments that increased the volatility and risk of the portfolios. Plaintiffs carried out Sanchez
Castillo and Reif's recommendations based on the relationship of trust and confidence between
Plaintiffs and Santander Miami and based on Plaintiffs' clear instruction that their investment
profile was to be consistent with a low risk, low volatility and well diversified program tracking the
3L3 Benchmark.
151. In early August 2008, Plaintiffs called Sanchez Castillo and Jaureguizar and once
again expressed their concern about having too much exposure to the Optimal family of funds and
to discuss the markets. Sanchez Castillo and Jaureguizar, like Barron before them, advised
Plaintiffs that the Optimal funds were well diversified and were performing well and that Plaintiffs
should not sell them. They did not inform Plaintiffs that Optimal SUS was not, in fact, well
diversified.
BANK AMERICA TOWER
OF 42 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
MO SOUTHEAST 2ND STREET LASH &GOLDBERG 2500 WESTON ROAD
MIAMI, FI.ORIDA 33131-2158,.1-11, RNEY, AT LAW
FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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CASE NO.
152. As Plaintiffs later discovered, Santander Miami, Sanchez Castillo, Reif and
Jaureguizar's investment recommendations failed to make adjustments to assure Plaintiffs'
portfolios would continue in accordance with Plaintiffs' stated risk profile or track the 3L3
Benchmark. Santander Miami, Sanchez Castillo, Reif and Jaureguizar also failed to provide advice
and recommendations to "preserve capital", even when Plaintiffs' portfolios started to diverge
significantly from the 3L3 Benchmark. Instead, Barron, Sanchez, Reif and Jaureguizar's
recommendations concentrated risk and increased volatility in Plaintiffs' portfolios.
153. The August 2008 reports prepared and sent by Santander Miami showed a
significant fall in value and a large di vergence from the 3L3 Benchmark, causing great concern for
Plaintiffs who advised Santander Miami of their concern. In response, Santander Miami, Santander
Bahamas, Sanchez Castillo, Reif and Jaureguizar provided no analysis, no substantial
recommendations to rebalance, and voiced no concern about the direction of the portfolios. They
took no steps to "preserve capital" or otherwise follow Plaintiffs' low risk, low volatility, well
diversified investment profile.
154. Instead, on September 26, 2008, Reif made a small number of ad hoc investment
recommendations, which Plaintiffs carried out based on the relationship of trust and confidence
between Plaintiffs, Santander Miami, Jaureguizar, Reif and Sanchez Castillo. However, Reif
continued to fail to provide Plaintiffs with a comprehensive review of and investment proposal for
Plaintiffs' portfolios as Plaintiffs had been requesting.
155. On October 28 and 31, 2008, Plaintiffs once again asked to reduce their exposure to
Optimal Funds due to Plaintiffs' concern regarding continued concentration in the Optimal funds.
Reif advised Plaintiffs as to which Optimal funds to sell. Reif did not recommend the sale of
Optimal SUS or Optimal Arbitrage.
BANK OF AMERICA TOWER 43 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG
A ITO RIN F 7, AT LAW
i i, 2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2, 158
305 347 4040 305 347 4050 FAX www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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156. Further, Plaintiffs did not sell a larger percentage of their Optimal funds because
Reif and Sanchez Castillo assured Plaintiffs that the Optimal funds were performing well and
were well diversified. Unbeknownst to Plaintiffs, Reif and Sanchez Castillo's representations
were false when made, and Santander Miami, Santander Bahamas, OIS, Reif, Sanchez Castillo
and Jaureguizar failed to disclose what they knew or should have known about the risks of
holding Optimal SUS and Optimal Arbitrage.
157. Barron, Sanchez Castillo and Jaureguizar's representations regarding the Optimal
funds were made to Plaintiffs by telephone from Miami, Florida.
158. The Santander Entities were earning substantial income from the fees generated
by Optimal funds, including Optimal SUS and Arbitrage, and they had a strong incentive to keep
Plaintiffs invested in Optimal funds, in reckless disregard to their fiduciary duties to Plaintiffs.
In reliance on Barron, Sanchez Castillo and Jaureguizar's representations, Plaintiffs retained
most of their investments in Optimal Funds, including Optimal SUS and Arbitrage, through the
time the Madoff fraud was disclosed.
159. On or about October 30, 2008, after multiple requests by Plaintiffs' counsel, Reif
finally sent Plaintiffs a new investment proposal. The 32 page investment proposal recommended
that Plaintiffs buy four Exchange Traded Funds without statistical analysis, without correlation
analysis, without an asset allocation model, and without any meaningful analysis whatsoever that
would quantify the risks in the proposed portfolios.
160. After receiving Reif's report, Plaintiffs' counsel called Jaureguizar to complain. At
a time when markets were falling precipitously, Santander Miami and Reif were not providing the
analysis and recommendations required to bring the portfolios back in line with a low risk, low
BANK OFAMERICA TOWER 44 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH OLDBERGIJ
ATTORNEYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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volatility, well-diversified program tracking the 3L3 Benchmark. Jaureguizar promised to help, but
failed to do so.
161. On October 31, 2008, Plaintiffs' counsel called Reif and advised her that a
comprehensive portfolio review and statistical analysis were required. Reif informed Plaintiffs'
counsel that she was working on it. Reif further advised for the first time that Plaintiffs' portfolios
were aggressive rather than conservative. Reif thus exposed the true nature of Plaintiffs' portfolios
as being high risk in violation of Plaintiffs low risk, low volatility conservative profile.
162. In response to the conversation with Reif, Plaintiffs' counsel sent Reif an e-mail that
reads, in part, as follows:
Prepare a proposal that looks at the total portfolio broken down by account and
custodian and do the statistical analysis per account and custodian and ALSO all
together to get comprehensive ratios (blended ratios). Develop a 5 year plan where
the portfolio can be slowly transitioned to a more conservative position. Please note
that Elias was always informed this was a conservative portfolio since it's [sic]
benchmark is only Libor plus 300 bps 13%1. Again, this goes to Elias's
misunderstanding of the risk inherent in the portfolio. That's why it's so
important for you to spell things out statistically to him. (Emphasis supplied.)
163. Santander Miami, Santander Bahamas, Jaureguizar and Reif knew Plaintiffs
depended on them for investment advice and would not take action on the accounts without their
advice. For example, Plaintiffs' counsel told Reif the following:
a. Email dated October 31, 2008 to Reif:
I need COMPREHENSIVE REVIEW and STATISTICAL ANALYSIS of the
a
portfolio, what works, what does not work, what adjustments should be made as a
whole and when and how they should be implemented, and how and when
everything can be accomplished with you under discretionary management
authority... Elias needs your help. Fortunately, he has you to help him!"
(Emphasis in original).
b. Email dated November 2, 2008 to Reif:
Please explain how and why the portfolio diverged so much from Libor plus 300
bps. When the accounts were set up, the target was Libor plus 300 bps with low
BANK OFAMERICA TOWER 45 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST ZND STREET LASH &GOLDBERG
ATT, RNEY, AT LAW
LLP 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAx
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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volatility. What went wrong and what can be done in the future to avoid such
divergence?" (Emphasis in original).
c. Email dated November 6, 2008, stating:
Elias is anxious to make changes since he's afraid the market is going to fall a lot
more. He's holding off doing anything until you send the Oct. Performance
report, the quantitative analysis of the portfolio and your recommendations....
Please remember to include an analysis of how a portfolio structured as Libor plus
300 bps could go so off the mark.
164. On November 7, 2008, Plaintiffs counsel writes to Reif again:
Can you please check the account opening documents and advise on the risk profile
for the accounts? Perhaps you can make a copy of the risk profile and PDF it to
Elias and I since we may wish to revise it going forward.
Also, please see if you can find the initial recommendation made
regarding Libor
plus 300 basis points and how such portfolio was supposed to perform. I want to
compare what Elias originally agreed to what you now propose how they are the
same and how they are different.
165. Santander Miami and Santander Bahamas acknowledged their acceptance of this
trust and confidence as indicated by the fact that they coded Plaintiffs' accounts as "Active
Advisory" as opposed to "Non-Managed" prior to 2009.
166. On November 14, 2008, after repeated requests by Plaintiffs counsel, Reif finally
sent a "Statistical Analysis" of the portfolios. The Statistical Analysis showed that the Santander
portfolios had volatility ranging from 1.12 to 4.36 while the CIBC portfolios had volatility ranging
from 14.3 to 17.6. Combining the portfolios, the statistical analysis report showed the standard
deviation ranged from 8.94% to 11.64%, far in excess of the low volatility promised by Santander
and as requested by Plaintiffs. The last chart in the Statistical Analysis shows that the combined
weighted portfolios had a standard deviation of 8.62% from May 2006 to September 2008, far in
excess of the low volatility promised by Santander and as requested by Plaintiffs.
BANK OF AMERICA TOWER 46 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,
ATI, ^RNI 1, ATI AV(
I, 2500 WFSION ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lasligoldberg.com 934 384 2500 954 384 2310 FAX
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167. On November 14, 2008, Reif also sent recommendations purportedly to reduce
the risk in the portfolios, which included a recommendation to purchase more of the Optimal
SUS and Optimal Arbitrage Funds.
168. Having previously advised Santander Miami, Santander Bahamas, Sanchez
Castillo, Jaureguizar and Reif that they wanted to reduce their holdings in Optimal Funds, they
knew or should have known that Plaintiffs did not want to increase their holdings in Optimal
Funds when Reif made this recommendation. Reif's recommendations thus utterly failed to
provide Plaintiffs with appropriate investment advice, once again violating her and Santander
Miami's fiduciary duty to Plaintiffs.
169. Plaintiffs' counsel spoke to Jaureguizar once again to voice Plaintiffs' concern and
dissatisfaction with Reif s ad hoc recommendations and dismay at how long the entire process was
taking given the rapid downward movement in the markets. Plaintiffs' counsel had voiced repeated
concern to Jaureguizar about Reif's failure to provide services, and Jaureguizar repeatedly promised
that Reif would do the work, but it was to no avail.
170. On November 14, 2008, Plaintiffs' counsel wrote to Reif and Jaureguizar to explain
the comprehensive portfolio review and rebalancing they requested. Plaintiffs' counsel questioned
the statistical analysis provided by Reif, stating:
I still VERY MUCH DOUBT the 4.61 standard deviation numbers given the
performance of the portfolios something appears VERY WRONG here and, if
you are using the wrong numbers, then we are not moving forward in a meaningful
way." (Emphasis in original).
171. Plaintiffs' counsel further stated that proper portfolio analysis must be undertaken
when changes are made to a portfolio as follows:
This that when there are purchases and sales, it not be done without full
means
analysis the effect on the overall portfolio and they [sic] [that] says [sic] [stays]
on
within the agreed upon risk parameters."
BANK OF AMERICA TOWER 47 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STRLLI LASH(StGOLDBERGii,
AFL,,ILNLY, A 1 LAW
2500 WESTON ROAD
MIAMI, FIORIDA 3391-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX WWW.las 'Igo Idberg. com 954 384 2500 954 384 2510 FAX
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Plaintiffs' further expressed dismay at the portfolios' volatility as follows: "Elias is
surprised by the high volatility of a portfolio which was originally structured to be
much more conservative (includes CIBC). I told him that, in my opinion, he has
wiped away most of the gains made over the last 10 years."
172. On November 15, 2008, Plaintiffs' counsel again wrote to Reif and Jaureguizar
stating, in part, as follows:
I spent time reviewing the positions and looking everything over. Here are
my conclusions:
1. There is a lack of diversification. You can't say there is diversification at
Santander, but not in CIBC. These are all part of the same core account and need to
be taken together. The positions taken at CIBC are ABSOLUTELY CRAZY.
2. Way too much reliance on "trends" rather than good, solid long-term money
management.
3. Too much RISK.
Please, start from the Determine a good asset allocation model, compare
beginning.
it to current accounts, and then recommend adjustments TO BE MADE OVER A
PERIOD OF YEARS to get the accounts where they need to be for a long-term
hold. The proposal Ana sent to me in May is a good start, but we CANNOT get
there tomorrow since it will mean changing the risk profile and losing all the upside
after almost all the downside risk has been assumed. OF COURSE, if Santander
believes the market is going to fall further, then do what is required to get it back
into shape. (Emphasis in original).
173. By Reif's own admissions, the portfolios were not properly diversified and were
aggressive. Plaintiffs' November 15, 2008 e-mail to Reif and Jaureguizar unequivocally alerted
Santander Miami, Jaureguizar, and Reif that the portfolios were far too risky for Plaintiffs' risk
tolerance, yet they still failed to take any meaningful action to bring the portfolios into compliance.
174. By this time, Plaintiffs had lost a substantial percentage of the value of the assets
they entrusted to Santander over a few short months, all while Santander Miami, Sanchez Castillo,
Reif, Barron, and Jaureguizar repeatedly failed to provide competent investment advisory service,
but continued to receive substantial fees.
BANK AMERICA TOWER
OF 48 WESTON CORPORATE CENTER
SUITE I200 SUITE 317
mo SOUTHEAST 2ND STREET LASH &GOLDBE RG
ATIORNI YS AI I AW
I I I' 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 303 347 4050 FAX www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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175. Plaintiffs contacted Reif again on November 17, 2008 to request an update on when
they could expect the comprehensive portfolio analysis.
176. On November 17, 2008, Reif replied as follows:
Dear Elias and Victor:
I have received your email and spoke with Ana. Per our conversation last week, I
mentioned that I will be out of the office this week, so I won't be able to have the
information you are requesting by the end of this week. I will need at least two
weeks to prepare it.
Sandra
177. Reif's travel plans put an additional two week delay in providing the requested
advisory services so that Plaintiffs could rebalance their portfolios at a time the markets continued to
fall quickly, even after Plaintiffs had made multiple oral and written requests for such services over
several months.
178. Santander Miami, Santander Bahamas, Jaureguizar, Sanchez Castillo, Barron and
Reif thus intentionally, recklessly or grossly negligently failed to satisfy their fiduciary obligations
to Plaintiffs.
179. On December 11, 2008, Jaureguizar informed Plaintiffs' counsel it would be yet
another week to obtain the comprehensive proposal.
180. That same day, the Madoff Ponzi scheme was reported.
7. Defendants' Breaches of Their Fiduciary Duties to Plaintiffs Were
Intentional, Reckless Or, At the Very Least, Grossly Negligent
181. According to Santander Spain's settlement with Irving H. Picard, the Madoff
Trustee, Optimal withdrew over $151 million from Optimal SUS and over $125 million from
Optimal Arbitrage within the ninety day claw back period.
BANK AMERICA TOWER
OF 49 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,
AM, RNEYS AT LAW
2500 WESTON ROAD
MIAMI, FI.ORIDA 33I31-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lasligoldherg.com 954 384 2500 954 384 2510 FAX
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182. Optimal executives also visited with Madoff in November 2008, at approximately
the same time Reif was recommending that Plaintiffs purchase more Optimal SUS and Arbitrage
and that Santander Spain, OIS, Santander Miami and Santander Bahamas knew or reasonably
should have known that Madoff was running a Ponzi scheme.
183. Further, Santander Miami and other Santander affiliates were informing other select
clients to sell their Optimal SUS holdings at the same time Santander Miami was recommending
that Plaintiffs buy more. For example, in an email from Vanessa Redmond at Santander Miami's
offices, in Miami, Florida, dated September 30, 2008, Ms. Redmond told a client that:
Banco Santander is recommending liquidating one of your
investments. The name is "OPTIMAL SUS EQ IRL A USD."
The bank considers that it is highly risky and due to the volatility
in the market we prefer to be conservative and liquidate the
investment.
Please call me to discuss this issue.
See September 30, 2008 Email attached hereto as Exhibit "3" (Emphasis supplied).3
184. In sum, Reif's recommendations to buy more Optimal SUS were made at a time that
the Santander Entities knew or should have known or otherwise recklessly disregarded the truth that
Madoff's hedge fund was a fraud.
185. Just six weeks after Reif recommended that Plaintiffs' increase their holdings in the
Optimal SUS and Arbitrage funds, the Madoff fraud was revealed, the Optimal SUS fund became
worthless and the Optimal Arbitrage Fund was devalued due to their investments with Madoff. The
volatility analysis which Reif had just confirmed for the Santander portfolios were actually much
higher than represented by Reif.
3
This email has been redacted to protect the identity of the recipient.
BANK AMERICA TOWER
OF 50 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
TOO SOUTHEAST 2ND STREET LASH &GOLDBERG.
ATTORNLYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 47 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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186. Reif was fired or voluntarily terminated her employment at Santander in December
2008. At the time, no new advisor was assigned to Plaintiffs nor was there any indication Santander
Miami would provide Plaintiffs with a comprehensive portfolio analysis. Instead, the Madoff losses
were reported and Santander, in complete dereliction of its duties to Plaintiffs, focused exclusively
on determining the Madoff losses without regard to Plaintiffs' prior repeated requests for a
portfolio rebalancing. As a result of the Santander Entities and Santander Individuals conduct,
Plaintiffs suffered one financial disaster after another.
187. In sum, Santander Miami and Santander Bahamas increased Plaintiffs' portfolios'
volatility and risk at a time when it should have been reducing it, ignored Plaintiffs' repeated
requests for investment advice and advisory services, and when the market collapsed in the Fall
of 2008, Plaintiffs' portfolios were ill prepared to weather the storm. Plaintiffs' portfolios were
not low risk or low volatility, were not well diversified, and were not rebalanced to stay within
the 3L3 Benchmark as promised.
188. As a direct and proximate result of the Santander Miami, Santander Bahamas,
Jaureguizar, Barron, Sanchez Castillo and Reif's intentional, reckless and/or negligent failure to
provide adequate and appropriate investment advice pursuant to their fiduciary duties owed to
Plaintiffs, Plaintiffs suffered substantially larger losses due to the market adjustment beginning
in the Fall of 2008 than they would have suffered had Santander Miami, Santander Bahamas,
Jaureguizar, Barron, Sanchez Castillo and Reif fulfilled their duties and promises and properly
managed Plaintiffs' portfolios. Further, as a result of the forced liquidation of Optimal funds
starting in 2009, Plaintiffs' Optimal investments were frozen, and they could not participate in
the market upturn starting in March 2009, thereby preventing Plaintiffs from carrying out their
long-term investment objectives and mitigating their losses.
BANK OF AMERICA TOWER 51 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
TOO SOUTHEAST 2ND STREET LASH &GOLDBERG',
ATTORNEYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldherg.com 954 384 2500 954 384 2510 FAX
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189. Meanwhile, the Santander Entities earned substantial commissions and fees from
Plaintiffs' investments in the Optimal Funds from April 2005 through December 2008.
190. Santander Miami, Santander Bahamas, Jaureguizar, Echave, Barron, Sanchez
Castillo and Reif put their desire to generate fees ahead of their fiduciary duties to the Plaintiffs,
resulting in significant losses to Plaintiffs.
B. THE MADOFF FRAUD
1. Madoff's Ponzi Scheme
191. Madoff founded BMIS in 1959 as a New York limited liability company and was
its chairman and chief executive officer. Madoff ran BMIS mainly through his family, including
his brother Peter, and sons Andrew and Marc. BMIS had three business units: market making,
proprietary trading, and investment advisory ("Investment Advisory").
192. The Investment Advisory business purportedly invested using a split strike
conversion strategy. The strategy involved the purchase and sale of equity securities, options,
and government securities. Although investors in the Investment Advisory business received
monthly or quarterly statements purportedly showing the equity securities, options, and
government securities that the investor owned, as well as the growth of and profit from those
accounts over time, these statements were a complete fabrication. There is no record of BMIS or
Madoff having cleared a single purchase or sale of securities at the Depository Trust & Clearing
Corporation ("DTC"), the clearing house for such transactions, or any other trading platform on
which BMIS could have reasonably traded securities.
193. Additionally, there is no evidence that Madoff or BMIS ever purchased or sold
any of the options claimed to have been purchased or sold and reported to BMIS's Investment
Advisory investors. Options related to the Standard & Poor's 100 ("S&P 100") companies are
BANK OF AMERICA TOWER 52 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,
ATT IINI-Y, Al I AW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
wWw.lashgoldherg.com 954 384 2500 954 384 2510 FAX
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CASE NO.
typically traded on the Chicago Board Options Exchange ("CBOE"). There are no records of
Madoff or BMIS ever having purchased or sold any options on the CBOE.
194. On December 11, 2008, federal authorities arrested Madoff and charged him with
violations of the securities laws after Madoff admitted that his money management operation
was "a giant Ponzi scheme." Madoff further admitted that "there [was] no innocent explanation"
and estimated that investors' losses reached $50 billion. That same day, the SEC filed an
emergency action to halt all ongoing activities by Madoff and BMIS. The action is styled, SEC
v. Bernard L. Made, 08 Civ. 10791 (S.D.N.Y. Dec. 11, 2008).
195. On December 15, 2008, the Securities Investor Protection Corporation ("SIPC")
filed an application in the United S tates District Court for the Southern District of New York
alleging that BMIS was not able to meet its obligations to investors as they came due and,
accordingly, that the investors needed the protection afforded by the Securities Investor
Protection Act ("SIPA"). The Court granted the SIPC application and appointed Irving H. Picard
as the Trustee to liquidate BMIS (the "SIPC Trustee" or "Mr. Picard").
196. At a plea hearing on March 12, 2009, in the case captioned United States v.
Made, Case No. 09-CR-213 (DC), Madoff pled guilty to an 11 count criminal information filed
against him by the United States Attorney for the Southern District of New York. Madoff
admitted that he "operated a Ponzi scheme through the investment advisory side of [BMIS], and
that "I knew what I was doing was wrong, indeed criminal."
2. Substantive Allegations Concerning The Santander Entities With
Respect To The Madoff Fraud
a. In 2002, Santander Spain And OIS Identified Madoff's
Substantial Counterparty And Custodial Risk
BANK AMERICA TOWER
OF
53 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREEI LASH &GOLDB E RG LI I' 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 AM, RNEYS AT LAW
FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 EAX
55/WW.Iashgo1dberg.com 954 384 2500 954 384 2510 FAX
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197. In the Summer and Fall of 2002, Santander Spain and OIS became extremely
concerned about Madoff s counterparty and custodial risk. In two memoranda prepared by
Courvoisier to Echeverria, Courvoisier explained the concerns and proposed a plan of action (the
"First Courvoisier Memorandum, and "Second Courvoisier Memorandum").4 The memoranda
were prepared on OIS and Santander Central Hispano letterhead ("SCH").5
i. The First Courvoisier Memorandum
198. According to the First Courvoisier Memorandum, the concern over Madoff
originated at Santander Spain:
In reviewingthe legal documentation related specifically to the
management of Optimal Strategic US Equity Ltd. and Optimal
Arbitrage Ltd. (specifically "Infiltrator") (together "the Funds"),
the Santander Central Hispano Group (hereafter "SCH") has
detected a number of issues that may involve legal risks for the
Group. These issues need to be analyzed and resolved.
(Emphasis supplied).
199. Accordingly, Courvoisier and Santander Spain's principal concern was the "legal
risks for the Group, rather than the investors' assets.
200. The First Courvoisier Memorandum described the legal relationship between
Optimal Multiadvisors and Madoff/BMIS. It explained that BMIS had executed certain
contracts on January 31, 1996, with the "Optimal Fund, including:
1. Opening Account Document whereas the Optimal Fund has
established a brokerage account for the Funds at Madoff.
2. Customer Agreement relating to the opening or maintaining
of the accounts opened with Madoff. This Agreement
should be considered as a Custody Agreement;
4
These memoranda were publicly quoted in a Bloomberg article on June 18, 2009, by Warren
Giles, entitled, "Geneva Probes Santander Madoff Links As Investor Alleges Scam."
5
SCH is the prior name used by the Santander Group.
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3. Trading Authorization Limited to Purchases and Sales of
Securities whereby the Optimal Fund authorizes Madoff as
his agent and attorney in fact to buy, sell and trade in
stocks, bonds and any other securities for its account. This
Agreement should be considered as a general power of
attorney (discretionary);
[4.] Option Agreement which states the terms and conditions
and risks of transactions in option contracts."
201. Courvoisier raised a number of "issues, many of which focused squarely on the
concern that BMIS was its own custodian:
According to the Customer
Agreement, we understand that the
assets of the Funds held by Madoff itself. In this regard, when
are
asked why a client could not custody securities elsewhere, i.e.
outside the Madoff organisation, Madoff offers two reasons:
A) Unforeseen operational issues such as trade
settlement could compromise the strategy. For
example, if the 30 or so stocks that compose the
basket
fail to settle at the same time then the basket's
correlation to the S&P 100 may be jeopardized.
B) If the securities were to be delivered to an external
custodian a client could conceivably sell out any leg of
a trade, which would compromise the strategy.
In our process of improving the contractual relationship with
Madoff, we have achieved part of the disclosure above-
mentioned by the text our auditors of the Optimal Fund
(PricewaterhouseCoopers Bahamas) have included in their
audit, clearly stating that the assets of the Funds are held by
Madoff.
(emphasis supplied). After having identified the critical fact on which Madoff s entire Ponzi
scheme hinged (self-custody), Courvoisier's main concern had thus turned to self-preservation
and attempts to disclaim liability for the dangers they saw and foresaw rather than the safety
of the investment.
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202. The First Courvoisier Memorandum identified many additional dangers about
Madoff and proposed the following c ourses of action:
To ask for
a legal opinion regarding the legal status of Madoff
as aBroker-Dealer, Custodian and "investment manager" of
the Optimal Fund under the laws of New York.
To disclose in the Prospectus of the Optimal Fund, in particular
under the section related to the Funds that their assets of [sic]
are held by Madoff and not by SCHT
the contractual party of the Agreements and have
[sic] change
separate agreements between Madoff and the Funds.
To prepare a revised text describing the Investment Strategy
applied to the Funds included in the Prospectus of the Optimal
Fund. It is decided to then send it to Madoff for any comments
and/or written approval.
203. The First Courvoisier Memorandum proposed that the prospectus, entitled
Explanatory Memorandum ("EM"), include a description of Madoff and his split strike
conversion strategy. This description is virtually identical to the one set forth in the EMs
beginning in June 2004. There were only two significant differences between the text proposed
in the First Courvoisier Memorandum and the text ultimately included in the EMs: (i) the
substitution of Madoff's name with the generic form "Broker-Dealer, and (ii) the inclusion of a
sentence saying that "the assets of the fund are deposited with the Broker-Dealer."
204. The First Courvoisier Memorandum further reflected concern that arose from the
fact that Madoff had to buy and sell options from private counterparties (the so-called over-the-
counter market) and not through an exchange. The risk of operating with counterparties rather
than an exchange is that Madoff (and therefore Optimal SUS) had counterparty risk i.e., risk
that the other side would not perform due to bankruptcy or other liquidity problems.
Accordingly, Courvoisier proposed the following disclaimer for the EM: "The options
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transactions executed [by Madoff] for the benefit of Optimal SUS are effected, primarily, in the
over-the-counter market, not on the registered options exchange. BLM [i.e., Madoff] is not a
market maker in options." The EMs ultimately included this identical disclaimer except that the
reference to Madoff as "BLM" was deleted, and only referred to as "the Broker-Dealer."
205. Courvoisier concluded the memorandum by proposing a meeting with "the
lawyers in New York." The purpose of the meeting was to revise "all the contractual
documentation with Madoff and redraft its Investment Strategy applied to the Funds."
The Second Courvoisier Memorandum
206. The Second Courvoisier Memorandum, entitled, "Meetings with Bernard Madoff
and lawyers in New York September 18-19, 2002, is again addressed to Echeverrfa. The
memorandum begins as follows:
The purpose of the meetings was to discuss the actual contractual
arrangements between Bernard L. Madoff Investment Securities
("MIS") and Optimal Strategic US Equities Ltd. and Optimal
Arbitrage Ltd [and] to reduce any potential exposure of
Optimal Investment Management Ltd., Optimal Multiadvisors Ltd,
the Funds, [OIS] and the reputation of the Santander Group
generally.
(Emphasis supplied)
207. The memorandum described Madoff's compensation: "[Madoff] is not paid any
kind of advisory, management or performance fee. The brokerage charges appear very small,
and we assume he makes his income on these fees or a spread." (Emphasis supplied). OIS and
Santander had failed to even confirm how Madoff supposedly earned money.
208. The next section addressed the "Contractual Agreement with Madoff/MIS" and
based its conclusions on Madoff's recommendations to OIS:
In reviewing the Information Memorandum of Fairfield Sentry
Ltd, Madoff explains that it is not correct to say that Fairfield has a
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"discretionary account" at MIS, as stated under the "Investment
Policies" of this document. If this was the case, Madoff/MIS
would choose what security to buy (as an investment advisor
would do). However, if he only chooses the time when he trades,
then he has no "discretion." The only decision/discretion he
makes/has is on the timing and the price. In other words,
Madoff/MIS only executes the investment strategy that the
investment adviser gives him to implement.
209. Madoff and OIS then executed an "additional letter" documenting the
understanding that Madoff had discretion with respect to the timing and price of the stocks, but
was limited to purchasing stocks included in the S&P 100. The June 2004 EM issued by
Optimal SUS stated that Madoff had discretion only with respect to the timing and price. In
effect, Madoff was dictating the disclosures for OIS.
210. The Second Courvoisier Memorandum also expressed concerns about the custody
of the assets the critical piece of due diligence that had OIS verified with a simple telephone
call would have led to a cessation of the investment of the Optimal Funds' assets with Madoff.
In a section titled "Custody/Segregation of Assets, the memorandum said:
When asked why we could not custody the securities with an
external custodian, Madoff replies that logistically it would have
been impossible for him to ensure errorless delivery ["Delivery
Risk"]. In executing sell orders he would need to have physical
control of the assets, and if the assets were somewhere else, there
could be delays (as he actively trades) and additional costs.
Another reason for
being his own custodian is that he does not
want anybody know when he is in the market and to be able to
to
copy his investment strategy ["Copying Risk"]. The fact that
people would have this information could jeopardize the strategy.
(emphasis supplied).
211. OIS never pressed Madoff further and accepted these explanations about
supposed Delivery and Copying Risk at face value, without any confirmation, verification, or
investigation.
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212. Madoff's simplistic explanations, however, were logically flawed. Even under
Madoff's supposed explanation of how his operation worked, and OIS's understanding of it,
Madoff had to execute large volumes of options with counterparties, which exposed Madoff to
Delivery and Copying Risk. The fact that Madoff had counterparties to execute option contracts
was the critical component of the "split strike conversion" strategy because it provided the
downside protection which Madoff and OIS touted as the strategy's centerpiece. If Madoff
traded the options with counterparties, he would face "Delivery Risk" and "Copying Risk" with
them.
213. Moreover, the settlement and delivery processes are fairly standardized and any
failures are typically rectified with counterparties on a timely basis. Otherwise, every single
trader in the financial markets would have a strong interest in self-custody. Self-custody,
however, is an extremely rare exception. The fact that delivery and settlement risks were
purportedly an issue raised by Madoff should have heightened OIS's due diligence of Madoff's
internal systems to understand why those systems carried risks generally not seen in the industry.
214. Yet, neither OIS, nor any of the Defendants, who were all sophisticated financial
market participants, ever investigated this inconsistency. The Second Courvoisier
Memorandum, thus, demonstrates that OIS had more interest in "papering" the file with a routine
memorandum that parroted Madoff's incongruous statements, rather than in conducting
meaningful due diligence. OIS saw the dangers and, rather than properly investigate them, as
due diligence requires, ignored them.
215. OIS failed to confirm additional representations made by Madoff concerning
custody. "Madoff confirmed that there is no margin arrangement with the Funds and that the
assets of these funds under the control of MIS are segregated and held in the DTC CDepository
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Trust Co.') in the name of the Funds." A single phone call to the DTC to inquire about the
existence of the assets, or even more simply to inquire whether Madoff, indeed, had a segregated
account in the Optimal Funds' names, would have led to the recognition that the Optimal Funds'
assets (and thus, Plaintiffs' investments) were more than simply at risk.
216. The fact that neither Courvoisier, nor OIS, had a genuine interest in ensuring that
Madoff had actual custody of the assets, and had not stolen them, is clear from the conclusion of
the custody section of the Second Courvoisier Memorandum. The memorandum concluded that
the liability was the custodian's, not the "Santander's entities:"
It has to be noted that the custody of Optimal Multiadvisors Ltd
(including the Funds) is in the process of being changed to
Bermuda Trust (Dublin) Ltd (from the Bank of Bermuda Group).
This entity had agreed to appear in the Prospectus as the official
custodian of the fund above mentioned. This entity will then
delegate its duties to MIS and appoint it as sub-custodian. The
new custodian will keep all the exposure/responsibility in case
of liquidation of the fund as neither Madoff nor any of the
Santander entities will be disclosed in the Prospectus as
custodian.
(Emphasis supplied).
217. Courvoisier's only concern was clearly for the "Santander entities, not for
Plaintiffs.
218. The Second Courvoisier Memorandum also shows that OIS sought legal advice
from law firms in New York. These law firms provided certain recommendations concerning the
red flags identified above, including very simple procedures designed to verify that Madoff was
not a Ponzi scheme and was actually conducting real operations, and that the Optimal Funds
assets still existed. For example, the law firm of KMZ Rosenman made two critical
recommendations:
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Clarify if the Funds are held in a segregated omnibus account
and if they are commingled with securities held for others;
Review a transaction confirmation (ticket) for option
transactions regarding the counterparty risk issue (see
attachment B).6
219. Both recommendations sought confirmation of a critical issue: did Madoff
actually interact with the outside world? The confirmation ticket for option transactions with a
counterparty sought to ensure that counterparties existed and that they were reliable
counterparties that would not default. Confirmation tickets would have identified the
counterparty. Again, a simple phone call to the supposed counterparty seeking confirmation that
the trade purportedly documented by the phony Madoff ticket had actually been executed would
have undermined Madoff's representations to Defendants upon which they had unquestionably
relied. Similarly, a call to DTC where Madoff said the assets were held in segregated accounts
would have led to a similar discovery.
220. Other law firms further identified the counterparty risk as important. For
example, Shearman & Sterling recommended that OIS "review [over-the-counter] option status,
counterparty risk would be eliminated if option transactions are 'crossed' through the exchange."
Accordingly, two different law firms had raised a red flag with respect to counterparty risk, yet
OIS either never contacted a single counterparty in over a decade of investing with Madoff or,
worse, did contact a counterparty and discovered that Madoff did not trade with them and
ignored the red flag.
221. The final section of the Second Courvoisier Memorandum sets forth a series of
"Conclusions, including the following:
6
Plaintiffs do not have a copy of attachment B.
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We have chosen KMZ Rosenman as the law firm to work with.
We will work with them on the following issues:
1) Legal opinion the precise regulatory status of
on
MIS/Madoff under US State and federal laws;
2) Legal opinion on the compatibility of such
regulatory status with the existing contractual
arrangements between the Funds and MIS;
3) Clarify the segregation of assets;
4) Legal assistance on some of the lawyers'
suggestions mentioned above such as reviewing
the [Broker-Dealer] form from NASD, the Focus
Reports from the SEC, the [over the counter]
options status and transaction confirmation;
5) Legal assistance on some general issues such as
redrafting the Offering Memorandum of Optimal
Multiadvisors Ltd and,
6) Any future issue related to our new business in New
York.
We have decided to appoint Bermuda Trust (Dublin) Ltd (Bank
of Bermuda Group) as custodian of Optimal Multiadvisors Ltd...
the name of the custodian will be disclosed in the Offering
Memorandum and Madoff/MIS will be appointed as sub-custodian.
(Emphasis supplied).
222. The Second Courvoisier Memorandum, thus, indicated that OIS would
supposedly follow up on the critical red flags. The list of "conclusions" even provided a due
diligence road map, including obtaining confirmation from external counterparties. Yet, OIS
never conducted the requisite due diligence.
b. OIS Violated Its Own Internal Due Diligence Procedures And
Ignored Numerous Red Flags In Favor Of Promoting Its Own
Profitability
223. In addition to selling the Optimal Funds from the United States, the due diligence
and oversight of Madoff, or lack thereof, was conducted in the United States. Santander Spain and
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OIS had, and continue to have, offices in New York City, at 45 East 53rd Street. Madoff s offices
were located at 885 Third Avenue (at 53rd Street), New York City, less than three blocks away
from OIS' s offices.
224. Upon information and belief, at these offices, OIS had a team of at least four
investment and due diligence officers for a substantial period of time after 2001.
225. Upon information and belief, as part of their alleged due diligence of Madoff, some
or all of these due diligence officers would receive trade confirmations from Madoff by facsimile.
These paper copies of trade confirmations, however, did not include time stamps nor prices for each
individual trade. Instead, the paper confirmations listed average prices for purchases and sales of
stocks on a daily basis. OIS' s reliance on paper confirmations was entirely inconsistent with OIS's
internal documents and presentations to investors. These documents and presentations said that
Madoff was one of the most technologically advanced broker-dealers. Madoff had even told OIS
that 99% of his trades were electronic. If so, why couldn't Madoff provide electronic trade
confirmations with precise time stamps and prices? The confirmations also did not include the name
of the counterparty with whom Madoff had supposedly traded. In effect, OIS accepted Madoff s
pieces of paper that said that Madoff had executed certain transactions without any verification,
validation, or independent review. OIS accepted these representations from Madoff for over a
decade without ever checking that a single transaction had actually occurred.
226. Defendant Manuel Echeverria (OIS' s chief executive officer and chief investment
officer) regularly visited New York to meet with Madoff on behalf of the Optimal Funds. It
appears that Echeverria met Madoff in New York as many as four times each year. This is
consistent with the importance of Optimal SUS for the OIS family of funds, and the fact that
Optimal SUS was OIS's flagship fund, out of fourteen other funds.
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227. By December 2008, Optimal SUS supposedly had $3.1 billion in assets with
Madoff, which represented approximately 30% of all of OIS's assets under management about
$10 billion.
228. Upon information and belief, Echeverria's close oversight of Madoff and frequent
meetings with him is also consistent with their long history. Optimal SUS had begun investing with
Madoff very early on, in February 1997, before OIS had even been established as an independent
unit within Santander. From its inception, Optimal SUS was a Madoff dedicated fund which
invested one-hundred percent of its assets with him. In fact, Echeverria received directly, as salary,
an amount of 0.15% of Optimal SUS's assets under management, which was part of the annual
commissions paid by investors.
i. The OIS 2005 Due Diligence Questionnaire
229. On June 6, 2005, OIS submitted a 28-page form entitled AIMA's Illustrative
Questionnaire For Due Diligence ("DDQ") of Multimanagers Fund Managers (the "2005
DDQ").7 The 2005 DDQ was prepared and reviewed by Amélie Fontvieille at OIS.
230. In response to the many questions in the DDQ, OIS showed that it knew how to
conduct thorough due diligence:
Q: What is the company's competitive edge in the strategy and
style allocation process?
A: We stress the importance of performing thorough due
diligence on an ongoing basis on the managers with whom
we invest. We want to know how the manager makes money
and how he or she is able to protect capital in difficult times.
We want to the manager in face-to-face meetings,
challenge
to see how he would react in a given situation. Our careful
attention in this area has allowed us to avoid the well-
publicized cases of manager fraud.
7
AIMA is the acronym for the Alternative Investment Management Association.
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(Emphasis supplied).
Q: Please describe, in detail, the company's due diligence process
including the investment, legal and compliance and operational
due diligence procedures. Provide examples of reports and
working papers, where available.
A: [OIS] uses an intensive and thorough due diligence process
that has been dev eloped and "fine tuned" through our many
years of experience over the last decade.... Our risk manager
and in-house legal counsel will ensure all non-investment due
diligence (operational and legal) and risk control for all
new/existing investments. They will provide an opinion on all
managers from an operational risk perspective to the
Investment Committee prior to investment decisions are made.
(Emphasis supplied).
Q: How much time is spent with each manager [e.g., Madoff]
during the due diligence process? Before initial investment?
After initial investment?
A: The due diligence process before initial investment takes
approximately 2 months. After initial investment, we have
three to five meetings on-site, and regular phone calls and other
means of communication.
231. Additional answers provided by OIS further evidence that, as part of its regular
due diligence process, OIS contacted counterparties and third-party vendors of the underlying
funds in which it invested.
Q: Do you perform operational due diligence on the middle and
back office operations?
A: Yes, both on middle and back office.
Q: Do you perform due diligence checks on the administrator or
any other service provided to the targeted funds? If so, please
describe:
A: Yes, we do carry due diligence on the fund's administrator to
see how they price the portfolio and where they obtain their
prices from. We also talk to the prime brokers the fund
uses as any other third party providers.
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MIAMI, FLORIDA 33131-2158
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Q: Do you contact the outside audit company prior to approval?
A: The of audit reports is integrated in the due diligence
analysis
process. We may contact the outside audit company, but it is
not a condition sine qua non for approval.
(Emphasis supplied).
232. The critical importance of contacting the underlying fund's third-party providers
(such as counterparties, prime brokers, and auditors), and of being comfortable with who they
were, was obvious to OIS because it had already suffered serious losses in the past. As set forth
in the 2005 DDQ, during the Russian debt default in August 1998, one of the funds in which OIS
had invested collapsed because of a counterparty's failure to honor its obligations:
In August 1998, we [OIS] were invested in the III High Risk
Opportunities Fund. This fund was partly invested in Russian
debt. They had contracted a "Non Deliverable Forward"
(Dollar/Ruble) as their hedge with two reputable financial
institutions. As the Russian crisis unfolded, the two
institutions refused to honour the NDFs and the fund
collapsed. This issue is still in litigation today[, seven years later].
(Emphasis supplied).
The OIS 2008 Due Diligence Questionnaire
233. OIS also prepared a similar Due Diligence Questionnaire in 2008. It is dated
April 30, 2008, and was completed by Amélie Fontvieille and reviewed by Toby Gauvain
("Gauvain"). Gauvain was Head of Global Business Development for OIS. The 2008 DDQ is
virtually identical in format to the 2005 DDQ and presents an update of the information
previously provided.
234. Once again, the 2008 DDQ shows that OIS knew how to conduct thorough due
diligence but utterly failed to do so with Madoff. The answers to the questions are very similar
to the ones provided in 2005.
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Q: What is the company's competitive edge in the strategy and
style allocation process?
A: We have the resources, processes and experience to conduct
thorough due diligence on target funds.
(Emphasis supplied).
Q: Summarise your manager selection process:
A: The typical criteria a manager should meet to qualify for
selection [includes].... risk controls....
Q: Please describe, in detail, the company's due diligence process
including the investment, legal and compliance and operational
due diligence procedures. Provide examples of reports and
working papers, where available.
A: The due diligence process is split into investment and non-
investment processes.
Investment processes include...
Due diligence is performed on both middle and back office
operations
Non-investment processes include...
Review of business structures and terms
Evaluation of manager's business plans and operational
infrastructure
Q: Where does your due diligence process differ from that of
others in the marketplace?
A: We have a defined investment and risk control process
that can be replicated for any review done on a manager.
We have the resources, market intelligence and procedures and
controls of a world class financial institution/recognised bank
which is in the global top 10.
Q: Do you have a dedicated operational due diligence team?
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100 SOUTHEAST 2ND STREET LASH &GOLDBERG.,
ATP )11NEYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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A: Yes. Optimal is committed to building a dedicated independent
operational risk management team which will deal with
operational risk and due diligence. It is one of a handful of
asset managers in the alternative asset space with dedicated
resources in this area.
235. Additional responses in the 2008 DDQ showed that OIS understood the critical
importance of checking with outside vendors and service providers when conducting operational
due diligence:
Q: Do you perform reference checks on the manager? If so, how
arethese done?
A: Yes, reference checks are performed through contact with
related people in the industry, such as other hedge funds, or
service providers as prime brokers. Where we cannot gather
enough information on the manager, we use specialised
companies such as Back Track.
Q: Explain both the ODD [operational due diligence] prior to
investment and the ongoing ODD after investment (if any).
Are all visits written up in structured reports?
A: Prior to investment, control reviews of the managers operations
are performed. On an ongoing basis, manager visits are
performed. The frequency of the visits is based on an
assessment of the risks presented by the Managers' operations.
Reports are prepared on these visits.
Q: Do you perform due diligence checks on the administrator or
any other service provider to the targeted funds? If so, please
describe:
A: Yes, wehave a programme of reviews for service providers
totargeted funds such as the funds administrators, lawyers
and auditors.
Q: Do you contact the outside audit company prior to approval?
A: An attempt to make contact with the auditors to the fund will
always be made.
BANK OFAMERICA TOW!, R 68 WES ToN CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREE1 LASH &GOLDBERG
ATTORNEY', AT LAW
LII 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAx
www.lashgo Idberg. co m 954 384 2500 954 384 2.510 FAX
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(Emphasis supplied).
236. The 2008 DDQ further showed that OIS understood that operational due diligence
was an important risk mitigation task. In describing its risk management approach, OIS
explained that operational risks required that OIS fully analyze Madoff s counterparties,
although it failed to do so with respect to the Optimal Funds' investments with Madoff:
Q: Describe how risk management is structured within your
organisation?
A: We have a distinctive approach to Risk Management as we
organize these functions along two dimensions. First, risks are
mapped by category such as investment, non-investment,
operations and compliance, legal & regulatory risks. Second,
risks are identified for hedge funds, portfolios of hedge funds,
legal structures and operations. Clear parameters are set for
each of the elements in the form of exposure reports,
automatised controls and risk limits.
Risks are dealt across various departments as it lies at the heart
of our investment process. Our thorough due diligence
process ensures that the highest standards of quality are
met when selecting hedge funds. The application of our
investment process is controlled by our legal & compliance
unit. This unit is also responsible for checking the compliance
of Optimal funds 'with their prospectus, investment philosophy
and regulators. Investment risks are dealt by our dedicated
quantitative analysis & investment risk management team.
They focus their analysis on market risk, control of risk limits
and analysis of the underlying hedge fund risk management
organization. The third category or risk is operational risks at
the level of hedge funds. As this is not a rewarding risk for our
investors, our operational risk
analysis analyze in detail the
business structure of each hedge fund in the portfolio, their
legal setup, documentation, or counterparties....
Optimal Risk Con-imittee is central in our risk management
organization as it represents all the points mentioned in the
above paragraph. Members are senior key and experienced
professionals heading and representing Quantitative Research
& Investment Risk, Operational Risk, Legal & Compliance and
Operations teams. It is Chaired by Gilles Prince, our Chief
Risk Officer.
BANK OF AMERICA TOWER 69 WESTON CORPORATE CEN1 ER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG.,
ATTORNEYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
Www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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Q: What risk management concepts does the company apply to its
underlying managers/funds?
Qualitative risk analysis:
Three main areas are being analyzed: investment risk
management and operational risk at the level of hedge funds.
Operational risk covers, among others, the constituent
documents of the fund, the prospectus, contracts, agreements,
counterparties, business organisation, reference checks,
corporate actions, regulatory filings, NAV calculation process,
pricing policies. The objective is to understand which
liabilities may the fund have and may imply risks.... These
risk analyses are performed with detailed desk analysis,
conference calls with managers, CFOs, CO0s, CROs and
on-site visits.
Quantitative risk analysis:
Hedge funds are analysed quantitatively by our dedicated team.
State of the art statistics are calculated so that we can assess if
the hedge fund possesses the desired characteristics that we
seek, like for example capital protection, participation in the
upside performance of markets, low correlation, liquidity.
This analysis is completed by a complex statistical non-
linear style analysis with our FOFIX tool. Risk profiles are
calculated for each hedge fund in order to estimate the
systematic factors influencing the returns of the fund.
These are then compared with the qualitative analysis of
our research analyst and deviation from
expected risk
profiles need to be explained....
Potential breaches of the risk parameters would be immediately
notified to the Chief Operating Officer and if appropriate to the
Chief Executive Officer. Breaches would be reported and
presented at the Investment Committee Meeting and reported
to the Group's Risk Monitoring Division in Madrid.
(Emphasis supplied).
237. The involvement of Group's Risk Monitoring Division in Madrid was further
detailed in additional responses included in the 2008 DDQ, especially in terms of risk controls:
Q: Does the company use any formal risk limits? Or informal risk
guidelines? If so, please describe how they are used.
BANK OFAMERICA TOWER 70 WES I ON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,,,
ATTORNEYS TI AW
W
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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A: The Company agrees risk control criteria on the portfolio with
Santander Asset Management Central Risk Control unit based
in Madrid.
Q: What on going assurance does the firm provide to clients over
the effectiveness of its operational risk framework? If a SAS70
or FRAG 21... has been completed please list the
key
weaknesses identified in the last 5 years.
A: The Company does not prepare SAS 70 or FRAG 21 reports,
but it is subject to regular review by the Santander Group
Internal Audit and is also subject to the Group's Compliance
policies and procedures and Risk Framework.
(emphasis supplied).
OIS' Quantitative Analytics Tools Raised Red Flags
238. The 2008 DDQ admitted that OIS relied on a quantitative analytics tool called
FOFIX. FOFIX is a statistical model that seeks to identify hidden risks in a portfolio. In effect,
FOFIX serves to confirm that the supposed investing strategy of a portfolio is being executed,
otherwise the results of the FOFIX analysis would show deviations from the expected risk
profiles.
239. On February 9, 2009, shortly after Madoff's Ponzi scheme unraveled, Riskdata
published the results of its analysis of Madoff s supposed split strike conversion strategy using
FOFIX. The February 2009 analysis was entitled "The Madoff Case: Quantitative Beats
Qualitative!" The subheading said, "Two Red Flags: Bias Ratio and Risk Profile Clearly Pointed
to Problems With Madoff." The introductory section summarized Riskdata's findings as
follows:
Numbers tell a story and clearly have an order that should be
hard to fake. What appears to be too good to be true can be
measured.... [A]nyone paying attention to quantitative
BANK OF AMERICA TOWER 71 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG.,
ATTORNEYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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advances in hedge fund risk management suspected that
Madoff was a scam to be avoided. Amongst the quant techniques
useful in detecting fraud, the most efficient is the Bias Ratio,
invented by Adil Abdulali of Protégé Partners and available in
Riskdata's suite of analytics. In Madoff's case, a calculation of
the Bias Ratio points to the fallacy of Madoff s returns. In
addition, an accurate analysis of Madoff investment Risk
Profile is inconsistent with its style and peer group.
(Emphasis supplied).
240. OIS, admittedly, had FOFIX and purportedly relied on it when conducting due
diligence. Indeed, OIS's 2008 DDQ specifically noted that when quantitative measurements
flashed red and showed that a manager was not executing the advertised strategy, this
information was sent to Madrid:
Potential breaches of the risk parameters would be immediately
notified to the Chief Operating Officer and if appropriate to the
Chief Executive Officer. Breaches would be reported and
presented at the Investment Committee Meeting and reported to
the Group's Risk Monitoring Division in Madrid.
241. Yet, either OIS failed to use FOFIX when conducting due diligence on Madoff, or
ignored the FOFIX results, to the detriment of Plaintiffs.
c. A January 2008 Internal Presentation By OIS To Santander
Asset Management Highlighted The Profitability Of Optimal
SUS To Santander
242. In January 2008, OIS made a detailed internal presentation about Optimal SUS
(the "January 2008 Presentation"). In a slide featuring key statistics about Optimal SUS, one of
the bullet points read: "Very profitable business for the Group, average management fee above
2%." (Emphasis in original). OIS, thus, sought to highlight the profitability of Optimal SUS to
incentivize its sales force to sell more.
243. The January 2008 Presentation also touted Madoff as being at the forefront of
financial technology:
BANK OF AMERICA TOWER 72 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
TOO SOUTHEAST 2ND STREET LASH &GOLDBERG'
ATTOIINFYS AT I AW
LP 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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[BMIS's] position at the forefront of computerized trading is
widely acknowledged in the US financial community and it is very
well known for its fine pricing as well as its ability to execute most
orders in seconds with sophisticated proprietary automation and
enhanced execution.
(Emphasis in original).
244. Despite Madoff s supposed technological prowess, Madoff did not send OIS
trading confirmations electronically, or in real time. In addition, the paper confirmations mailed
by Madoff did not include specific trading prices. Instead, Madoff only provided average prices
for entire trading days. These facts are completely at odds with Madoff's supposed
"computerized trading" prowess and was a massive red flag that OIS completely ignored.
245. The January 2008 Presentation provided further details about Madoff's supposed
trading operation that OIS failed to confirm. The "Trading operational procedure" section stated:
The fund diversifies risk with over twelve trading counterparties.
Client assets are held at the
[Depositary Trust Company] DTC in
segregated accounts designated as Madoff Client Accounts in
accordance with SEC Rule 15(c)(3)(3).
This segregation effectively eliminates the ability to use client
assets to finance proprietary activities, such as market making.
(Emphasis in original).
246. OIS failed to contact any of the counterparties with whom Madoff purportedly
invested and failed to confirm with DTC that Madoff had segregated Madoff Client Accounts.
Indeed, had OIS or any of the Defendants called to confirm the segregation of accounts, and
found that that was not the case, they would have avoided investing the Optimal Funds' assets
with Madoff at a minimum to avoid the stated concern that Madoff could be "using client
assets to finance proprietary activities, such as market making." (January 2008 Presentation).
BANK OF AMERICA TOWER 73 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG LI2500
ATTORNEY', AT LAW
I WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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247. Further, according to the January 2008 Presentation, "legal ownership [sic] US T-
Bills and Interest on Cash Balances must vest in the Optimal funds." This suggests that Madoff
invested in U.S. T-Bills (as Madoff and the Optimal SUS funds' Explanatory Memoranda
asserted that Madoff did when not using the split strike conversion strategy), but that the U.S. T-
Bills were registered in Optimal SUS 's or Optimal Arbitrage's name. As a practical matter,
however, this was impossible. The legal ownership of the U.S. T-Bills could not have vested in
the Optimal Funds because the investments in Treasury securities never existed. OIS never
confirmed that the billions of dollars it had invested with Madoff were, in fact, in Optimal SUS 's
name. Indeed, OIS did not even confirm the existence of the T-Bills which were reflected on
Optimal SUS s financial statements.
d. Conduct By The Santander Group In 2008 Indicates Growing
Concerns About Madoff
i. Santander Miami And Santander Bahamas Asked
Investors In Optimal SUS To Sign Waivers Purporting
To Ratify Madoff As The Sole Manager
248. In the course of 2008, Santander affiliates implemented certain procedures that
indicated growing concerns about Madoff. One of those procedures consisted of having private
banking clients who had invested in Optimal SUS sign a waiver if they wished to remain in the
fund ("Waiver"). Nothing had changed with respect to the supposed risk parameters of Madoff
to warrant the execution of this waiver. Madoff supposedly still his
new was executing split
strike conversion strategy. And, Madoff was still the only manager for Optimal SUS.
Nevertheless, the Santander affiliates sought to obtain additional waivers. Plaintiffs were not
sent the waiver form, but rather, they were advised to buy more Optimal SUS.
249. The Waiver said, in relevant part:
BANK AMERICA TOWER
OF 74 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
TOO SOUTHEAST 2ND STREET LASH &GOLDBERG fJ2500 WESTON
ATTORNEYS AT LAW
I ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAx
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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With respect to your investment in Optimal SUS, you understand
and accept the following:
Santander Bank & Trust Ltd. (the "Bank") [i.e., 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 you have
selected for your account with the Bank, for investments in
Hedge Funds managed by one manager.
(Emphasis supplied).
250. The Waiver further explained that Santander (Bahamas) (i) had advised the client
to redistribute the portfolio by investing in investments other than Optimal SUS; (ii) provided the
client the opportunity to review the clients' investments and reduce the exposure to
Optimal
SUS; (iii) provided various opportunities to ask questions and receive answers concerning
Optimal SUS; and (iv) explained that the investment in Optimal SUS was not guaranteed by the
Bank, any of its affiliates, or any private or governmental entity, and could result in the total loss
of investment.
251. The Waiver was therefore quite clear: invest in Optimal SUS at your own risk.
252. While the Waiver exhibited the dry terminology of legal forms, emails from
Santander Miami bank representatives to their clients translate Santander Miami's concerns into
plain language, as indicated by the September 30, 2008 email from Vanessa Redmond to a client.
See Exhibit "3" attached hereto.
253. The claim that the volatility in the market was the reason Santander Miami
recommended exiting Optimal SUS was flatly contradicted by OIS's own report for Optimal
SUS for the quarter ending September 30, 2008 ("Optimal SUS 3Q'08 Report"). OIS actually
touted the volatile environment as providing opportunities for Madoff. In a slide entitled
"Summary of Fund Achievements, OIS stated:
BANK OF AMERICA TOWER 75 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG
ATTORNYS AT LAW
UP 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAx WWW. lash goldberg. com 954 384 2500 954 384 2510 FAX
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Review and outlook:
The manager's market timing [i.e., Madoff's] was impeccable
during the recent period, as he was able to find great entry
points and exit points to benefit investors.
The current volatile environment continues to provide
opportunities for the strategy to outperform its equity
index benchmark.
[Optimal SUS] navigated one of the most difficult periods in
recent market history successfully, managing to produce a gain
in the face of high market volatility.
(Emphasis supplied).
254. Additional slides in the report provided additional statistics to make the same
point that volatility in the market did not affect Optimal SUS as follows:
a. One slide on "Current Performance" showed that Optimal SUS had
supposedly obtained a 2.39% return in the third quarter of 2008 while the S&P 500 had dropped
8.88%.
b. Another slide on "Statistics Relative to Various Markets" listed the
correlation between Optimal SUS and the S&P500 at a "very low" 0.26. Indeed, the whole point
of the statistics presented was that "Optimal Strategic U.S. Equity's Performance Is Highly
Uncorrelated With the U.S. Equity Market As Well As Hedge Fund Returns In General."
c. Yet another slide showed that "[Optimal SUS] Ha[d] Outperformed
During Crisis Periods." The chart on the slide then showed how Optimal SUS had obtained
positive returns compared to negative returns by the S&P 500 during the (i) 1998 Long Term
Capital Management collapse; (ii) 2000 Tech Bubble Burst; (iii) 9/11 attack; (iv) 2002
WorldCom bankruptcy: (v) 2002-2003 Iraq War; and (vi) 2008 credit bubble burst.
BANK OF AMERICA TOWER 76 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,
ATTORNEYS AT LAW
i, 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAx
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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255. Despite these clear warning signs, the Santander Entities and Santander
Individuals failed to advise Plaintiffs of their concerns about Optimal SUS and failed to
recommend to Plaintiffs that they immediately sell all of their holdings in Optimal SUS, as had
been done for other Santander Entities' clients and after Plaintiffs had stated their desire to sell
Optimal funds.
256. In fact, contrary to the warnings given to other Santander Entities' clients,
Santander Miami, by and through its employee and agent Sandra Reif, recommended in October
2008 that Plaintiffs purchase more of the Optimal SUS and Optimal Arbitrage Funds.
Echeverria Left OIS In June 2008 And Santander Sent
A Director To Meet With Madoff On Thanksgiving Day
2008
257. On June 30, 2008, Echeverria left OIS after nearly a 20-year career with
Santander and its affiliated entities. Echeverria had been OIS's CEO and CIO during its entire
existence. He had built the hedge fund group in Geneva that ultimately became OIS. And, as
described in the EMs, "he built Grupo Santander's expertise in the major alternative investment
styles... and several other sub-strategies, building a US and European presence for Grupo
Santander." (October 2006 EM). A criminal indictment has since been issued against
Echeverria in Geneva, Switzerland.
258. With Echeverria gone, Santander Spain dispatched a senior member of its Board
of Directors, Rodrigo Echenique, to meet with Madoff face-to-face in New York in November
2008. Echenique is widely known to be one of Santander Spain's most trusted advisors.
Echenique had served under Emilio Botin (Santander Spain's Chairman and CEO), as President
of Santander Spain between 1988 and 1994, and has remained a Director on the Board ever
since.
BANK OF AMERICA TOWER 77 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,,,
ATTORNEYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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259. Echenique and his team met with Madoff on Thanksgiving Day 2008. According
to a Financial Times article dated January 23, 2009, and entitled, "Santander Fund Praised
Impeccable Madoff, what happened during the meeting is "disputed." However, a banker "with
knowledge of the meeting" described it as "a 'routine' inspection" that resulted in Santander
Spain remaining satisfied with BMIS. The Spanish newspaper El Mundo reported on December
18, 2008, meanwhile, that Echenique's visit was prompted by "rumors about the possible
problems" at BMIS which had been "going around for a few months in a small number of
Santander's offices, and noted the abrupt departures of several high level executives of OIS in
June 2008, including Defendant Echeverria.
e. Santander Spain And Its Affiliates Were Deeply Involved In
OIS And Profited In The Form Of Commissions
i. Santander And Its Affiliates Oversaw Risk
Management At OIS
260. Santander Spain and its affiliates in Madrid were deeply involved in risk
management at OIS, especially with respect to Optimal SUS. In an October 2008 presentation
about Optimal SUS entitled, "Optimal Investment Services: Optimal Strategic US Equity, OIS
emphasized repeatedly the pervasive role of its corporate parent. ("Optimal SUS October 2008
Presentation").
261. The first section of the presentation asked, "Why Optimal?" The answer relied
heavily on Grupo Santander, with one slide immediately afterwards listing the advantages of the
"Presence of Grupo Santander" in Ol S. These advantages included the fact that Santander Spain
was the seventh largest bank in the world in terms of market capitalization, the fifth most
profitable bank, had more than 132, 000 employees, and earned record profits in 2007 of about
$10 billion. (Id.).
BANK OF AMERICA TOWER 78 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,ATTORNF VS AT LAW
I, 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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262. Santander Spain's role was described in even more detail with respect to risk
control. One of the critical risk-controls included "Internal Audit" at Grupo Santander. (Id.).
Internal Audit was an additional control layer on top of all the risk control procedures
supposedly carried out by OIS. As set forth in the presentation, risk control procedures included
supervision by (i) the risk control committee at OIS; which included OIS' s CEO and CIO, and
the head of operational risk, among others; (ii) the non-investment, operational due diligence,
and quantitative research teams; and (iii) Optimal SUS' s outside auditors.
263. Grupo Santander's Internal Audit functions were further specified in another
slide, entitled "Operational Control: 6 Levels of Control and Audit, which stated, "The Risk
Control Division at Santander Asset Management controls all risk controls and procedures at
OIS." This "control" was carried out on a "continuous" and "annual" basis.
Santander Miami Profited From the Sale of the Optimal
Funds
264. Santander Miami was the logical central point for selling the Optimal Funds to Latin
America for many reasons. It is the functional headquarters for Latin American operations, with
hundreds of employees at its Miami office on Brickell Avenue, compared with significantly smaller
offices in Latin America. Also, accounts at Santander Miami, and thus based in the United States,
had already invested hundreds of millions of dollars in Madoff through Optimal Multiadvisors.
265. Importantly, Santander Miami did not limit its activities and services to only those
investors that had accounts in Miami. Santander Miami also conducted the operations and sales of
the many smaller and, essentially, mere outposts in Latin America. For example, Plaintiffs accounts
were at Santander's affiliate in the Bahamas. But the Bahamas affiliate was principally an offshore
corporate vehicle with very limited operations and served only as the custodian, with all advisory
services provided by Santander Miami.
BANK OF AMERICA TOWER 79 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
TOO SOUTHEAST 2ND STREET LASH &GOLDBERG
ATTORNEYS AT LAW
I LP 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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266. Santander Miami's employees, who were located in Miami, were also the most
important sellers of Optimal Multiadvisors. These Santander Miami employees would regularly
travel to Latin America from Miami and sell investments in Madoff through Optimal
Multiadvisors to Latin American investors. For example, Santander Miami employee Patricio
Waterhouse was rewarded with a meeting with Madoff for being the top Madoff salesman.
267. Santander Miami benefited economically from the sale of the Optimal Funds to
Plaintiffs. Santander Miami charged Plaintiffs a sales charge at the time of the investment in the
funds that was a percentage of the amount invested. This sales charge was in addition to the
annual management fee charged by OIS based on the market value of the Optimal Funds each
year. Santander Miami also benefited economically because it shared the annual management
fee with OIS as compensation for Santander Miami's sales efforts. Santander Miami has kept
these sales charges, fees, and commissions, and has not returned the monies to Plaintiffs.
f. The Santander Entities Settled The Claw Back Suit Filed By
The RFC Trustee Prematurely To Prevent The Release Of
Incriminating Information
268. In early May 2009, the SIPC Trustee filed a number of lawsuits in bankruptcy
court against several Madoff feeder funds. The suits sought to claw back hundreds of millions of
dollars that the feeder funds had withdrawn from their Madoff accounts (the "Claw Back
Lawsuits"). The SIPC-Trustee alleged that these monies belonged to other victims of Madoff's
Ponzi scheme.
269. The Claw Back Lawsuits further alleged that the feeder funds ignored critical red
flags.
270. The evidence of indicia of irregularity alleged by the SIPC Trustee was that
Madoff repeatedly reported to the feeder funds, such as the Optimal Funds, trades that were
BANK OF AMERICA TOWER 80 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
MO SOUTHEAST 2ND STREET LASH &GOLDBERG,
ATTORNEYS AT LAW
2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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outside of the daily trading range. By May 2009, Mr. Picard had combed and examined
BMIS's internal records for almost six months. This examination culminated in the finding that
Madoff had reported hundreds of trades that could never have been executed and that should
have alerted the individuals controlling the feeder funds that something was terribly wrong.
271. In the face of the allegations, the Santander Entities decided to settle with the
SIPC Trustee on May 26, 2009, before a complaint had even been filed against them (the "SIPC
Trustee-Optimal Agreement"). The settlement had been the result of months of negotiations
after Optimal Multiadvisors had been served with a subpoena on February 27, 2009. Optimal
Multiadvisors agreed to return over $235 million. This amount represented 85% of the claim.
272. The SIPC Trustee touted the settlement as a resounding victory. In a press release
issued on May 26, 2009, he stated, "I am very pleased that we reached such a favorable
settlement with Optimal and that Optimal will pay more than $235 million to resolve the claims
against it." (emphasis supplied). The press release also emphasized the high percentage of
recovery, "Optimal will pay the Trustee more than $235 million, an amount equal to 85% of the
amount of the Trustee's claims against Optimal."
273. The investors in Optimal Multiadvisors were not consulted in connection with the
agreement with the SIPC Trustee, nor did they approve the agreement. In fact, the entire
settlement negotiations were conducted in secret and the investors in Optimal Multiadvisors were
not even notified of the negotiations until the agreement had been executed and publicly filed in
court on May 26, 2009.
274. The settlement with the Trustee also directly contravened Santander's prior
promise to the shareholders of Optimal SUS that, "Optimal will undertake the legal actions
BANK AMERICA TOWER
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2500 WESTON ROAD
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which may be needed to defend the interests of shareholders in the subfund." (Emphasis
supplied).
275. But the settlement itself was not the only revelation contained in the SIPC
Trustee-Optimal Agreement. The agreement further revealed two critical pieces of information
which had not been disclosed to investors. First, there had been no disclosure that the Optimal
Arbitrage Fund had invested with Madoff until then. Indeed, in a January 27, 2009 press release,
OIS had announced that Arbitrage would be liquidated citing "adverse market conditions." But
there was no mention that Arbitrage had invested in Madoff and had withdrawn approximately
$125 million in the fall of 2008. There also was no mention that Arbitrage had lost about $14.5
million with Madoff, which was the amount that remained at BMIS as of November 30, 2008.
276. Second, there had been no disclosure that Optimal SUS had more than $150
million in cash in its bank account based on withdrawals from its BMIS's account prior to its
collapse. In all public disclosures concerning Optimal SUS's losses due to Madoff, the crux of
the disclosures was that all monies had been lost. Indeed, the Santander Entities negotiated
releases with hundreds of investors that failed to disclose that Optimal SUS had more than $150
million. There also was no consultation with the investors of Optimal SUS, including Plaintiffs,
with respect to whether the settlement agreement with the SIPC Trustee was in the best interest
of the investors.
277. The Santander Entities thus carried out the negotiations of the agreement with the
SIPC Trustee, and reached an agreement, to the detriment of, and contrary to, the best interests of
investors, including Plaintiffs. The Santander Entities forced Optimal Multiadvisors to settle
with the SIPC Trustee to preempt a public lawsuit which, in all likelihood, would have alleged
essentially the same wrongdoings asserted in this lawsuit.
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MIAMI, FLORIDA 33131-2158
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278. Most importantly, by settling with the SIPC Trustee, the Santander Entities kept
secret the information about the trades reported by Madoff outside of the daily trading range.
Simply put, the Santander Entities paid the SIPC Trustee, with monies belonging to Plaintiffs
here, to protect against their own liability.
3. The Santander Defendants' Wrongful Conduct As Directed To
Plaintiffs
279. With respect to Plaintiffs, the Santander Defendants did not provide Plaintiffs with a
prospectus or Explanatory Memorandum for any Optimal Funds, including Optimal SUS and
Arbitrage, either prior to or at the time Plaintiffs purchased these funds.
280. Instead, Santander Miami, Santander Bahamas and its agents and employees
represented to Plaintiffs that the Optimal Funds were fully diversified, had less volatility and greater
returns, all with greater transparency, than other investments, without any discussions about the
risks of such an investment and without raising any of the red flags the Defendants' knew or should
have known.
281. As one example, in the first presentation to Plaintiffs, Santander Miami states:
"In alternative investments [i.e., hedge funds], we can provide you not only better returns with
less volatility compared to prior positions [i.e., Orbita], but we can also offer greater liquidity
(monthly) and more transparency in the securities held in the Optimal funds recommended."
282. While Plaintiffs asked Santander Miami and its officers, employees and agents to
review a host of non-Optimal hedge funds, Santander Miami, Jaureguizar, Echave, and Sanchez
Castillo represented to Plaintiffs in writing that the Optimal Funds were more conservative and
better performers than a host of other hedge funds, in total disregard for the truth or for basic
principles of diversification required of a financial advisor. Santander Miami discarded almost
all other investment alternatives.
BANK OF AMERICA TOWER 83 WESTON CORPORATE CENTER
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MO SOUTHEAST 2ND STREET LASH &GOLDBERG.,
ATTORNEYS AT LAW
2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
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283. Plaintiffs followed Santander Miami's advice because they believed, based on
Santander's representations, they were reducing the risks in the portfolios. In reality, Santander
Miami's advice was entirely self-serving and intended to generate significant fees from its
proprietary Optimal funds in complete disregard to fundamental principles of diversification and
carrying out a low risk investment program. The Santander Entities and Santander Individuals
put their economic interests before Plaintiffs' interest and, by doing so, breached their fiduciary
duties to Plaintiffs.
284. Santander Miami's officers and employees told Plaintiffs that the Optimal Funds,
and in particular the Optimal SUS Fund and Optimal Arbitrage, which comprised almost 20% of the
initial portfolio allocation, were the core positions in the portfolio recommended by Santander
Miami and would provide stability and offset the volatility of the Plaintiffs' other investments in
portfolios, including those at CIBC, because of their supposed low volatility.
285. OIS also represented that it conducted thorough due diligence. OIS website
stated, "intensive due diligence is vital to ensuring the integrity and sustainability of the
investment process.... Each investment undergoes lengthy and detailed scrutiny according to
clearly defined manager selection criteria" (emphasis supplied).
286. OIS received a handsome compensation for this supposed "intensive due
diligence, "careful analysis, and "detailed scrutiny" a weighted average annual commission
of between 1.90% and 2.15% of assets under management. Based on the reported loss by
Santander Spain in Optimal SUS suffered by its clients of approximately 2.33 billion ($3.17
billion), OIS was paid almost 44 million ($59.91 million) annually. Despite this lucrative
remuneration, OIS and Santander Spain failed to conduct reasonable and adequate due diligence
and lost all of the Plaintiffs' monies in Optimal SUS and part of its monies in Arbitrage.
BANK OFAMERICA TOWER 84 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG!,
ATTORNEYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAx
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287. Plaintiffs invested in Optimal SUS, which invested all of its assets with Madoff.
Plaintiffs also invested in Optimal Arbitrage, which had, according to Sanchez Castillo, up to
10% of its assets invested with Madoff and, according to an October 31, 2008 Arbitrage Fact
Sheet, had 9.41% in Madoff's Infiltrator Fund.
288. Plaintiffs purchased Class A shares and paid a two percent (2%) front-end load
for the benefit of the promised low volatility of SUS. Plaintiffs also paid, on both Optimal SUS
and Arbitrage, 2.15% Investment Management Fee, 2.5% in Administration Fee (maximum of
$200, 000 per account), 1% Custody Fee to Santander Optimal and other fees and expenses
from April 2005 through December 11, 2008. Plaintiffs were paying high fees for promised low
volatility.
289. Based solely and exclusively on the strong recommendations and advice provided
by Santander Miami through its officers and employees, including Jaureguizar, Sanchez Castillo,
and Echave, and based on OIS' representations as stated in the Fact Sheet sent to Plaintiffs on
April 14, 2005 for Optimal SUS, Plaintiffs signed the order confirmations for the Optimal SUS
and Arbitrage Funds and faxed the order confirmation to Santander Miami's office in Miami.
290. Santander confirmed that the trades were completed in New York in April 2005.
291. At no time prior to the disclosure of the Madoff fraud in December 2008 did any
of the Defendants advise Plaintiffs of any of the risks, red flags, and/or warnings that were
known or reasonably should have been known to the Defendants; nor did the Santander Entities,
Jaureguizar, Sanchez Castillo, Miguel Barron or Sandra Reif recommend to Plaintiffs that they
sell their positions in the Optimal SUS funds and/or Arbitrage Funds as had been done for other
Santander clients. Instead, they told Plaintiffs to buy more.
BANK OF AMERICA TOWER 85 WESTON CORPORATE CENTER
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100 SOUTHEAST 2ND STREET LASH &GOLDBERG
ATTORNEYS AT LAW
I LP 2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA
MIAMI, FLORIDA 33131-2158 33331
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4. The Santander Entities Ignored Obvious Red Flags Concerning the
Madoff Fraud
a. Madoff's Custody of Equity Securities
292. Madoff failed to trade through an independent broker and, instead, self-cleared all
trading activities through his wholly owned company, BMIS. In addition, Madoff served as his
own custodian for the Funds' assets, even though this greatly increased the risk of self-dealing
and of Madoff perpetrating a Ponzi scheme. At a minimum, this arrangement should have
alerted Defendants to the need for heightened scrutiny, monitoring, and verification of
transactions, yet Defendants ignored this risk.
b. Madoff's Non-Existent Counterparties
293. Madoff refused to identify the counterparties with whom he traded equity
securities and options when executing the split strike conversion strategy. Alternatively, if
Madoff did identify them, Defendants failed to learn that Madoff had never traded with any of
them.
c. Defendants Failed To Confirm The Existence Of Government
Securities At The End Of Each Year
294. Another warning sign was the fact that Madoff supposedly held all assets, one-
hundred percent, in government securities at the end of every year. While a possible
coincidence, it is extremely suspicious. Not one, single year-end coincided with an opportune
time to be invested in the split-strike conversion strategy. In light of this recurring pattern the
obvious concern should have been that Madoff was hiding from the auditors so that at year-end
the auditors would only audit government securities. At a minimum, this should have caused
Defendants to confirm the existence of the government securities.
BANK OF AMERICA TOWER 86 WESTON CORPORATE CENTER
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100 SOUTHEAST 2ND STREET LASH6zGOLDBERG,,,,
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2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
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295. Madoff claimed that government securities were cleared through Government
Securities Clearing Corp. ("GSCC") and held by Bank of New York ("BONY"), but Defendants
never confirmed this assertion with GSCC or BONY. Had Defendants contacted GSCC or
BONY they would have learned that Madoff had not conducted a single trade in any of these
years.
d. Madoff's Unknown Auditing Firm
296. Madoff supposedly used F&H, an unknown accounting firm that was plainly
unequipped to audit a company of BMIS's purported size. F&H had only three employees a
retired partner living in Florida, a secretary, and one active certified public accountant. While
F&H was a member of the American Institute of Certified Public Accountants ("AICPA"), it had
not been the subject of a peer review since 1993 which is a membership requirement because
F&II represented to the AICPA, in writing, that it did not conduct any audits.
e. Madoff's Secretive Operation
297. Madoff refused to answer even basic questions about BMIS, leading OIS's own
internal memoranda to describe Madoff as secretive. Madoff thus refused to provide the
minimum level of transparency necessary to conduct reasonable due diligence. The lack of
transparency was even more suspicious in light of the fact that the Santander Defendants knew
that Optimal SUS was one of Madoff's largest investors.
298. Madoff s secrecy was exacerbated by the fact that Madoff family members
controlled key positions at BMIS, thus limiting third party involvement. Defendants knew about
this arrangement, yet ignored the risk it clearly represented.
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MIAMI, FLORIDA 33131-2158
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f. Madoffs Paper Trading Records
299. Madoff claimed that BMIS was technologically advanced. Yet, Madoff reported
his trades to Defendants using only paper confirmation forms which did not include the exact
time of the trade nor the exact price of each trade. Instead, the paper confirmations only
provided average prices for the transactions that had supposedly been executed each day. Based
on standard industry practice, the lack of access to real-time electronic reporting should have
raised significant concerns about Madoff. The use of delayed paper confirmations, which are
patently susceptible to manipulation, was yet another red flag ignored by Defendants.
g. Madoffs Consistent Returns
300. The impossible consistency of Madoff's reported results using the split strike
conversion strategy and the resulting investment returns was another warning sign. Among other
things: (1) Madoff generally reported that he bought near daily lows and sold near highs with
uncanny consistency; (2) Madoff reported trades at prices that were outside of the stocks' actual
trading ranges or took place on weekends, both of which are impossible; (3) Madoff always
claimed to be fully invested in U.S. Treasury bills at the end of each year; and (4) Madoff
reported results were inconsistent with the split strike conversion strategy, which might reduce
volatility but could not produce gains in a declining stock market. Madoff's reported results
were unattainable and not repeatable by others, yet the Santander Defendants ignored this
warning sign.
h. Madoffs Fee Structure
301. Equally suspicious was Madoff s fee structure, which was extremely unusual and
perhaps unique. A typical investment firm like BMIS charged two percent of assets annually,
plus twenty percent of profits. "Two-twenty, as this arrangement is commonly referred to in the
BANK OF AMERICA TOWER 88 WESTON CORPORATE CENTER
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100 SOUTHEAST 2ND STREET LASH &GOLDBERG,
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hedge fund world is the industry standard. On Optimal SUS's $3 billion investment with Madoff
in 2008, a "two-twenty" fee arrangement would have entitled Madoff to a $90 million fee,
assuming a low five percent annual return. Madoff did not charge any such fees and effectively
relinquished tens of millions of dollars every year. There was no explanation for this apparent
generosity.
302. Instead, Madoff supposedly charged a commission per trade. The fund auditors
reported that Madoff supposedly charged four cents a share on each trade. But if Madoff was not
charging for results, as a "two-twenty" fee structure does, and charged only for trading, Madoff
had an incentive to churn the account. This perverse incentive structure was a serious red flag.
5. Other Financial Institutions Did Not Ignore The Red Flags And
Refused To Deal With Madoff
303. Multiple other financial market participants reviewed Madoff s operations and
refused to invest in light of the high number of red flags. In 2007, hedge fund investment adviser
Aksia LLC ("Aksia") urged its clients not to invest in Madoff feeder funds after performing due
diligence on Madoff. Aksia identified the following concerns:
a. Madoff's auditor, F&H, was a three-person accounting firm located in a
13-by-18 foot office in New City, New York. A financial institution of the size of BMIS is
typically audited by a big-four accounting firm, or other larger and more reputable auditor. In
addition, while F&H purportedly audited BMIS, F&H filed annual forms with the AICPA
attesting that it had not performed audits for the past fifteen years;
b. The comptroller of BMIS was based in Bermuda. Most mainstream hedge
fund investment advisers have their comptroller in-house; and
c. BMIS had no outside clearing agent that could confirm its trading activity.
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MIAMI, FLORIDA 33131-2158
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304. Société Générale ("SocGen") also concluded that Madoff was not legitimate
after sending its own due diligence team to New York in 2003. As reported by The New York
Times on December 17, 2008, in an article entitled, European Banks Tally Losses Linked To
Fraud, SocGen's due diligence "was conducted by three people who visited Mr. Madoff s
headquarters in the red-granite skyscraper on Third Avenue in Manhattan." The bankers
concluded that "something wasn't right It's a strategy that can lose sometimes, but the
monthly returns were almost all positive."
305. Acorn Partners ("Acorn"), an investment advisory firm, also concluded that the
steadiness of the returns that Madoff reported did not make sense, and that the size of Madoff s
auditor raised serious concerns. According to Robert Rosenkranz, a principal at Acorn, "[o]ur
due diligence, which got into both account statements of his customers and the audited
statements of Madoff Securities which he filed with the SEC, made it seem highly likely that the
account statements themselves were just pieces of paper that were generated in connection with
some sort of fraudulent activity." (The New York Times, December 12, 2008, Look at Wall St.
Wizard Finds Magic Had Skeptics).
306. Jeffrey S. Thomas, chief investment officer at Atlantic Trust, which manages
$13.5 billion, said that on several occasions over the years it had "reviewed and declined to
invest with Madoff." In studying where to place its clients' funds, the firm said it spotted a
number of "red flags" in Madoff s operation. Chief among those was a lack of an outside firm to
handle trades and accounting for the funds, and the inability to document how Madoff made
profits.
BANK AMERICA TOWER
OF 90 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG.,
ATTORNEYS AT LAW
2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 305 347 4050 FAx
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6. Plaintiffs Lost Their Entire Investment In Optimal SUS And Part Of
Their Investment In Optimal Arbitrage
307. On December 12, 2008, Jaureguizar informed Plaintiffs' counsel that Santander had
exposure to the Madoff fraud.
308. On December 14, 2008, Santander Spain, S.A. issued a press release disclosing it
had €2.33 billion Euros exposure to the Madoff fraud in its Optimal Funds.
309. On December 17, 2008, Plaintiffs and Santander agreed to meet on January 5 and 6,
2009 at Santander Miami's office on Brickell Avenue. Plaintiffs' counsel and Jaureguizar worked
on an Excel spreadsheet to define the amount of the Madoff losses in Plaintiffs' accounts.
310. On January 5, 2009, Plaintiffs and their legal counsel met with Sanchez Castillo,
Jaureguizar, and Faraco at Santander Miami's offices. Sanchez Castillo, Jaureguizar and Faraco
confirmed at that time that Plaintiffs' investment in Optimal SUS was fully invested with Madoff.
Sanchez Castillo further informed Plaintiffs' counsel that Optimal Arbitrage had had up to ten
percent (10%) invested with Madoff, but that Santander had reduced its exposure to Madoff in the
Arbitrage fund to 1.3% prior to the fraud being revealed.
311. As a direct and proximate result of Defendants intentional, reckless and/or negligent
conduct, Plaintiffs suffered substantial losses.
312. Plaintiffs have been required to retain litigation counsel to represent them in this
matter and have incurred and will incur attorneys' fees and costs as a result thereof.
313. All conditions precedent to filing this action have occurred, been satisfied or were
waived.
BANK OF AMERICA TOWER 91 WESTON CORPORATE CENTER
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100 SOUTHEAST 2ND STREET LASH &GOLDBERG
ATI-ORNFYS AT LAW
Ur 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
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COUNT I
BREACH OF FIDUCIARY DUTY
AGAINST SANTANDER SPAIN, SANTANDER MIAMI, SANTANDER BAHAMAS,
SANCHEZ CASTILLO, AND JAUREGUIZAR
314. Plaintiffs repeat and reallege all the allegations in paragraphs 1 through 313 as if
fully set forth in this Count. This Count is asserted against Santander Spain, Santander Miami,
Santander Bahamas, Sanchez Castillo and Jaureguizar for breach of fiduciary duty.
315. Plaintiffs entrusted their assets to the defendants named in this count by investing
in Santander's proprietary Optimal Funds and other investments recommended and promoted by
the defendants, as well as other officers and employees of the defendants, including Echave,
Barron, Sanchez Castillo, and Reif, and reposed confidence in these entities and individuals with
respect to the management of those assets.
316. These entities and individuals were in a superior position as to the management of
the assets and investments they recommended, in their capacities as the Plaintiffs' account
custodian, its parent, the selling agents for the recommended investments, Plaintiffs' account
manager(s), and investment advisor(s). As a result, Plaintiffs placed their trust and confidence in
these entities and individuals.
317. Santander Miami, Santander Bahamas, Santander Spain, Echave, Sanchez
Castillo, Jaureguizar, Barron, and Reif accepted that repose of trust and confidence and held
themselves out as providing superior client investment services and knowledge, including,
without limitation, by:
a. having policies and procedures in place to ensure that sufficient
operational controls were in place to safeguard Plaintiffs' assets and that transactions would be
properly conducted and oversight provided;
BANK OF AMERICA TOWER 92 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,
ATTORNFYS AT IA\X
I I, 2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
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b. promoting their recommended investment plan and portfolio as being well
diversified, having low volatility, and transparency in accordance with Plaintiffs' stated
investment objectives and low risk tolerance;
c. accepting Plaintiffs requests for and providing investment proposals for
Plaintiffs' accounts at Santander Bahamas and other financial institutions, including CIBC,
knowing that Plaintiffs would not take any action without first receiving the advice and
recommendations of these defendants; and
d. representing that the Santander Entities and individuals provided "first
class" investment advisory services.
318. Plaintiffs reasonably and foreseeably trusted Santander Miami, Santander
Bahamas, Santander Spain, Sanchez Castillo, Jaureguizar, Echave, Barron, and Reif's purported
expertise and skill.
319. These entities and individuals therefore owed a fiduciary duty to Plaintiffs with
respect to the management, oversight, and protection of Plaintiffs' assets.
320. In accordance with their fiduciary duties to Plaintiffs, these entities and
individuals were obligated to:
a. deal fairly and honestly with the Plaintiffs;
b. act with loyalty and good faith towards Plaintiffs;
c. manage and operate Plaintiffs' investments exclusively for the best
interest of the Plaintiffs;
d. make recommendations and execute transactions in accordance with the
Plaintiffs' stated investment objectives and permissible degree of risk; and
BANK OF AMERICA TOWER 93 WESTON CORPORATE CENTER
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100 SOUTHEAST 2ND STREET LASH & OLDBERGL
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2500 WESTON ROAD
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e. oversee the investment of Plaintiffs' assets to confirm they were
maintained in a prudent and professional manner.
321. These entities and individuals breached their fiduciary duties to Plaintiffs as
alleged herein, including, but not limited by, among other things:
a. failing to act with reasonable care to ensure that the investment
opportunities presented to Plaintiffs were suitable and in accordance with Plaintiffs' investment
objectives and risk tolerance;
b. failing to make recommendations and to invest Plaintiffs' assets with
adequate diligence or monitoring;
c. failing to exercise the degree of prudence, diligence, and care expected of
financial professionals managing client funds and providing investment advice;
d. profiting and allowing their affiliates to unlawfully profit at the expense of
Plaintiffs;
e. engaging in transactions that were designed to and did result in a profit to
these entities at the expense of Plaintiffs;
f. failing to respond to Plaintiffs repeated requests for assistance in ensuring
that their investment portfolios conformed to Plaintiffs' stated investment objectives and
permissible degree of risk;
g. failing to disclose the true risks involved in the investment program
recommended and implemented by these defendants on behalf of Plaintiffs, including by failing
to provide Plaintiffs with prospectuses;
h. continuing to promote and recommend that Plaintiffs invest additional
funds in Optimal SUS and Arbitrage after they knew or reasonably should have known that
BANK OF AMERICA TOWER 94 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERGii,
All ORNEYS ATI AW
2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
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Madoff was engaged in fraudulent conduct such that any additional investments placed with
Madoff through Optimal SUS and Arbitrage would further expose Plaintiffs to the fraud; and
i. failing to provide competent and timely investment advice to Plaintiffs
despite their repeated requests for such advice.
322. As a direct and proximate result of Santander Miami, Santander Bahamas,
Santander Spain, Sanchez Castillo, Jaureguizar, Echave, Barron, and Reif s breaches of their
fiduciary duties, the Plaintiffs have suffered losses in the value of their investment portfolios far
in excess of any losses they would have suffered had these defendants not breached their
fiduciary duties to Plaintiffs in the performance of their responsibilities and have been precluded
from participating in the post March 2009 market rally because of Santander's decision to
liquidate its Optimal funds due to the mass exodus of clients from these funds.
323. As a direct and proximate result of Santander Miami, Santander Bahamas,
Sanchez Castillo, Jaureguizar, Echave, Barron and Reif's breaches of their fiduciary duties, the
Plaintiffs were forced to pay excessive investment, performance, and management fees in
exchange for investment services that were never provided or which were provided in a reckless,
grossly negligent and/or negligent manner.
324. Santander Spain is also liable for the breach of fiduciary duty by Santander Miami
and Santander Bahamas pursuant to the doctrine of respondeat superior based on Santander
Spain's ability and authority (as the parent of these wholly-owned entities) to control and direct
Santander Miami and Santander Bahamas and by virtue of having controlled and directed them
and having benefitted from their conduct and by having used its subsidiaries for the improper
purpose of funneling Plaintiffs and other investors' assets into the Madoff Ponzi scheme from
which Santander received substantial fees.
BANK OFAMERICA TOWER 95 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG
A1TORNE7 AT LA\C
i, l' 2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 27 of 70
CASE NO.
325. Santander Miami is also liable for the breach of fiduciary duty by Sanchez
Castillo, Jaureguizar, Javier Echave, Miguel Barron and Sandra Reif pursuant to the doctrine of
respondeat superior based on these individuals positions as officers, employees and agents of
Santander Miami whose actions were done in furtherance and for the benefit of the interests of
Santander Miami.
326. Plaintiffs suffered damages in an amount to be determined at trial as a direct and
foreseeable result, proximately caused by these entities and individuals' breaches of their
fiduciary duties to Plaintiffs in an amount to be determined at trial.
327. By reason of the foregoing, Santander Miami, Santander Bahamas, Santander
Spain, Sanchez Castillo, and Jaureguizar are jointly and severally liable to Plaintiffs.
COUNT II
GROSS NEGLIGENCE
AGAINST SANTANDER SPAIN, SANTANDER MIAMI, SANTANDER BAHAMAS,
SANCHEZ CASTILLO, AND JAUREGUIZAR
328. Plaintiffs repeat and reallege all the allegations in paragraphs 1 through 313 as if
fully set forth in this Count. This Count is asserted against Santander Spain, Santander Miami,
Santander Bahamas, Sanchez Castillo and Jaureguizar for gross negligence.
329. Santander Miami, Santander Bahamas, Santander Spain, Sanchez Castillo,
Jaureguizar, Echave, Barron and Reif had a special relationship with Plaintiffs that gave rise to a
duty to exercise due care in the management of Plaintiffs' assets as Plaintiffs' investment
managers, advisors and custodian.
330. This special relationship arose from, among other things, Santander Miami,
Santander Bahamas, Sanchez Castillo, Jaureguizar, Echave, Barron and Reif's agreement that
they would exercise the requisite level of care in selecting and monitoring Plaintiffs'
RANK AMERICA TOWER
OF 96 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG.
ATTORNEYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 3B3I
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 28 of 70
CASE NO.
investments, and recommending and implementing investments on Plaintiffs' behalf in
accordance with Plaintiffs' stated objectives and risk tolerance.
331. Santander Miami, Santander Bahamas, Sanchez Castillo, Jaureguizar, Echave,
Barron and Reif grossly failed to exercise due care, and acted in disregard of their duties, and
thereby injured Plaintiffs.
332. Santander Miami, Santander Bahamas, Sanchez Castillo, Jaureguizar, Echave,
Barron and Reif grossly failed to exercise the degree of prudence, caution, and good business
practice that would be expected of any reasonable investment professional.
333. Santander Miami, Santander Bahamas, Sanchez Castillo, Jaureguizar, Echave,
Barron and Reif were grossly negligent by, among other things:
a. failing to act with reasonable care to ensure that the investment
opportunities presented to Plaintiffs were suitable and in accordance with Plaintiffs' investment
objectives and risk tolerance;
b. failing to make recommendations and to invest Plaintiffs' assets with
adequate diligence or monitoring;
c. failing to exercise the degree of prudence, diligence, and care expected of
financial professionals managing client funds and providing investment advice;
d. profiting and allowing their affiliates to unlawfully profit at the expense of
Plaintiffs;
e. engaging in transactions that were designed to and did result in a profit to
these entities at the expense of Plaintiffs;
BANK AMERICA TOWER
OF 97 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG
ATTORNEYS AT LAW
a, 2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 303 347 4050 FAX WWW.lashgoldherg.com 954 384 2.500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 29 of 70
CASE NO.
f. failing to respond to Plaintiffs repeated requests for assistance in ensuring
that their investment portfolios conformed to Plaintiffs' stated investment objectives and
permissible degree of risk;
g. failing to disclose the true risks involved in the investment program
recommended and implemented by these defendants on behalf of Plaintiffs, including by failing
to provide Plaintiffs with prospectuses;
h. continuing to promote and recommend that Plaintiffs invest additional
funds in Optimal SUS and Arbitrage after they knew or reasonably should have known that
Madoff was engaged in fraudulent conduct such that any additional investments placed with
Madoff through Optimal SUS and Arbitrage would further expose Plaintiffs to the fraud;
i. and failing to provide competent and timely investment advice to Plaintiffs
despite their repeated requests for such advice.
334. As a direct and proximate result of Santander Miami, Santander Bahamas,
Sanchez Castillo, Jaureguizar, Echave, Barron and Reif's gross negligence, Plaintiffs have
suffered losses in the value of their investment portfolios far in excess of any losses they would
have suffered had these defendants not acted with gross negligence in the performance of their
responsibilities. In addition, Plaintiffs have been precluded from participating in the post March
2009 market rally because of Santander's decision to liquidate its Optimal funds due to the mass
exodus of clients from these funds.
335. As a direct and proximate result of Santander Miami, Santander Bahamas,
Sanchez Castillo, Jaureguizar, Echave, Barron and Reif's gross negligence, Plaintiffs were
forced to pay excessive investment, performance, and management fees in exchange for
BANK OFAMERICA TOWER 98 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,
ATI, giNEYS AT LAW
2500 WESTON ROAD
Fr. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 305 347 4050 FAX www.lashgoldherg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 30 of 70
CASE NO.
investment services that were never provided or which were provided in a reckless, grossly
negligent and/or negligent manner.
336. Santander Spain is also liable for the gross negligence of Santander Miami and
Santander Bahamas pursuant to the doctrine of respondeat superior based on Santander Spain's
ability and authority (as the parent of these wholly-owned entities) to control and direct
Santander Miami and Santander Bahamas and by virtue of having controlled and directed them
and by having used its subsidiaries for the improper purpose of funneling Plaintiffs' assets into
the Madoff Ponzi scheme from which Santander received substantial fees.
337. Santander Miami is also liable for the gross negligence of Sanchez Castillo,
Jaureguizar, Echave, Barron and Reif pursuant to the doctrine of respondeat superior based on
these individuals positions as officers, employees and agents of Santander Miami whose actions
were done in furtherance and for benefit of the interests of Santander Miami.
338. By reason of the foregoing, Santander Miami, Santander Bahamas, Santander
Spain, Sanchez Castillo and Jaureguizar are jointly and severally liable to Plaintiffs in an amount
to be determined at trial.
COUNT III
NEGLIGENCE AGAINST SANTANDER SPAIN, SANTANDER MIAMI,
SANTANDER BAHAMAS, SANCHEZ CASTILLO, AND JAUREGUIZAR
339. Plaintiffs repeat and reallege all the allegations in paragraphs 1 through 313 as if
fully set forth in this Count. This Count is asserted against Santander Spain, Santander Miami,
Santander Bahamas, Sanchez Castillo and Jaureguizar for gross negligence.
340. Santander Miami, Santander Bahamas, Santander Spain, Sanchez Castillo,
Jaureguizar, Echave, Barron and Reif had a special relationship with Plaintiffs that gave rise to a
BANK AMERICA TOWER
OF 99 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG
ATTORNEYS AT LAW
LII 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAx
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 31 of 70
CASE NO.
duty to exercise due care in the management of Plaintiffs' assets as Plaintiffs' investment
managers, advisors and custodian.
341. This special relationship arose from, among other things, Santander Miami,
Santander Bahamas, Sanchez Castillo, Jaureguizar, Echave, Barron and Reif's agreement that
they would exercise the requisite level of care in selecting and monitoring Plaintiffs'
investments, and recommending and implementing investments on Plaintiffs' behalf in
accordance with Plaintiffs' stated objectives and risk tolerance.
342. Santander Miami, Santander Bahamas, Sanchez Castillo, Jaureguizar, Echave,
Barron and Reif failed to exercise due care, and acted in disregard of their duties, and thereby
injured Plaintiffs.
343. Santander Miami, Santander Bahamas, Sanchez Castillo, Jaureguizar, Echave,
Barron and Reif failed to exercise the degree of prudence, caution, and good business practice
that would be expected of any reasonable investment professional.
344. Santander Miami, Santander Bahamas, Sanchez Castillo, Jaureguizar, Echave,
Barron and Reif were negligent by:
a. failing to act with reasonable care to ensure that the investment
opportunities presented to Plaintiffs were suitable and in accordance with Plaintiffs' investment
objectives and risk tolerance;
b. failing to make recommendations and to invest Plaintiffs' assets with
adequate diligence or monitoring;
c. failing to exercise the degree of prudence, diligence, and care expected of
financial professionals managing client funds and providing investment advice;
BANK OF AMERICA TOWER 100 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,
ATTORNFYS AT LAW
iP 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAx
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 32 of 70
CASE NO.
d. profiting and allowing their affiliates to unlawfully profit at the expense of
Plaintiffs;
e. engaging in transactions that were designed to and did result in a profit to
these entities at the expense of Plaintiffs;
f. failing to respond to Plaintiffs repeated requests for assistance in ensuring
that their investment portfolios conformed to Plaintiffs' stated investment objectives and
permissible degree of risk;
g. failing to disclose the true risks involved in the investment program
recommended and implemented by these defendants on behalf of Plaintiffs, including by failing
to provide Plaintiffs with prospectuses;
h. continuing to promote and recommend that Plaintiffs invest additional
funds in Optimal SUS and Arbitrage after they knew or reasonably should have known that
Madoff was engaged in fraudulent conduct such that any additional investments placed with
Madoff through Optimal SUS and Arbitrage would further expose Plaintiffs to the fraud; and
i. failing to provide competent and timely investment advice to Plaintiffs
despite their repeated requests for such advice.
345. As a direct and proximate result of Santander Miami, Santander Bahamas,
Sanchez Castillo, Jaureguizar, Echave, Barron and Reif' s negligence, Plaintiffs have suffered
losses in the value of their investment portfolios far in excess of any losses they would have
suffered had these defendants not acted with gross negligence in the performance of their
responsibilities. In addition, Plaintiffs have been precluded from participating in the post March
2009 market rally because of Santander's decision to liquidate its Optimal funds due to the mass
exodus of clients from these funds.
BANK OFAMERICA TOWER 101 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG'
ATFORNEYS AT LAW
LI 2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 33 of 70
CASE NO.
346. As a direct and proximate result of Santander Miami, Santander Bahamas,
Sanchez Castillo, Jaureguizar, Echave, Barron and Reif's negligence, Plaintiffs were forced to
pay excessive investment, performance, and management fees in exchange for investment
services that were never provided or which were provided in a reckless, grossly negligent and/or
negligent manner.
347. Santander Spain is also liable for the negligence of Santander Miami and
Santander Bahamas pursuant to the doctrine of respondeat superior based on Santander Spain's
ability and authority (as the parent of these wholly-owned entities) to control and direct
Santander Miami and Santander Bahamas and by virtue of having controlled and directed them
and by having used its subsidiaries for the improper purpose of funneling Plaintiffs' assets into
the Madoff Ponzi scheme from which Santander received substantial fees.
348. Santander Miami is also liable for the negligence of Sanchez Castillo,
Jaureguizar, Echave, Barron and Reif pursuant to the doctrine of respondeat superior based on
these individuals positions as officers, employees and agents of Santander Miami whose actions
were done in furtherance and for benefit of the interests of Santander Miami.
349. By reason of the foregoing, Santander Miami, Santander Bahamas, Santander
Spain, Sanchez Castillo and Jaureguizar are jointly and severally liable to Plaintiffs in an amount
to be determined at trial.
COUNT IV
BREACH OF FIDUCIARY DUTY AGAINST OIS, ECHEVERRIA,
AND SANTANDER SPAIN
350. Plaintiffs repeat and reallege all the allegations in paragraphs 1 through 313 as if
fully set forth in this Count. This Count is asserted against OIS, Echeverria and Santander Spain
for breach of fiduciary duty.
BANK AMERICA TOWER
OF 102 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
mo SOUTHEAST 2ND STREET LASH & OLDBERGIII
ATTORNEYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 34 of 70
CASE NO.
351. Plaintiffs entrusted their assets to OIS, Echeverria, and Santander Spain, by
investing in the Optimal Funds and reposed confidence in OIS, Echeverria, and Santander Spain
with respect to the management of those assets.
352. OIS was in a superior position as to the management and control of the assets and
investments they recommended, in its capacity as the Investment Manager and selling agent of
the Optimal Funds and was in a superior position to manage, control, and oversee Madoff and
BMIS.
353. Echeverria was in a superior position as to the management and control of
Plaintiffs' assets, in his capacity as a director and/or officer of the Optimal Funds and/or OIS and
was in a superior position to manage, control, and oversee Madoff and BMIS.
354. OIS, Echeverria, and Santander Spain accepted that repose of trust and confidence
and held themselves out as providing superior client investment services and as having policies
and procedures in place to ensure that:
a. the Broker-Dealer for Optimal SUS (i.e., Madoff) would follow Optimal
SUS' s policies and investment guidelines;
b. sufficient operational controls were in place to safeguard Plaintiffs' assets;
c. transactions would be properly conducted in accordance with applicable
federal and state laws and regulations; and
d. OIS would follow its own policies and investment guidelines and due
diligence requirements.
355. OIS, Echeverria, and Santander Spain further accepted that repose of trust and
confidence and held themselves out and represented their services in the following manner:
BANK OFAMERICA TOWER 103 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG
ATTORNEYS AT LAW
LII 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAx
WWw.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 35 of 70
CASE NO.
a. OIS was the Investment Manager of the Optimal Funds, which provided
"management and investment advisory" services to the Optimal Funds as required by an
"investment management agreement" with the Optimal Funds (the "Investment Management
Agreement");
b. OIS, as the Investment Manager, made all investment decisions for
Optimal SUS as follows:
All decisions with respect to the general management of the fund
[Optimal SUS] are made by the Investment Manager [Optimal
Investment] who has complete authority and discretion in the
management and control of the business of the fund, including the
authority to delegate all investment management activities to any
selected investment advisor and/or Broker Dealer.... As a result,
the success of the fund for the foreseeable future will depend
largely upon the ability of the Investment Manager, and no
person should invest in the fund unless willing to entrust all
aspects of the management of the fund to the Investment Manager,
having evaluated their capability to perform such functions.
(Emphasis supplied.)
Although the Broker-Dealer has limited investment discretion as to
the selection of securities or other property purchased or sold by or
for the fund's [Optimal SUS' s] account, the Broker-Dealer has
discretion with respect to the timing and size of transactions....
356. OIS, Echeverria, and Santander Spain accepted that repose of trust and confidence
by holding themselves out experienced and professional asset and fund managers and agreeing to
exercise the requisite level of care in selecting and monitoring investment managers to whom
they entrusted the investment assets of Optimal SUS and Optimal Arbitrage, stating, among
other things:
BANK OFAMERICA TOWER 104 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
mo SOUTHEAST 2ND STREET LASH &GOLDBERG
ATTOR NEYS AT LAW
LI P 2.500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 36 of 70
CASE NO.
a. "It is the [Optimal] Fund's task to select and diversify among the
distinctive investment techniques and strategies of each portfolio manager to achieve the Fund's
investment objectives;"
b. "[Optimal Investment] specialises in advising multi-manager and multi-
strategy portfolios;"
c. "The Investment Manager [Optimal Investment] shall select managers
with varied investment styles who have established records of success or who the Investment
Manager believes demonstrate the potential to become outstanding investment managers;"
d. "The Investment Manager [Optimal Investment] bases its investment
decisions on a careful analysis of many investment managers;" and
e. "The [Optimal] Fund must satisfy itself to ensure that such third party has
and maintains the necessary competence, standing and expertise appropriate to hold the assets
concerned."
357. Plaintiffs reasonably and foreseeably trusted OIS, Echeverria, and Santander
Spain's purported expertise and skill.
358. OIS, Echeverria, and Santander Spain therefore owed a fiduciary duty to Plaintiffs
with respect to the management, oversight, and protection of Plaintiffs' assets invested in the
Optimal Funds.
359. In accordance with their fiduciary duties to Plaintiffs, these entities and
individuals were obligated to:
a. deal fairly and honestly with the Plaintiffs;
b. act with loyalty and good faith towards Plaintiffs;
BANK OFAMERICA TOWER 105 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG
ATTORNEYS AT LAW
LI I 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 37 of 70
CASE NO.
c. manage and operate Plaintiffs' investments exclusively for the best
interest of the Plaintiffs;
d. make recommendations and execute transactions in accordance with the
Plaintiffs' stated investment objectives and permissible degree of risk; and
e. oversee the investment of Plaintiffs' assets to confirm they were
maintained in a prudent and professional manner.
360. OIS, Echeverria, and Santander Spain breached their fiduciary duties to Plaintiffs
by, among other things:
a. failing to ensure that adequate due diligence had been conducted,
including following OIS's own internal due diligence protocols, before allowing Madoff to serve
as the Broker-Dealer for Optimal SUS;
b. failing to ensure that the investment of Plaintiffs' assets was done with
adequate diligence or monitoring;
c. failing to ensure the monitoring of Madoff on an ongoing basis to any
reasonable degree, or the compliance with OIS' own internal protocols for monitoring the
Optimal Funds' assets entrusted to Madoff;
d. failing to ensure that adequate steps had been taken to confirm BMIS's
purported account statements, transactions, and holdings of the Optimal Funds' assets;
e. failing to exercise the degree of prudence, diligence, and care expected of
financial professionals managing client funds;
f. profiting at the expense of Plaintiffs; and
g. engaging in transactions that were designed to and did result in a profit to
OIS, Echeverria, and Santander Spain at Plaintiffs' expense.
BANK OF AMERICA TOWER 106 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,
ATTORNEYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 38 of 70
CASE NO.
361. As a direct and proximate result of OIS, Echeverria, and Santander Spain's
breaches of their fiduciary duties, Plaintiffs have lost all, or substantially all, of their investments
in the Optimal SUS Fund and a portion of the principal amount of their investments in the
Optimal Arbitrage Fund.
362. As a direct and proximate result of OIS, Echeverria, and Santander Spain's
breaches of their fiduciary duties, Plaintiffs, have been forced to pay excessive investment,
performance and management fees in exchange for investment services that were promised but
never provided.
363. OIS is also liable for its officers, directors, employees and agents' misconduct,
including that of Echeverria, Wilkinson and Inder Rieden, pursuant to the doctrine of respondeat
superior based on these individuals' positions as officers, employees and agents of OIS whose
actions were done in furtherance and for the benefit of the interests of OIS.
364. Santander Spain is also liable for the breach of fiduciary duty by OIS, pursuant to
the doctrine of respondeat superior based on Santander Spain's ability and authority (as the
parent of these wholly-owned entities) to control and direct OIS and by virtue of having
controlled and directed it and by having used its subsidiary for the improper purpose of funneling
Plaintiffs and other investors' assets into the Madoff Ponzi scheme from which Santander
received substantial fees.
365. Plaintiffs suffered damages as a direct and foreseeable result, proximately caused
by OIS, Echeverria, and Santander Spain's breaches of their fiduciary duties in an amount to be
determined at trial.
366. By reason of the foregoing, Santander Spain, OIS, and Echeverria are jointly and
severally liable to Plaintiffs.
BANK OF AMERICA TOWER 107 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH & OLDBERGII
ATTORNEYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAx
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 39 of 70
CASE NO.
COUNT V
GROSS NEGLIGENCE AGAINST OIS, ECHEVERRiA
AND SANTANDER SPAIN
367. Plaintiffs repeat and reallege all the allegations in paragraphs 1 through 313 as if
fully set forth in this Count. This Count is asserted against OIS, Echeverria, and Santander Spain
for gross negligence.
368. OIS, Echeverria, and Santander Spain had a special relationship with Plaintiffs that
gave rise to a duty to exercise due care in the management of Plaintiffs' assets invested in the
Optimal Funds and in the selection and monitoring of the Broker-Dealer for Optimal SUS.
369. This special relationship arose from, among other things, the following:
a. The Broker-Dealer was responsible for executing trading activities on
behalf of Optimal SUS under the direction of OIS as indicated by the following statements made
by or on behalf of OIS:
i. "The [Optimal] Fund and Optimal SUS have delegated the
execution of all investment management decisions with regard to Optimal SUS to the Broker-
Dealer;" and
"The Irwestment Manager [OIS] has delegated the execution of the
trading strategy of the fund to the Broker-Dealer and the overall success of the fund depends
upon the ability of the Broker-Dealer to be successful in the fund's strategy;"
370. OIS, Echeverria, and Santander Spain agreed that they would exercise the requisite
level of care in selecting and monitoring investment managers to whom they entrusted the
investment assets of Optimal SUS, stating, for example:
BANK AMERICA TOWER
OF 108 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
ioo SOUTHEAST 2ND STREET
FLORIDA
MIAMI0111, ATI-F, AT LAW
LASH &GOLDBERG lAt 2500 WESTON ROAD
131158 FT.
J
LAUDERDALE, FLORIDA 33331
33-2305
347 4040 305 347 4050 FAX
WwW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 40 of 70
CASE NO.
a. "It is the [Optimal] Fund's task to select and diversify among the
distinctive investment techniques and strategies of each portfolio manager to achieve the Fund's
investment objectives;"
b. "[OIS] specialises in advising multi-manager and multi-strategy
portfolios;"
c. "The Investment Manager [OIS] shall select managers with varied
investment styles who have established records of success or who the Investment Manager
believes demonstrate the potential to become outstanding investment managers;"
d. "The Investment Manager [OIS] bases its investment decisions on a
careful analysis of many investment managers;" and
e. "The [Optimal] Fund must satisfy itself to ensure that such third party has
and maintains the necessary competence, standing and expertise appropriate to hold the assets
concerned."
371. OIS, Echeverria, and Santander Spain grossly failed to exercise due care, and
acted in disregard of their duties, and thereby injured Plaintiffs.
372. OIS, Echeverria, and Santander Spain grossly failed to exercise the degree of
prudence, caution, and good business practice that would be expected of any reasonable
investment professional.
373. OIS, Echeverria, and Santander Spain grossly failed to:
a. perform necessary and adequate due diligence, before allowing Madoff to
serve as the Broker-Dealer for Optimal;
b. monitor Madoff on an ongoing basis to any reasonable degree;
BANK OFAMERICA TOWER 109 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET
MIAMIFLORIDA 33131158
LASH (StGOLDBERG
41-1,)1.NFY, Al I Mlz
2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331-
-2305
347 4040 30 5 347 4050 FAX
www.lashgoldherg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 41 of 70
CASE NO.
c. take adequate steps to confirm Madoff's purported account statements,
transactions and holdings of the Optimal Funds' assets;
d. take reasonable steps to ensure that the investment of the assets of
Plaintiffs were made and maintained in a prudent and professional manner;
e. take reasonable steps to preserve the value of Plaintiffs' investments;
f. and exercise generally the degree of prudence, caution, and good business
practices that would be expected of any reasonable investment professional.
374. If OIS, Echeverria, and Santander Spain had not been grossly negligent with
respect to Plaintiffs' assets invested in the Optimal Funds, they would not have entrusted
Plaintiffs' assets invested in the Optimal Funds to Madoff.
375. OIS is also liable for its officers, directors, employees and agents' gross
negligence, including that of Echeverria, Wilkinson and Inder Rieden, pursuant to the doctrine of
respondeat superior based on these individuals' positions as officers, employees and agents of
OIS whose actions were done in furtherance and for the benefit of the interests of OIS.
376. Santander Spain is also liable for the gross negligence of OIS pursuant to the
doctrine of respondeat superior based on Santander Spain's ability and authority (as the parent
of this wholly-owned subsidiary) to control and direct OIS and by virtue of having controlled
and directed it and by having used its subsidiary for the improper purpose of funneling Plaintiffs
and other investors' assets into the Madoff Ponzi scheme from which Santander received
substantial fees.
377. As a direct and proximate result of OIS, Echeverria, and Santander Spain's gross
negligence, Plaintiffs have lost all, or substantially all, of their investments in the Optimal SUS
fund and a portion of the principal amount of their investments in the Optimal Arbitrage fund.
BANK OF AMERICA TOWER 110 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
TOO SOUTHEAST 2ND &FREE. I, LASH &GOLDBERG,
TT TI AW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldherg.com 954 384 2500 954 384 2510 FAX
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CASE NO.
378. As a direct and proximate result of OIS, Echeverria, and Santander Spain's gross
negligence, Plaintiffs have been forced to pay excessive investment, performance and
management fees in exchange for investment services that were promised, but never provided.
379. Plaintiffs suffered damages as a direct and foreseeable result, proximately caused
by OIS, Echeverria, and Santander Spain's gross negligence in an amount to be determined at
trial.
380. By reason of the foregoing, Santander Spain, OIS and Echeverria are jointly and
severally liable to Plaintiffs.
COUNT VI
NEGLIGENCE AGAINST OIS, ECHEVERRiA
AND SANTANDER SPAIN
381. Plaintiffs repeat and reallege all the allegations in paragraphs 1 through 313 as if
fully set forth in this Count. This Count is asserted against OIS, Echeverria, and Santander Spain
for negligence.
382. OIS, Echeverria, and Santander Spain had a special relationship with Plaintiffs that
gave rise to a duty to exercise due care in the management of Plaintiffs' assets invested in the
Optimal Funds and in the selection and monitoring of the Broker-Dealer for Optimal SUS.
383. This special relationship arose from, among other things, the following:
a. the Broker-Dealer was responsible for executing trading activities on
behalf of Optimal SUS under the direction of OIS as indicated by the following as indicated by
the following statements made by or on behalf of OIS:
i. "The [Optimal] Fund and Optimal SUS have delegated the
execution of all investment management decisions with regard to Optimal SUS to the Broker-
Dealer;" and
BANK OF AMERICA TOWER 111 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG
ATiORNIA, AT LAW
LLP 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAx
WWW.lashgoldherg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 43 of 70
CASE NO.
"The Investment Manager [OIS] has delegated the execution of the
trading strategy of the fund to the Broker-Dealer and the overall success of the fund depends
upon the ability of the Broker-Dealer to be successful in the fund's strategy."
b. OIS, Echeverria, and Santander Spain agreed that they would exercise the
requisite level of care in selecting and monitoring investment managers to whom they entrusted
the investment assets of Optimal SUS, stating, for example:
i. "It is the [Optimal] Fund's task to select and diversify among the
distinctive investment techniques and strategies of each portfolio manager to achieve the Fund's
investment objectives;"
"[OIS] specialises in advising multi-manager and multi-strategy
portfolios;"
"The Investment Manager [OIS] shall select managers with varied
investment styles who have established records of success or who the Investment Manager
believes demonstrate the potential to become outstanding investment managers;"
iv. "The Investment Manager [OIS] bases its investment decisions on
a careful analysis of many investment managers;" and
v. "The [Optimal] Fund must satisfy itself to ensure that such third
party has and maintains the necessary competence, standing and expertise appropriate to hold the
assets concerned."
384. OIS, Echeverria, and Santander Spain failed to exercise due care, acted in
disregard of their duties, and thereby injured Plaintiffs.
BANK OFAMERICA TOWER 112 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERGI,
AFIVI2NI,1, AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 44 of 70
CASE NO.
385. OIS, Echeverria, and Santander Spain failed to exercise the degree of prudence,
caution, and good business practice that would be expected of any reasonable investment
professional.
386. OIS, Echeverria, and Santander Spain failed to:
a. perform necessary and adequate due diligence, before allowing Madoff to
serve as the Broker-Dealer for Optimal;
b. monitor Madoff on an ongoing basis to any reasonable degree;
c. take adequate steps to confirm Madoff's purported account statements,
transactions and holdings of the Optimal Funds' assets;
d. take reasonable steps to ensure that the investment of the assets of
Plaintiffs were made and maintained in a prudent and professional manner;
e. take reasonable steps to preserve the value of Plaintiffs' investments; and
f. exercise generally the degree of prudence, caution, and good business
practices that would be expected of any reasonable investment professional.
387. If OIS, Echeverria, and Santander Spain had not been negligent with respect to
Plaintiffs' assets invested in the Optimal Funds, they would not have entrusted Plaintiffs' assets
invested in the Optimal Funds to Madoff.
388. OIS is also liable for its officers, directors, employees and agents' negligence,
including that of Echeverria, Wilkinson and Inder Rieden, pursuant to the doctrine of respondeat
superior based on these individuals' positions as officers, directors, employees and agents of OIS
whose actions were done in furtherance and for the benefit of the interests of OIS.
389. Santander Spain is also liable for the negligence of OIS pursuant to the doctrine of
respondeat superior based on Santander Spain's ability and authority (as the parent of this
BANK OF AMERICA TOWER 113 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG.,
ATTORNEY; AT LAW
2500 WESTON ROAD
MIAMI, FI, ORIDA 3313i-2158 Pr. LAUDERDALE, FLORIDA 33331
303 347 4040 305 347 4050 FAX wWW.I ashgoldberg.conn 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 45 of 70
CASE NO.
wholly-owned subsidiary) to control and direct OIS and by virtue of having controlled and
directed it and by having used its subsidiary for the improper purpose of funneling Plaintiffs and
other investors' assets into the Madoff Ponzi scheme from which Santander received substantial
fees.
390. As a result of OIS, Echeverria, and Santander Spain's negligence, Plaintiffs have
lost all, or substantially all, of their investments in the Optimal SUS fund and a portion of the
principal amount of their investments in the Optimal Arbitrage fund.
391. As a result of OIS, Echeverria, and Santander Spain's negligence, Plaintiffs, have
been forced to pay excessive investment, performance and management fees in exchange for
investment services that were promised but never provided.
392. Plaintiffs suffered damages as a direct and foreseeable result, proximately caused
by OIS, Echeverria, and Santander Spain's negligence in an amount to be determined at trial.
393. By reason of the foregoing, Santander Spain, OIS and Echeverria are jointly and
severally liable to Plaintiffs.
COUNT VII
(In the Alternative)
UNJUST ENRICHMENT AGAINST OIS, SANTANDER MIAMI
AND SANTANDER BAHAMAS
394. Plaintiffs repeat and reallege all the allegations in paragraphs 1 through 313 as if
fully set forth in this Count. This Count is asserted against OIS, Santander Miami, and
Santander Bahamas for unjust enrichment.
395. Plaintiffs base their unjust enrichment claim on the receipt or retention of fees and
other monies that these defendants obtained at the expense of Plaintiffs, and to which these
entities were not entitled, including, but not limited to, as specified in the EMs, which provided
as follows with respect to Optimal SUS:
BANK OF AMERICA TOWER 114 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND S'EREEF LASH &GOLDBERG
ATTORNEYS AT LAW
iI P 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldherg.com 954 384 2.500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 46 of 70
CASE NO.
Optimal SUS shall pay the Investment Manager an investment
management fee calculated monthly and payable quarterly in
arrears on the last Business Day of each quarter with respect to
each Class, equal to (in respect of each month) a maximum of one-
twelfth of 2.15% of the net asset value of the shares for the month
for the Class A USD Shares A EUR Shares and (in respect of each
month) one-twelfth of 1.65% of the net asset value of the shares
for the month for the Class B USD Shares B EUR and (in respect
of each month) one-twelfth of 1.15% of the net asset value of the
shares for the month for the Class C USD Shares.
396. Plaintiffs also base their unjust enrichment claim on the receipt or retention of
fees and other monies that these defendants obtained at the expense of Plaintiffs, and to which
these defendants were not entitled, including, as specified in the EMs, which provided as follows
with respect to Optimal Arbitrage:
Optimal Arbitrage shall pay the Investment Manager an investment
management fee calculated monthly and payable quarterly in
arrears on the last Business Day of each quarter with respect to
each Class, equal to (in respect of each month) a maximum of one-
twelfth of 2.15% of the net asset value of the shares for the month
for the Class A USD Shares A EUR Shares, the Class A CHF
Shares A JPY Shares and (in respect of each month) one-twelfth
of 1.65% of the net asset value of the shares for the month for the
Class B USD Shares B EUR Shares.
397. Plaintiffs further base their unjust enrichment claim on the receipt or retention of
commissions and other monies that Santander Miami and/or Santander Bahamas charged
Plaintiffs at the time of investment in Optimal SUS and Optimal Arbitrage, and to which
Santander Miami and Santander Bahamas were not entitled, including, but not limited to the
commissions authorized in the October 2006 EM and subsequent EMs, as follows: "A
Subscription fee (sales charge) and redemption fee of up to 5% of the subscription
price/redemption price may be charged to shareholders who subscribe for/redeem their
shareholdings in the Funds (for the benefit of the Investment Manager or any distributor
appointed to the Company)."
BANK OF AMERICA TOWER 115 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
too SOUTHEAST 2ND STREET
MIAMIFLORIDA
LAS H &GOLDBERG,,,
ATTOINEY, AT I AW
2500 WESTON ROAD
158 FT. LAUDERDALE, FLORIDA 33331
3313i-2305
347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 47 of 70
CASE NO.
398. OIS, Santander Miami, and Santander Bahamas were enriched at the expense of
Plaintiffs, including by taking Plaintiffs' monies in the form of commissions and other fees for
their purported management of Plaintiffs' investment, and the purported, but in fact non-existent,
capital appreciation of such assets.
399. Plaintiffs involuntarily conferred a benefit upon OIS, Santander Miami, and
Santander Bahamas without Plaintiffs receiving a benefit or compensation in return. OIS,
Santander Miami, and Santander Bahamas knowingly accepted this benefit and retained the
benefit under inequitable circumstances.
400. Equity and good conscience require OIS, Santander Miami, and Santander
Bahamas to refund all fees and other monies they received at Plaintiffs' expense in connection
with Plaintiffs' investments in Optimal SUS and Arbitrage.
401. Plaintiffs have no adequate remedy at law to address their losses as alleged herein.
COUNT VIII
PURSUANT TO FLORIDA STATUTE SECTIONS 517.301 AND 517.211
AGAINST SANTANDER MIAMI, SANTANDER BAHAMAS, OIS,
SANCHEZ CASTILLO, AND JAUREGUIZAR
RELATED TO MADOFF INVESTMENTS
402. Plaintiffs repeat and reallege all the allegations in paragraphs 1 through 313 as if
fully set forth in this Count. This Count is asserted against Santander Miami, Santander
Bahamas, OIS, Sanchez Castillo and Jaureguizar.
403. Defendants subject to this Count negligently, recklessly or knowingly made
various deceptive and untrue statements of material facts and omitted to state material facts
necessary in order to make the statements made, in light of the circumstances under which they
were made, not misleading to the Plaintiffs.
BANK AMERICA TOWER
OF 116 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOI.Mi EAST 2ND STREET LASH & OLDBERGLLI
ATTO!LNElS AT LAW
2500 WESTON ROAD
MIAMI, F1DRIDA 33131-2158 FT. LAUDERDAIT, FLORIDA 33331
305 347 4040 305 347 4050 FAX www.lashgoldberg.com 954 324 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 48 of 70
CASE NO.
404. The purpose and effect of said false and misleading statements and omissions
was, among other things, to induce the Plaintiffs to purchase shares in Optimal Arbitrage and
Optimal SUS.
405. Defendants subject to this count either directly or through their officers,
employees or agents, offered to sell and sold Optimal SUS and Optimal Arbitration funds to
Plaintiffs from Santander Miami's office in Miami, Florida, and Plaintiffs accepted the offer by
delivering their order confirmations for the purchase of the Optimal SUS and Optimal
Arbitration funds to Santander Miami's office in Miami, Florida. Defendants then directed the
completion or completed the transactions from Santander Miami's offices in Miami, Florida.
406. Plaintiffs purchased these investments based on false and misleading statements
and omissions made by these defendants, including, but not limited to, the follows:
a. Santander Miami and Santander Bahamas by and through their officers,
employees and agents, including Jaureguizar, Echave, Barron and Sanchez Castillo represented
that the Optimal SUS and Optimal Arbitrage funds were well diversified, had low volatility and
had achieved consistent returns and should constitute a core investment for Plaintiffs' portfolios.
b. Santander Miami and Santander Bahamas by and through their officers,
employees and agents, including Jaureguizar, Echave, Barron and Sanchez Castillo represented
that the Optimal SUS and Arbitrage Funds achieved specific quantified statistical analyses,
including, by way of example, Sharpe Ratios (a measure of risk-adjusted return) and Standard
Deviations, all of which were false as the funds were, in whole or in part, frauds.
c. OIS, Santander Miami and Santander Bahamas by and through their
officers, employees and agents, including Echeverria, Inder Reiden, Wilkinson, Jaureguizar,
Echave, Barron, and Sanchez Castillo failed to provide or offer to provide Plaintiffs with copies
BANK OF AMERICA TOWER 117 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2N1) STREET' LASH &GOLDBERG
ATI-0 :N.F.Y, AT I AW
HP 2500 WESTON ROAD
MIAMIFLORIDA 3131158 FT. LAUDERDALE, FLORIDA 33331
3-2305
347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 49 of 70
CASE NO.
of any Prospectuses, called "Explanatory Memoranda" or "EMs" for any of the Optimal Funds,
including SUS and Arbitrage, they recommended to Plaintiffs.
d. Santander Miami, Santander Bahamas and OIS thereby omitted to disclose
to Plaintiffs the risks otherwise stated in the EMs and failed to provide Plaintiffs with the
requisite subscription forms for these funds.
e. OIS, Santander Miami and Santander Bahamas by and through their
officers, employees and agents, including Jaureguizar, Barron, and Sanchez Castillo omitted
from their disclosures to Plaintiffs any of the red flags regarding Madoff as set forth in this
complaint.
f. OIS, Santander Miami and Santander Bahamas by and through their
officers, employees and agents, including Jaureguizar, Echave, Barron, and Sanchez Castillo
omitted from their disclosures that Santander Miami and its officers, employees and agents were
prohibited from offering and/or selling Optimal SUS and Arbitrage funds from Miami while
simultaneously doing just that.
407. The Defendants subject to this Count negligently, recklessly or knowingly
misrepresented to that Plaintiffs' assets were being invested using a split strike conversion
strategy. In reality, no such strategy was being executed because Plaintiffs' assets were being
funneled into Madoff s Ponzi scheme in which no legitimate securities transactions were ever
conducted. Further, Defendants failed to disclose the material fact that they had no independent
factual basis for their representations about the Optimal SUS's investment strategy because they
had never undertaken any meaningful steps to confirm that the split strike conversion strategy
was actually being implemented by Madoff.
BANK AMERICA TOWER
OF 11 8 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
MO SOUTIIEAST 2ND STREET I—ASH &GOLDBERG'',
AFWIINFYS AT I AW
2500 WESTON ROAD
FT. LAUDERDAI.E, FLORIDA 33331
MIAMI, Fl ORIDA 33I3I-2158
305 347 4040 305 34 7 4050 FAX wWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 50 of 70
CASE NO.
408. Defendants subject to this Count further misrepresented that they and their
financial services providers and auditors were conducting extensive due diligence and
monitoring of Madoff's operations, which served as the Optimal Funds' investment advisors, as
well as broker, execution agent, and custodian, and that they had full transparency with respect to
all Madoff's operations. The Defendants subject to this Count failed to disclose to the Plaintiffs
the material facts that in reality no one had conducted any meaningful due diligence on Madoff
prior to establishing the Optimal Funds' investments with Madoff; no one was meaningfully
monitoring, verifying, or confirming Madoff's trade activity; effectively there was no
transparency into Madoff's operations; and no one had an independent, factual basis for stating
that Madoff was executing a split strike conversion strategy or any other legitimate trading
strategy.
409. On March 14, 2005, Santander Miami, through its officer and employee Ana
Maria Jaureguizar sent Plaintiffs a fact sheet prepared by OIS describing the investment profile
and strategy of the Optimal SUS Fund. The fact sheet represented that Optimal SUS invested in
"U.S. large cap stocks that are part of the S&P 500." The fact sheet further represented that the
Optimal SUS Fund's strategy was for "the preservation and increase of capital with a minimum
of volatility through liquid investments in U.S. stocks and options." These statements were false
and misleading. In reality, no such strategy was being executed because Plaintiffs' assets were
being funneled into Madoff's Ponzi scheme in which no legitimate securities transactions were
ever conducted. Further, the Defendants subject to this Count failed to disclose the material fact
that they had no independent factual basis for their representations about the Optimal SUS's
investment strategy because they had never undertaken any meaningful steps to confirm that the
Optimal Fund, in fact, had invested in any stocks, options or other "liquid investments."
BANK AMERICA TOWER
OF 119 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET
AT11111NLY,
LASH &GOLDBERGILPAT LAW
2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158,
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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CASE NO.
410. Defendants falsely and misleadingly stated that Madoff usually invested in U.S.
Treasury Bills when not executing the split strike conversion strategy as indicated by its assertion
that "in practice the Broker-Dealer usually invests in U.S. Treasury Bills." This statement was
false. Madoff never invested in U.S. Treasury Bills because he never executed a single
transaction in his Investment Advisory business. The Defendants subject to this Count failed to
disclose that they had no independent factual basis for their representations about the
investments in U.S. Treasury Bills because they had never undertaken any meaningful steps to
confirm that these government securities had actually been bought and were being held.
411. Defendants subject to this count falsely and misleadingly stated that "the assets of
[Optimal SUS] are deposited with the Broker-Dealer." This statement was false. Madoff did not
hold the assets of Optimal SUS in deposit because Madoff stole the assets. The Defendants
subject to this Count failed to disclose to Plaintiffs that they had no independent factual basis for
their representations that the assets were deposited with Madoff because they had never
undertaken any meaningful steps to confirm that.
412. Plaintiffs relied on the representations and omissions of OIS, Santander Miami,
Santander Bahamas, Jaureguizar, Sanchez Castillo and other officers, employees and/or agents of
Santander Miami and Santander Bahamas in purchasing Optimal SUS and Arbitrage.
413. The Defendants subject to this Count, as acknowledged in their own documents,
recognized the fundamental importance of proper due diligence, strict monitoring, and oversight
of the investment manager, broker, administrator and custodian, and their obligation to perform
these functions and misrepresented that they conducted such due diligence. In fact, the
Defendants subject to this Count negligently, recklessly or knowingly failed to perform the due
diligence that they recognized was essential and required by standard-industry practice.
BANK AMERICA TOWER
OE 120 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG,
ATT,,INEy,, A r r Avv
Lr 2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 305 347 4050 FAX
www.lashgoldherg.com 954 384 2500 954 384 2510 FAX
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CASE NO.
414. Defendants subject to this Count also negligently, recklessly or knowingly
disregarded the red flags surrounding Madoff and that should have alerted them, as experienced
investment professionals, to the need for heightened scrutiny.
415. By reason of the foregoing, Defendants subject to this Count directly violated
Florida Statute Section 517.301 in that they negligently, recklessly or knowingly made untrue
statements of material facts or omitted to state material facts necessary in order to make the
statements made, in light of the circumstances under which they were made, not misleading.
416. Plaintiffs, in ignorance of the false and misleading statements and omissions made
negligently, recklessly or knowingly by Defendants subject to this Count, relied, to their
detriment, on such misleading statements and omissions in purchasing shares in the Optimal SUS
and Optimal Arbitrage funds.
417. Defendants subject to this action are therefore jointly and severally liable for
rescission of Plaintiffs' purchase of the Optimal SUS and Arbitrage Funds pursuant to Florida
Statute Section 517.211 as well as attorneys' fees and costs incurred by Plaintiffs.
COUNT IX
FOR VIOLATIONS OF RULE 10b-5(b)
AND SECTION 10(b) OF THE EXCHANGE ACT
AGAINST SANTANDER MIAMI, SANTANDER BAHAMAS,
OIS, AND ECHEVERRIA
418. Plaintiffs repeat and reallege all the allegations in paragraphs 1 through 313 as if
fully set forth in this Count. This Count is asserted against Santander Miami, Santander
Bahamas, OIS, and Echeverria based only upon Rule 10b-5(b) promulgated pursuant to Section
10(b) of the Exchange Act, 15 U.S.C. 78j(b).
419. Defendants subject to this Count recklessly knowingly made various
or
deceptive
and untrue statements of material facts and omitted to state material facts
necessary in order to
BANK OFAMERICA TOWER 121 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2N1) STREET LASH &GOLDBERGILP
Ari,,, Nrys ATI Aw
2500 WESTON ROAD
MIAMI, FI.ORIDA 33131-2158 FT, LAUDERDALE, FLORIDA 33331
3O5 347 4040 305 347 4050 FAX
www.lashgoldherg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 53 of 70
CASE NO.
make the statements made, in light of the circumstances under which they were made, not
misleading to the Plaintiffs. The purpose and effect of said false and misleading statements and
omissions was, among other things, to induce the Plaintiffs to purchase shares in Optimal
Arbitrage and Optimal SUS.
420. Defendants subject to this Count sold the Optimal Funds based on false and
misleading statements and omissions, including, but not limited to, the following:
a. that the Optimal SUS and Optimal Arbitrage funds were well diversified,
had low volatility and had achieved consistent returns and should constitute a core investment for
Plaintiffs' portfolios;
b. that the Optimal SUS and Arbitrage Funds achieved specific quantified
statistical analyses, including, by way of example, Sharpe Ratios (a measure of risk-adjusted
return) and Standard Deviations, all of which were false as the funds were, in whole or part,
frauds;
c. failing to provide or offer to provide Plaintiffs with copies of any
Prospectuses, called "Explanatory Memoranda" or "EMs" for any of the Optimal Funds,
including SUS and Arbitrage, they recommended to Plaintiffs. Santander Miami, Santander
Bahamas and OIS thereby omitted to disclose to Plaintiffs the risks otherwise stated in the EMs
and failed to provide Plaintiffs with the requisite subscription forms for these funds;
d. omitting from their disclosures to Plaintiffs any of the red flags regarding
Madoff as set forth in this complaint;
e. omitting from their disclosures that Santander Miami and its officers,
employees and agents were prohibited from offering and/or selling Optimal SUS and Arbitrage
funds from Miami while simultaneously doing just that;
BANK OF AMERICA TOWER 122 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG.,
A-7,, km Ai I AW
2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 54 of 70
CASE NO.
f. misrepresenting to the Plaintiffs that their assets were being invested using
a split strike conversion strategy when, in fact, no such strategy was being executed because
Plaintiffs' assets were being funneled into Madoff s Ponzi scheme in which no legitimate
securities transactions were ever conducted and failing to disclose the material fact that they had
no independent factual basis for their representations about the Optimal SUS's investment
strategy because they had never undertaken any meaningful steps to confirm that the split strike
conversion strategy was actually being implemented by Madoff;
g. misrepresenting that they and their financial services providers and
auditors were conducting extensive clue diligence and monitoring of Madoff s operations, which
served as the Optimal Funds' investment advisors, as well as broker, execution agent, and
custodian, and that they had full transparency with respect to all Madoff s operations;
h. failing to disclose to the Plaintiffs the material facts that in reality no one
had conducted any meaningful due diligence on Madoff prior to establishing the Optimal Funds'
investments with Madoff; no one was meaningfully monitoring verifying, or confirming
Madoff s trade activity; effectively there was no transparency into Madoff s operations; and no
one had an independent, factual basis for stating that Madoff was executing a split strike
conversion strategy or any other legitimate trading strategy;
i. providing Plaintiffs with a fact sheet prepared by OIS describing the
investment profile and strategy of the Optimal SUS Fund which misrepresented that Optimal
SUS invested in "U.S. large cap stocks that are part of the S&P 500;" and that the Optimal SUS
Fund's strategy was for "the preservation and increase of capital with a minimum of volatility
through liquid investments in U.S. stocks and options, when, in fact, no such strategy was being
executed because Plaintiffs' assets were being funneled into Madoff s Ponzi scheme in which no
BANK OF AMERICA TOWER 123 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2N1) STREET LASH &GOLDBERG,,,
ATTORNEY, AT L. /V
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
Www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 55 of 70
CASE NO.
legitimate securities transactions were ever conducted; and by also failing to disclose the
material fact that these defendants had no independent factual basis for their representations
about the Optimal SUS's investment strategy because they had never undertaken any meaningful
steps to confirm that the Optimal Fund, in fact, had invested in any stocks, options or other
"liquid investments;"
j. misrepresenting that Madoff usually invested in U.S. Treasury Bills when
not executing the split strike conversion strategy when, in fact, Madoff never invested in U.S.
Treasury Bills because he never executed a single transaction in his Investment Advisory
business and by failing to disclose the material fact these defendants had no independent factual
basis for their representations about the investments in U.S. Treasury Bills because they had
never undertaken any meaningful steps to confirm that these government securities had actually
been bought and were being held; and
k. misrepresenting that "the assets of [Optimal SUS] are deposited with the
Broker-Dealer, when, in fact, Mado ff did not hold the assets of Optimal SUS in deposit because
Madoff stole the assets, and by failing to disclose the material fact that these defendants had no
independent factual basis for their representations that the assets were deposited with Madoff
because they had never undertaken any meaningful steps to confirm that.
421. Plaintiffs relied on the representations and omissions of OIS, Santander Miami,
Santander Bahamas, Jaureguizar, Sanchez Castillo and other officers, employees and/or agents of
Santander Miami and Santander Bahamas in purchasing Optimal SUS and Arbitrage.
422. The Defendants subject to this Count, as acknowledged in their own documents,
recognized the fundamental importance of proper due diligence, strict monitoring, and oversight
of the investment manager, broker, administrator and custodian, and their obligation to perform
BANK OF AMERICA TOWER 124 WESTON CORPORATE CENTER
SUITE noo SUITE 317
100SOUTHEAST 2N1) STREET LASH &GOLDBERG
AFR,NEYS AT LAW
UP 2500 WESTON ROAD
MIAMI, FI.ORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4030 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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these functions. Nevertheless, the Defendants subject to this Count recklessly or knowingly
failed to perform due diligence that they recognized was essential and required by standard-
industry practice.
423. Defendants subject to this Count knowingly or recklessly did not conduct a
careful analysis of Madoff and failed to ensure that Madoff had the necessary competence,
standing, and expertise to hold the Optimal Funds' assets. Further, the Defendants subject to this
count did not disclose to Plaintiffs that they failed to conduct any meaningful due of
diligence
Madoff and had never independently verified with a third-party that any of the trade
confirmations provided by Madoff were true and correct, and that the assets reported by Madoff
existed.
424. Defendants subject to this Count also recklessly or knowingly disregarded the red
flags surrounding Madoff and that should have alerted them, as experienced investment
professionals, to the need for heightened scrutiny and failed to disclose these facts to Plaintiffs.
425. By reason of the foregoing, Defendants subject to this Count directly violated
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated there under in that they
recklessly or knowingly made untrue statements of material facts or omitted to state material
facts necessary in order to make the statements made, in light of the circumstances under which
they were made, not misleading.
426. Plaintiffs, in ignorance of the false and misleading statements and omissions made
recklessly or knowingly by Defendants subject to this Count, relied, to their detriment, on such
misleading statements and omissions in purchasing shares in Optimal SUS and Arbitrage Funds.
BANK OF AMERICA TOWER 125 WES'FON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2N1) STREE I' LASH &GOLDBERG,,,
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2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FI.ORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldherg.com 954 384 2500 954 384 2510 FAX
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427. Plaintiffs have suffered substantial damages with respect to their investments in
the Optimal SUS and Arbitrage Funds as a result of the wrongs alleged herein in an amount to be
proven at trial.
COUNT X
FOR VIOLATIONS OF SECTION 20(a) OF THE EXCHANGE ACT
AGAINST SANTANDER SPAIN AND ECHEVERRIA
428. Plaintiffs repeat and reallege all the allegations in paragraphs 1 through 313 and
417 through 426 as if fully set forth in this Count. This Count is asserted against Defendants
Santander Spain and Echeverria pursuant to Section 20(a) of the Exchange Act, 15 U.S.C.
78j(b).
429. Defendants Santander Spain and Echeverria acted as controlling persons within
the meaning of Section 20(a) of the Exchange Act, as alleged herein.
430. Defendant Echeverria was Chief Executive Officer and Chief Investment Officer
of OIS from its inception through July 2008, and a Director of Optimal Multiadvisors and the
Optimal Funds. Echeverria had day-to-day control and exercised day-to-day control of OIS,
Optimal Multiadvisors, and the Optimal Funds. Accordingly, Defendant Echeverria had the
power to control the general business affairs of OIS, Optimal Multiadvisors, and the Optimal
Funds, and the power to directly or indirectly control or influence the specific corporate policy
(e.g., the failure to conduct due diligence) at OIS, Optimal Multiadvisors, and the Optimal Funds
which resulted in primary liability.
431. OIS was a wholly-owned subsidiary of Santander Spain at all relevant times.
Santander Spain had day-to-day control and exercised day-to-day control of OIS. Accordingly,
Santander Spain had (i) the power to control the general business affairs of OIS, and (ii) the
BANK OF AMERICA TOWER 126 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREEN LASH &GOLDBERGur
AIT012NLYS AT LAW
2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 305 347 4030 FAX
www.lashgoldberg.com 954 384 2300 954 384 2510 FAX
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power to directly or indirectly control or influence the specific corporate policy (e.g., the failure
to conduct due diligence) at OIS which resulted in primary liability.
432. As a direct and proximate result of the wrongful conduct alleged in this Count,
Plaintiffs suffered an economic loss and damages in connection with their purchases of shares in
the Optimal SUS and Arbitrage Funds in an amount to be proven at trial.
COUNT XI
FOR DECLARATORY RELIEF
RELATED TO THE "EXCHANGE AGREEMENT"
433. Plaintiffs repeat and reallege all the allegations in paragraphs 1 through 313 as if
fully set forth in this Count.
434. In late December 2008, Santander Spain disclosed that it had €2.33 Billion Euros
exposure to the Madoff fraud through investments made by its Optimal Funds.
435. In late December, 2008 and early January 2009, Santander, through its officers and
agents at Santander Miami, met with Plaintiffs and their counsel to discuss a possible settlement of
Plaintiffs' losses in connection with the Madoff fraud.
436. At those meetings, Sanchez Castillo stated that Santander Spain was working on a
plan to fully reimburse Plaintiffs for their initial investment in Madoff. Plaintiffs understood this
proposal to be a cash reimbursement of the full amount of their lost investments. The Exchange
Agreement was not discussed.
437. On January 27, 2009, Santander Spain issued a press release stating that: "The
Santander Group announces that it has decided to offer a solution to its private banking clients
who have invested in Optimal Strategic US Equity fund (Optimal Strategic), which has been
affected by the actions initiated against Bernard L. Madoff Investment." The proposed solution,
"consists in an exchange of assets by which the private banking clients will have the right to
BANK OFAMERICA TOWER 127 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
Ioo SOUTHEAST 2ND STREET LASH &GOLDBERG 1-101.NLI, Al I, VU
al2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX www.lash gold berg. c om 954 384 2500 954 384 2510 FAX
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exchange their investments in Optimal Strategic for preferred securities to be issued by the
Group."
438. In late January 2009, Sanchez Castillo and Jaureguizar called Plaintiffs' director,
Elias, from Miami, and asked him to return to Miami to receive the offer regarding the Optimal
SUS reimbursement. Elias met with Sanchez Castillo and Jaureguizar on January 29, 2009 at
Santander Miami's office on Brickell Avenue. At that meeting, Sanchez Castillo handed
Plaintiffs the proposed Exchange Agreement in Spanish.
439. The proposed Exchange Agreement offered Plaintiffs perpetual non-cumulative 2%
Santander preferred securities (the "Preferred Shares") in exchange for the worthless Optimal SUS
shares. Plaintiffs were told they had to accept or reject the offer by February 5, 2009 because
Santander Spain was reporting its earnings on February 6.
440. Plaintiffs rejected Santander's Exchange Agreement offer on February 2, 2009.
441. At Jaureguizar's suggestion, Plaintiffs and Plaintiffs' counsel called Felix Rodriguez
and Jaureguizar in Miami. During that call, Felix said that two months before, Santander had
increased its capital base, raising its core capital ratio to seven percent (7%). He explained that
Santander had always operated at six percent (6%), but increased its core capital to seven percent
(7%) to protect its shareholders. Then Madoff occurred. Felix told Plaintiffs that if it paid out cash
settlement funds, its capital ratios would fall. Therefore, according to Felix, Santander decided to
issue the Preferred Shares since their issuance would not affect Santander's capital ratios.
442. Felix represented that the Preferred Shares were "fair resolution" between existing
Santander shareholders and clients harmed by the Madoff fraud. Because Plaintiffs rejected the
Preferred Shares by themselves as payment for the Optimal SUS losses, Felix then stated that
Santander would take the Preferred Shares as security for a back-to-back non-recourse loan (the
BANK OF AMERICA TOWER 128 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2N1) STREET LASH &GOLDBERG.
AT1, 712NLIS AI LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 zsoo 954 384 2510 FAX
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"Note") at their "nominal value", but that the loan to value would be eighty percent of the settlement
amount because it was unlawful under Bahamian banking regulations for Santander Bahamas to
make a loan equal to 100% of the collateral. At end of 10 years, the Preferred Shares would pay off
the principal amount due, which was now a discount of more than fifty percent (50%) of Plaintiffs'
investment in Optimal SUS, inclusive of fees paid to the Santander Defendants.
443. Plaintiffs invited Santander to provide them with proposed settlement documents,
including the proposed Note, along with specific information regarding the payout of dividends,
interest charged on the Note, and the proposed investment program for the proceeds of the Note so
Plaintiffs could evaluate Santander's proposal. After receiving additional information, Plaintiffs
rejected this offer as well.
444. At all times, Plaintiffs told Santander that it rejected the proposed Exchange
Agreement as a stand-alone agreement and would consider the Exchange Agreement only in
connection with, and as part of, an comprehensive settlement agreement which had to include a
Note, the principal amount of which would be secured exclusively by the Preferred Shares which
Santander would take control of at the end of the term of the Note in full satisfaction of the principal
amount of the Note, with additional securities provided to secure interest on the Note.
445. Plaintiffs repeatedly advised Santander that there would be no final agreement
absent finalizing and executing the Note and delivery of the proceeds of the Note to Plaintiffs.
446. Over the next five weeks, Plaintiffs and Santander engaged in extensive negotiations
regarding the proposed settlement, including the Exchange Agreement and Note.
447. Santander repeatedly tried to limit the amount of the Note to less than the full value
of Plaintiffs' initial Madoff Optimal SUS investment less redemptions. Plaintiffs repeatedly
BANK OE AMERICA TOWER 129 WESTON CORPORATE CENTER
SUIrE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH OLDBERGILI
ATIORNEAS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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rejected Santander's proposals to reduce the amount of the Note as Santander had
originally
promised to reimburse Plaintiffs 100% of their Optimal SUS investments less redemptions.
448. On March 12, 2009, Jaureguizar sent Plaintiffs' counsel, for the first time and after
repeated requests, the Exchange Agreements in English for Plaintiffs' four accounts. Prior to that
time, the parties had not negotiated the terms of the Exchange Agreement because Plaintiffs' U.S.
legal counsel required the English version. Jaureguizar did not timely deliver it, even after repeated
requests to do so. Jaureguizar informed Plaintiffs' counsel that the offer would at 5 p.m.
expire
(EST) on March 13 and that Plaintiff§ had to return the signed agreements to her by the next day
(March 13, 2009) at the latest. She represented that it was a firm deadline, which deadline was also
reflected in a letter Santander Bahamas sent to Plaintiffs on March 5, 2009.
449. On March 12, 2009, after Plaintiffs' receipt of the Exchange Agreements, Plaintiffs'
counsel and Sanchez Castillo had a telephone conference about the Exchange Agreement and Note
transaction in which Sanchez Castillo represented that the Exchange Agreement is limited to
Madoff claims only, referring to section 3 F of the Exchange Agreement.
450. Plaintiffs' counsel requested changes to the Exchange Agreement. Sanchez Castillo
stated that the Exchange Agreement could not be modified and must be uniform worldwide for
"regulatory reasons." Nevertheless, Sanchez Castillo told Plaintiffs that the Term Sheet for the Note
would be signed contemporaneously with the Exchange Agreement and that the Note and Pledge
would be made as set forth in the Term Sheet. Sanchez Castillo made it clear that the Exchange
Agreement, Note and Pledge were all part of one integrated settlement agreement.
451. The fact that the Exchange Agreement, Note and Pledge were part of one integrated
settlement agreement was further acknowledged by Santander Miami and Santander Bahamas in a
letter sent to Plaintiffs on or about March 9, 2009. In that letter, Santander stated that "the purpose
BANK OFAMERICA TOWER 130 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
TOO SOUTHEAST 2ND STREET LASH &GOLDBE RG
ATTORNEYS AT LAW
UT 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
WWW.Iashgoldberg.com 954 384 2500 954 384 2.510 FAX
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of this letter is to summarize the principal terms of a credit proposal in relation to the preferred
shares ("Preferred Shares") that you will receive under the terms and conditions of the Exchange
Agreement."
452. The Term Sheet also specifically refers to the Preferred Shares and the Exchange
Agreement, clearly indicating the two documents are integrated as part of a single transaction.
453. Sanchez Castillo informed Plaintiffs' counsel that bank would not be able to furnish
the Note unless Plaintiffs first signed the Exchange Agreements. Sanchez Castillo stated that
Plaintiffs' signing of the Exchange Agreement was an act of "good faith" by Plaintiffs and was
required so the bank knew it had a deal before it invested time preparing the Note and Pledge.
Sanchez Castillo also said the Bank was too busy signing Exchange Agreements with other clients,
and it did not have the time to prepare the Note and Pledge agyeements until the Exchange
Agreements were completed. In fact, Santander asked Plaintiffs' counsel to prepare the Term Sheet
because Santander did not have time to do so before expiration of the deadline for signing the
Exchange Agreements.
454. Sanchez Castillo stated that Plaintiffs should not worry about the Note because it
would be signed as promised. He told Plaintiffs they needed to keep in mind that the intention of
the Bank was to help its clients.
455. Plaintiffs' counsel told Sanchez Castillo the Plaintiffs would not sign the Exchange
Agreement without the Term Sheet being issued contemporaneously to evidence Santander's
commitment to make the Note secured by the Preferred Shares. Funding of the Note was a
condition precedent to the effectiveness of the Exchange Agreement. In fact, it was the essence of
the transaction since Plaintiffs had already rejected the Exchange Agreement as a stand-alone
agreement.
BANK AMERICA TOWER
OF 131 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
Too SOUTHEAST 2ND STREET LASH &GOLDBERG.,
ATTORNEYS AT I AW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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456. On March 13, the parties reached a tentative non-binding settlement agreement
which included the Exchange Agreement and a Term Sheet which set forth the terms of the Note to
be prepared and executed by the parties as an integral part of the settlement agreement. A copy of
the Term Sheet is attached hereto as Exhibit "4." Santander Spain, through its Spanish wholly
owned subsidiary, Santander International Preferred, S.A. Unipersonal, would issue the Preferred
Shares in an amount equal to the Plaintiffs' original investments in Optimal SUS less redemptions
made. The Preferred Shares would secure 100% of the principal amount of the Note on a non-
recourse basis (evidently, concerns about Bahamas "banking regulations" requiring 20% equity no
longer applied confirming that the Bank's prior representations to this effect were false).
457. Twenty percent (20%) of the loan proceeds would go into an encumbered account
held by Santander Bahamas to secure the interest payments due under the Note. There was no
acceleration clause. The principal amount of the Note was to be non-recourse and secured
exclusively by the Preferred Shares. The loan documents would be delivered no later than March
25, 2009 and the Note would be funded no later than April 25, 2009.
458. Based on Santander's representations that it would prepare and fund the Note in
accordance with the Term Sheet, and based on Santander's representation that the Exchange
Agreement portion of the overall settlement agreement had to be signed by March 13, 2009 to
ensure that the Preferred Shares that were to be the security for the Note and Pledge could be timely
issued to Plaintiffs, Plaintiffs agreed to conditionally sign the Exchange Agreement on March 13.
In sum, Plaintiffs signed the Exchange Agreement subject to the final preparation, execution and
funding of the Note and Pledge agreement.
BANK OF AMERICA TOWER 132 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG.
ATTORNI 1, AT LAW
2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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459. The Exchange Ageement was delivered by Plaintiffs to Santander Miami in Miami.
At no time did Plaintiffs speak with any person or entity at Santander Bahamas regarding the
Exchange Agreement. Everything was done by and through Santander Miami from and in Miami.
460. On April 6, 2009, Jaureguizar sent Plaintiffs' counsel the proposed loan documents,
almost two weeks after the deadline set forth in the Term Sheet. Except for the loan amount, the
loan documents did not remotely reflect the Term Sheet. Instead of being a non-recourse loan, it
was a full recourse loan. Santander also sought to impose a security interest on 100% of the loan
proceeds rather than 20%, as stated in the Term Sheet. Santander also introduced terms that were
expressly rejected during the negotiation of the Term Sheet, including but not limited to, a disguised
acceleration clause. Santander also tried to introduce many new terms not previously discussed
and sought to impose new obligations on Plaintiffs, which Plaintiffs rejected. Plaintiffs thus
rejected the draft non-conforming note by letter dated April 12, 2009.
461. Some of the provisions Defendants tried to include in the draft note were a jury
waiver provision, jurisdictional limitations, and an arbitration clause which the parties had never
agreed to or even discussed. Plaintiffs explicitly rejected these provisions as follows:
Pursuant to the agreement between the bank and S085 (Solymar) at
negotiated
inception, jurisdiction will be on a non-exclusive basis in the Bahamas. We do not
agree to arbitration nor to waiver of a trial by jury. These are rights granted by law,
unless agreed otherwise. We do not agree. Nor do we waive other protections
ganted under the laws of the Bahamas or agree to indemnify the bank, etc. We do
not agree that an action in Switzerland on the Preferred Securities can remove an
action based on the Loan Documents. These terms were never discussed and would
never have been agreed to we always understood the Preferred Securities were a
"device" created by the bank to structure this transaction and that we would never
have any practical control over them so we accepted the Exchange Agreement as
drafted. This is not the case with the Portfolio Advance or the assets in the Portfolio
Account, which are "real" assets. None of these terms are in the Term Sheet and are
not acceptable.
462. Plaintiffs' counsel concluded the letter by stating:
BANK OEAMERICA TOWER 133 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG.,
KIT )12NEY, AT LAW
2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 305 347 4050 FAX wWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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I wish to remind you of the conversation we had immediately before Elias signed the
Exchange Agreement when I insisted, once again, that we first review and approve
the Note and Pledge. Manuel said that the bank would not furnish us the Note and
Pledge unless Elias first signed the Exchange Agreement and that Elias and I needed
to keep in mind that the intention of the bank was to help its clients and we should,
therefore, not wony about the Note and Pledge. Elias relied on this statement and
signed the Exchange Agreement, with the expectation the Note and Pledge would
reflect our agreement.
They do not as presently drafted.
Our agreement comprises the Exchange Agreement and a non-recourse loan secured
by the Preferred Shares they are intergral [sic] parts of the same transaction[.]
463. Plaintiffs' counsel revised the draft note to conform to the Term Sheet and re-sent it
to Santander for approval. Santander rejected Plaintiffs' revised note. The parties thereafter failed
to reach agreement as to the essential terms of the Note and Pledge, and Santander never delivered
the proceeds of the Note to Plaintiffs.
464. As a result, the parties' settlement negotiations terminated without agreement. As
the economic substance of the settlement was the Note and Pledge, the failure to agree upon its
terms eviscerated the entire transaction as void ab initio, and the Exchange Agreement
conditionally signed by Plaintiffs never became a binding and enforceable contract. Plaintiffs'
counsel confirmed this by email dated May 1, 2009 in which he advised the Bank's counsel that: "It
appears a 'meeting of the minds' has not occurred and no agreement has been reached between the
parties."
465. Plaintiffs therefore seek a declaratory judgment finding that the "Exchange
Agreement" is void ab initio as the parties never reached a final and enforceable settlement
agreement that was to include the Exchange Agreement.
BANK OFAMERICA TOWER 134 WESTON CORPORATE CENTER
SUITE I200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG',
ATTORNEYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33130-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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466. Plaintiffs further seek a declaratory judgment that the Exchange Agreement and the
arbitration clause contained therein, in particular, is unenforceable because Plaintiffs were
fraudulently induced to sign the Exchange Agreement and to agree to the arbitration clause therein,
in particular.
467. At the time Plaintiffs were negotiating the global settlement ageement, which
included the Exchange Agreement as one component, Defendants failed to disclose the following
facts which were both relevant and material to Plaintiffs' evaluation of the terms of the proposed
Exchange Agreement component of the global settlement agreement:
a. Defendants failed to disclose any of the red flags regarding the Madoff fraud
as alleged herein which were known to Santander;
b. Defendants failed to disclose to Plaintiffs that they had negotiated a
settlement with the SIPC Trustee to deliver $150 million to the Trustee funds that belonged to
investors, including Plaintiffs, which could have been used to repay Plaintiffs instead of using
the convoluted and more complicated Exchange Agreement and Note structure that was under
discussion.
468. At the time Plaintiffs were negotiating the global settlement agreement, which
included the Exchange Agreement as one component, Defendants, by and through their agents,
employees and representatives made the following misrepresentations of fact:
a. In its December 14, 2008 press release, Santander Spain unequivocally
stated: "Optimal will undertake the legal actions which may be needed to defend the interests of
shareholders in the subfund."
b. Santander Spain represented in its press release dated January 27, 2009,
that "The Santander Group has acted at all times with the due diligence in the management of its
BANK OF AMERICA TOWER 135 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG',
ATTORNEY', AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
www.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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CASE NO.
clients' investments in the Optimal Strategic fund and in accordance with all applicable laws and
sound banking practices and procedures with respect to those investments. The sale of these
products has always been transparent and in compliance with all applicable regulations and
established procedures."
c. Francisco Felix Rodriguez and Sanchez Castillo represented to Plaintiffs'
counsel from their office in Miami that Defendants understood, agreed and intended that the
Exchange Agreement was an integral part of an overall settlement agreement including the Note.
d. Francisco Felix Rodriguez and Sanchez Castillo represented to Plaintiffs'
counsel from their office in Miami that the Bank fully intended to finalize and execute the Note
in accordance with the Term Sheet once the Exchange Agreement was signed. They further
represented that the Exchange Agreement had to be signed first and could not be modified due to
regulatory reasons but that the Bank intended to timely finalize and fund the Note thereafter.
469. These representations and omissions were false when made and Defendants knew
these representations were false and material at the time they were made.
470. Defendants made the false representations and omissions with the specific
intention of inducing the Plaintiffs to execute the Exchange Agreement, and more specifically, to
agree to the arbitration clause contained in the Exchange Agreement.
471. The arbitration clause provided that any disputes arising under the Exchange
Agreement would be subject to binding arbitration in Geneva, Switzerland, pursuant to the rules
and procedures of the ICC.
472. Once the Exchange Agreement was signed, however, Defendants never intended
to complete the Note and fund the Note as negotiated by the parties.
BANK OF AMERICA TOWER 136 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
TOO SOUTHEAST 2ND STREET LASH &GOLDBERG
ATTORNEYS AT LAW
LEP 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAx
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
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473. Rather, Defendants' specifically and fraudulently induced Plaintiffs to agree to the
arbitration clause in the Exchange Agreement to prevent Plaintiffs from being able to assert punitive
damages claims in court in the United States. Defendants sought to evade their potential liability for
punitive damages in federal and/or state court in the United States by and through the Geneva
arbitration clause. They used the Exchange Agreement and, specifically, the arbitration provision,
to forum shop in contravention of Plaintiffs previous express rejection of the Preferred Shares as the
sole consideration for settlement of their Madoff based claims against Defendants.
474. Once Santander believed the threat of litigation in the United States and punitive
damages was removed, Defendants refused to consummate the Note and Pledge in accordance with
the Term Sheet.
475. Santander then sought Plaintiffs' ageement to an arbitration provision and other
provisions in the Note and Pledge, which Plaintiffs expressly rejected.
476. In response, Santander's outside counsel stated to Plaintiffs' counsel on April 28,
2009: "We reiterate that Santander has made concessions here that, at least to my knowledge after
handling dozens of these transactions for Santander, it has not made with any other client."
Santander's counsel thus recognized that negotiations were ongoing with Plaintiffs and
"concessions" were being made in those negotiations, confirming that the parties never reached a
final binding settlement agreement.
477. Santander fraudulently induced Plaintiffs to sign the Exchange Ageement and,
specifically, the arbitration clause, knowing it had no intention of tendering a conforming Note and
Pledge.
478. In sum, Defendants intentionally misled Plaintiffs about the extent of their
misconduct in connection with the Madoff fraud, intentionally misrepresented their intention to
BANK OFAMERICA TOWER 137 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
TOO SOUTHEAST 2ND STREET LASH &GOLDBERG,
ATI1 /RNEY, AT I AVG
i, 2500 WESTON ROAD
FT. LAUDERDALE, FLORIDA 33331
MIAMI, FLORIDA 33131-2158
305 347 4040 305 347 4050 FAX WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 69 of 70
CASE NO.
"undertake the legal actions which may be needed to defend the interests of shareholders in the
[Optimal SUS] subfund, and fraudulently induced Plaintiffs to conditionally sign the Exchange
Agreement and arbitration clause therein while having no intention of executing a conforming
Note and Pledge as required to complete the parties' settlement agreement.
479. Accordingly, because a final binding settlement agreement was never agreed
upon, and because Defendants fraudulently induced Plaintiffs to conditionally sign the Exchange
Agreement with the specific intent of inducing Plaintiffs to accept the arbitration clause
contained therein, the arbitration provision, in particular, and the Exchange Agreement as a
whole, are void ab initio and void by fraud.
480. Plaintiffs have a bona fide, actual, present and practical need for declaratory relief
to determine their rights and obligations with regard to the parties' settlement agreement,
including the Exchange Agreement.
481. Plaintiffs have a present, legal, and not theoretical, right to have their doubts
removed, and Plaintiffs have a clear legal right to the declaratory relief sought
482. All parties necessary to granting of declaratory relief are parties to this action.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs Solymar Investments, Ltd., Astrolite Investments, Ltd., Eternalite
Investments, Ltd., and Sunrays Investments, Ltd. demand judgment against Defendants as follows:
1) Awarding Plaintiffs compensatory damages, punitive damages, prejudgment and
post-judgment interest against all Defendants in an amount to be determined at trial;
2) Declaring that Defendants OIS, Santander Miami, and Santander Bahamas have
been unjustly enriched and imposing a constructive trust to recoup Defendants' fees,
unjust benefits, and other assets for the benefit of Plaintiffs;
BANK AMERICA TOWER
OE 138 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
MO SOUTHEAST 2ND STREET LASH &GOLDBERG
AMORNEYS AT LAW
LI I' 2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-1 Entered on FLSD Docket 03/08/2010 Page 70 of 70
CASE NO.
3) Awarding Plaintiffs statutory rescission of Plaintiffs' purchase of the Optimal SUS
and Optimal Arbitrage Funds in an amount based on the statutory formula set forth
in Florida Statute Section 517.211;
4) Declaring the "Exchange Agreement" null and void ab initio and of no force and
effect;
5) Declaring that the "Exchange Agreement" as null and void ab initio, precluding
Defendants from compelling Plaintiffs to submit their claims to jurisdiction before
any courts or arbitration panels in Geneva, Switzerland;
6) Awarding Plaintiffs their reasonable attorneys' fees, experts' fees and costs
and expenses; and
7) Granting such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMAND
Plaintiffs demand a jury trial on all issues and claims so triable.
Dated: March 8, 2010
YS
8450LDBERG,
Martin B. Goldberg, Esq.
Florida Bar No. 0827029
mgoldberg@lashgoldberg.com
Lawrence Lambert, Esq.
Florida Bar No. 0032565
Ilambert@lashgoldberg.com
Bank of America Tower
100 Southeast 2nd Street, Suite 1200
Miami, FL 33131-2158
Tel: (305) 347-4040
Fax: (305) 347-4050
Attorneys for Plaintiffs
BANK OFAMERICA TOWER 139 WESTON CORPORATE CENTER
SUITE 1200 SUITE 317
100 SOUTHEAST 2ND STREET LASH &GOLDBERG.,
ATTORNEYS AT LAW
2500 WESTON ROAD
MIAMI, FLORIDA 33131-2158 FT. LAUDERDALE, FLORIDA 33331
305 347 4040 305 347 4050 FAX
WWW.lashgoldberg.com 954 384 2500 954 384 2510 FAX
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 1 of 26
EXHIBIT 1
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 2 of 26
REDACTED
1
EXCHANGE AGREEMENT
On,, 2009, this agreement is altered into:
BY AND BETWEEN
1. Santander.Banli& Trust Ltd(the "Bank"), a Bahamian.banking and trust company, with registeted address at
PAX Box N-1682, Goodman's Bay Corporate Centre, el Moor, West Bay Street &Sea View Drive, Nassau,
The Bahamas. The Bank is represented by the person(s) identified in the signature page of this Agreement.
'IL The:following person/s:
Name(1):SOLYMAR INVESTMENTS LTD. Name(2):
Name(3): Name(4):
Name(5); Name(6):
Name(7): Name(8):
!(all of whom shall be referred jointly, if there are more than one, as the' "Client") with address for these
purposes at ONE REGIS, PLACE,,90 PORT STREET GRAND-CAYMAN CAYMAN ISLANDS and
:client number 14785
Hie person(s) identified below (1)(a). execute(s) this AgreeMent for the person(s) indicated as Client and
.01) he/sbe/theythges) so in the capacity set: out opposite his/her/their namein theeolumn entitled "Capacity",
Es indicated that he/she/they act(s) in his/her/their own name and ftir his4 er/their. own
..(2) so that (a) if it
account, he/she/they act(s). in such capacity anti (b) if it is indicated that he/she/they act(s) in the name and
ferth0 acciiant Ofotherperson(s) identified as Client, be/She/they att(t) in such capacity.and(b)represent(s)
and warrant(s) to the Bank that, (1) he/she/they has/have sufficient authority to execute this. Agreement on.
behalf of the person(0) identifieclaS Clieht on whose name anti for Whose accountit is indicated below that
lielthetthey act(s). and (ii). with his/herltheir signature chid Agreement becomes binding upon the pertion(s)
identified. as Client on -whose name and for whose aceount it is indicated below that he/she/they act(s).
Sections ZOO. and 2(b) apply as approptiate to person(s) acting both (nth his/her/their own nettle:and for
his/her/their own. account and (2) in the name and for the account of other person(s) identified as Client
nom Nationaliq Idendfloamunnibm capacity
a0/. A&—crvk
Each -of the Bank and the Client shallibe:rofetmd to as'a. Tarty" and„ collectively, as the 'Tarfies".
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 3 of 26
4CE0795
WHEREAS
1. The Client is the owner of the shares in the Optimal Strategic US Equity Series of Optimal Multiadvisors
Ltd. and/or in the Optimal US Equity Ireland Funds (as defined below) identified in Part A of Annex 1
hereto, and which are currently held for the Client with the Bank (the "Client's Optimal SUS Securities").
11. The Optimal Strategic US Equity Ireland Euro Fund and the Optima Strategic US Equity Ireland US Dollar
Fund (the "Optimal Strategic US Equity Ireland Funds") are qualifying investor funds (i) established in
Ireland, and authorised by the Financial Regulator in Ireland as funds Of Optimal Multiadvisors Ireland plc
an umbrella fund with segregated liability between different funds and (ii) investing all or substantially all
of their assets in shares in the Optimal Strategic US Equity Series of Optimal Multiadvisors Ltd.
.Optimal MUltiadvisors Ltd. is a Bahamian Fund whose assets corresponding to its Optimal Strategic US
Equity Series are held by and through its Bahamian trading subsidiary, Optimal Strategic US Equity Ltd.
(Optimal Strategic US Equity Ltd. will be referred to as "Optimal Strategic" and, together with any persons
or hinds controlled, directly or indirectly, by, or whose investment manager is, Optimal Investment Services,
S.A. (Switzerland), as the "Optimal Funds").
IV, Optimal Strategic, in turn, had engaged Bernard L. Madoff Investment Securities LLC ("Medoff
Securities"), an entity registered as broker-dealer and investment adviser with the Securities and Exchange
Commission of the United States of America ("SEC") and regulated and supervised by the SEC and
the Financial Industry Regulatory Authority of the United States of America ("FINRA"), to execute its
investment strategy and had all or a substantial part of its assets deposited.with and traded through Medoff
Securities.
17; On 11 December 2008, a criminal complaint was filed against Bernard L. Medoff ("Medoff"), the founder
end CEO of Medoff Securities, under which he stands accused of several charges for, amongst other things,
securities fraud; and on 12 December 2008, the LIS. Federal Court for the Southern District of New York
appointed a reCeiver to take control of all of Madofrs assets.
VL On 15 December 2008, the U.S. Federal Court for the Southern Dittrict Of New York ordered that Medoff
Seeurities be piped into bankruptcy and simultaneously appointed a trustee to oversee the liquidation of
Madoff Securities as well as the issuance of debts against the Securities Investor Ptotection Corporetion
('SIPC").
VIL As consequence of the foregoing events, all redemptions and the calculation of the net asset value (the
a
'NAV") for the shares in the Optimal Strategic US Equity Series and the Optimal Strategic US Equity
Ireland Funds were suspended with immediate effect on, respectively, 15 December 2008 and 16 December
2008 (which suspension also applies tO redemption requests in those shares for redemption with reference
to the moat recent redemption or dealing date, which is 30 NoVember 2008 for the Optimal Strategic US
Equity Series and 1 December 2008 for the Optimal Strategic US Equity Ireland Funds).
TIM However, (a) in view of the exceptional and unforeseeable circurnstances affecting Medoff Securities and
:Medoff, the uncertainties surrounding the legal, fmancial and economic sittiation of Medoff Securities
deriving therefrom, the lack of clarity as to the amounts and timing of any potential recovery by Optimal
Strategic of its assets held by Medoff Securities and, therefore, by the Client under the Client's Optimal
SUS Securities; (b) in spite of none of the Bank, the Optimal Funds and the ultimate parent company of
'the Bank (the ultimate parent corripany of the Bank and its subsidiaries, including the Batik, am referred
to as the "Bank Group") having any legal or contractual obligation or diity to do so; and (6) exclusively
for the (merlin benefit of the Bank and the Bank Group 40mmercial interest, and taking into. account the
particular circumstances of the Client and the Bank Group's interest in maintaining its long-term commercial
relationship with the Client; the Bank has, at the request of the Client and as an exceptional and special
commercial effort, accepted agreeing to exchange, on the terms and conditions set forth in this.agreement (the
"Agreement"), (i) the Client's Optimal SUS Securities for (ii) the aggregate number of preferred securities,
whose principal terms and conditions will be those referred to in Annex 2, Identified in Para. of Annex
1 (the "Preferred Securities").
IX, The Parties, irrevocably and unconditionally, agree to abide by the provisions set forth in the following:
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 4 of 26
4CE0795
CLAUSES
The Parties agree that, on the Effective
Date (as defined below), they will, exchange the Client's Optimal SUS
Seeuritiesfor the Preferred Securities (the "Exchange") so that on the Effective Date the Client becomes the
owner
ofthe-Preferred Securities and the Bank becomes the owner of the Client's Optimal
SUS Securities, all on the terms
and. conditions set forth in thii Agreement.
LI. Effective Date
The Exchange shall take place on the date unilaterally designated by the Bank (the "Effective Date") following
Me issuance of the Preferred Securities,
provided,. however, that the Exchange shall in any event occur not later
'than 51 March 2009.
Frgilltnge
-On the Effective Date all the actions listed below shall be taken
simultaneously, without any such action being
effective until all such actions have been taken and am all effective:
(A) Transfer of Client's Optimal SUS Securities. The Client shall transfer'to the Bank the Client's Optimal SUS
Sectuitiesfite and clearfroin any lien, mortgage, pledge or encumbrance of
anykind (each of the foregoing,
a "Lien") (other than Liens for the benefit of the Bank covered under Clausal
2.(C)) and with any and all
'rights attaching to, or deriving from, the Client's Optimal SUS Securities;
.03)- Transfer of the Preferred Securities. The Bank shall transfer to the Client
(at a securities account maintained
by the Client with the Bank) the Preferred Securities tree and clear from any Lien (other than Liens for the
benefit of the Bank covered tinder Clause 1.2.(C)) and with
any and all rights attaching to, or deriving from.
the.Preferred Securities;
'(C): Treatment of Liens. If on The Effective Date the Client's
Optimal SUS Securities are subject to any Lien
guaranteeing obligations of the Client vis-I-vis the Bank, such Lien shall be removed from the Client's
-Optimal SUS Securities and automatically apply' (with the same terms; including, withont limitation, the
same ranldng and- privileges, such Lien over the Client's
Optimal SUS Securities had) to the Preferred
SeCurities being transferred under this Clause 1.2; and
Purther assurance. The Parties shall coinply with all formalities required for such transfers and extension of
Liens for the benefit of the Bank to be effected and perfected.
Effective upon the completion of the transfer of the Preferred Securities, pursuant to Clause 1.2.(B), the Client
shallhereby, without the need for execution of any further instrument (save as may he requested by the Bank),
automatically assign, transfer and convey to the Bank in consideration for such transfer of the Preferred Securities
the Client's entire right, title and interest in and to all present and future claims, counterclaims, actions, causes of
action and suits against any person (excluding any Bank Party (es defined below) released under Clause 3.(F) but
ineluding, without limitation, Medoff Securities, Medoff, the bankruptcy estate of Medoff, the bankruptcy estate of
Medoff Securities, the officers, directors, employees, agents and representatives Medoff
Of Securities and Medoff
(*biding, without limitationrcleining agents, custodians, trustees, receivers, auditors and legal counsel), the family
•embers of Madoff the SIPC, otherinsurers, the governmental entities and quasi-governmental entities having-
supervisory jurisdiction over Medoff Securities and the custodians, administrators, auditors and legal counsel of
the Optimal Funds and the predecessors of any of
the-foregoing at any time), in eaeh elite that the Client has now
Or, may have and arising out of or in connection with or relatine to the Optimal Strategic US Equity Series of
.Optimar Multiadvisors Ltd., the •Crptimal Strategic US Equity Ireland Fund, the Client's OptiMal SUS' Sectuities
or the Client's investment in the Optimal FUnds, Following Rich
assignment, the Client will cooperate in any
enforcement try the Bank ofThe essigned rights and shall pay to the.Bank
any proceeds the Client inerrecelve. or
bave received from the date hereof -under, or deriving from, assets or rights assigned to the Bank hereunder. For
the puvese of euswing that the claims, couuterclaims, actions, causes ()faction and suits
assigned hereundervest
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 5 of 26
4 4CE0795
.upon the Bank, the Client undertakes to, as soon as reasonably practicable following the Bank's request, comply
with any formalities (including, but not limited to, executing any agreements or other documents)
required for such
assignment to be effective vis-h-vis any third parties.
2. OTHER •UNDFRTAKINGS OF THE CLIENT
fn :consideration for the exceptional and special commercial effort of the Bank
consisting in the transfer to the
Cllent,fthe Preferred Sdcurities, the Client, as additional consideration for the transfer by the Bank of the Preferred
Securities, undertakes, for as long as the Preferred Securities are, outstanding, to:
(A) peposit of the Preferred Securities wit.luire_Bank: Entrust the Bank with the
custody of the Preferred
Securitiet and, if the Client disposes of or transfers any Preferred Securities, have the
proceeds received
by the Client frnm .any such disposal or transfer deposited with the Bank Group and/or invested through
the Bank. Group;
.(B) Maintenance of level of business: Maintain (and cause the other entities pertaining to the same group as the
Client, which shall be referred to as the "Client's Group") (I) an amount of assets of the Client and the
Client's Group deposited with the Bank Croup and/orinvested through the Bank Group and (ii) a volume
of .otherbaniting (including, but not limited to, financing), securities and investment products, and services
contracted by the Client and the Client's Group with the Bank Group, for both .(i) and (ii), at least
equal to-
the amount and volumes existing as ofthe date hereof; and
(c) The Bank as preferential business partner: Treat the Bank and the Bank Group as a preferential business
partner with respect to the banking, securities and investment products and services the Client may contract.
.CLIMNT REPRESENTATIONS AND ACKNOWLEDGEMENTS
The Client represents and warrants, for the benefit of the Bank, the Optimal Funds, the Bank Group and any other
Bank Parties, that:
(A) status. The Client is an "accrediteciinvestor" (within the meaning of Regulation D under the U.S. Securities
Act of 1933) and is not a "U.S. person" (within the meaning of
Regulation S under the U.S. Securities Act
of 1933). The Client is the legal and beneficial owner of all assets and rights transferred or
agreed to be
transferred to the Bank pursuant to this Agreement, holding those assets and Eights free and clear from any
Lien (other than Liens for the benefit of the Bank overthe Client's Optimal SUS Securities covereclunder
Clause 1.2.(C)). The Client is entering into this Agreement and acqUiring the Preferred Securities for its own
account.The Client is a sophisticated investor and is able to assess and bear the risks and costs of illiquidity
of its investment in the Preferred Securities in accordance with this Agreement The Client
acknowledges
that (i) the Preferred Securities are being transferred to the Client as part of a
privately negotiated agreement-
and not pursuant to any public offer (within the meaning of
any applicable securities law) or pursuant to
the discharge by any Bank Party of any investment advisory, investment management, fmancial advisory;
banking or fiduciary responsibility to the Client and (ii) in acquiring thePreferred Semidries pursuant to this
Agreement the Client is not entitled to' the benefits of any registration, qualification, or suitability provisions
of any securities, investment advisory, investment management, financial
advisory or banking law. The
Client shill not (i) offer or sell the Preferred Securities in the United States or to a U.S.
person, (ii) offer
or sell the Preferred Securities in any public. offer (within the meaning Of
any applicable sectitities laW) or
(iii)-otherwise offer or sell the Preferred Securities in any manner that requires registration or qualification
under any applicable law, other than in asale to The Bank or
through the facilities of a recognizedEuropean
securities exchange and subject to such sale being exempt from registration in the U.S.
(B) Information. Prior to the execution of this Agreement, the Client has received, read.arid understood a
copy of
:tbo dpeomentation enclosed or referred hereto (including the description of the Preferred Securities referred
Min Annex. 2 and delivered to the Client as a separate
booklet) and an execution version of-this Agreement
identical to the one being executed and has sought and received, to its entire satisfaction, independent
hnaneiali legal and taxation advice in relation to thiS Agreement, the investment in the Preferred Seturities
•ndthe risks deli ving therefrom. In making its decision to enter into this
Agreeinent, to exchange the Client's
Optimal SUS Securities and to' acquire the Preferred Seourities.pursoltut to this.Amentent, tbo Client is not
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 6 of 26
relying on any information, representation or warranty given the 4CE0795
of the Bank Group, other than as
by Bank, any Optimal Ftrnd or any member
specifically set forth in this Agreement, and acknowledges that the Bank is
not making any representation or
warranty in connection with the Preferred Securities other than
will on the Effective Date have title to the Preferred the Bank
Securities.
i(C) :Immobilization of the Client's Optimal SUS Securities.
The Client understands that,
exchange the Client's Optimal SUS Securities in the terms having undertaken to
the terms hereof) have the right from the
hereunder, it will not (except to the Bank on
date hereof to sell, charge or otherwise
Client's Optimal SUS Securities, dispose of or transfer the
including, without limitation, requesting their mdemption or cancellation.
(D) •egal actions. The Client represents (a) that it has not
initiated any action, claim or
arbitral or otherwise) deriving fro:m the proceedings (judicial,
Client's Optimal SUS Securities or
assigned to the Bank hereunder and, pending the other assets or rights to be
asaignment of those assets or fights :to the Bank, shall not
initiate any such action or claim
(except at the Bank's request) and (b). that the.Client has not initiated
'Claim (as defined below) or that, if the Client any
has initiated any such Claims, all such Claims
in the waiver set forth in Clause are included
3.(F) and therefore withdraws (and agrees:to Formalize such
the extent appropriate or as requested by the withdrawal to
Bank) all Claims by signing this Agreement.
'(E) :Exceptional nature Of terms. The Client understands that the circumstances
the Recitals hereto are of an exceptional nature leading.to the events described in
and that the Bank has accepted the terms ofthis
an exceptional Agreetnent as
commerchaeffort with the Client andin view of the Client's
and, therefore, that the Bank shall not have any obligations under this Agreement
obligation to adept similar measures with respect to any
investments (including, but not limited to, the Preferred
:even if those investments come to be
Securities) involvingthe Bank Parties Many manner,
affected by circumstances or matters as
exceptional as the ones now
eoneurring.
(1) Acknowledgement and waiver of claims.
At the time the Client'sOptimal SUS Securities were acquired by the Client, the Client was
of, and accepted, the terins, conditions and risks of such duly informed
securities and, therefore, the Client has
claim in connection thereto from the Bank, the nothing- to
Optimal Funds, the Bank Group or any (present or
directors or employees of any of the referred entities former)
(all the foregoinitentities and other persons, "Bank
Varties"). the
The Client: (i) releases, remises, acquits, and forever
discharges the Bank Parties of and from all past,
present, and future claims, counterclaims, complaints, actions; causes of action, promises,
duties, damages, losses, rights of set-off, covenants,
indemnity, right or interest of arty kind or nature whatsoever
-(whether compensatory, consequential, punitive, or
exemplary, and whether known or unknown, suspected
or unsuspected, foreseen or
unforeseen, direct or indirect, contingent or actual,
and whenever arising and in whatever present or future, however
capacity and jurisdiction) and any and all snits of law, or in
and any liability (and whether equity,
arising out of statute, regulations, -contract, breach of fiduciary
otherwise, and whether basedon strict liability, fraud; duty or tort or
gross negligence or negligence or
:kind of nature whatsoever (each, a "Claim" and, otherwise) of any
jointly, the "Claims") arising out of or in connection with
:or relating. to the Optimal
Strategic US Equity Series of Optimal Multiadvisors Ltd., the
.U.S.Equity Ireland Fund, the Client's Optimal SUS.Securities, the Client's Optimal Strategic
or any other matter
investment in the Optimal Funds
deriving from any investment managed .by any Bank Party, or in
connection with
which a Bank Party may have rendered advice or investment
services, and having. any actual or potential
exposure to Medoff Securities or Macloff
take any additional actions.that the Bank
(collectively, the "Matters"); and (ii) undertakes to promptly
may request to formalize the release of the Bank Parties from all
Attions arising out of or in connection with or
relating to the Matters. The Client also deems answered any
information petition or other communication addressed
by:the.Client to any BankParty in connection With
the Client's Optimal SUS Securities.
.-MISCET4.,ANEOUS
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 7 of 26
4CB0795
4.1. Confldentialfty
The existence of this Agreement and the fact that it has been
entered into, the terms and conditions contained in
this Agreement and any information delivered by one
Party to any other Party in connection with this Agreement
(the "Information") shall be kept strictly confidential by the receiving
Party.
Each Party agrees to limit the
distribution of the Information received (including, without limitation, this
•greement) only to those officers, employees, agents, professional advisers or auditors of such
shall he informed of the confidentiality thereof and shall
Party (all of whom
agree to keep
it confidential to the same eXtent the
distributing Party is bound) as far as such distribution is necessary for the completion, enforcement and
fulfilment
f this Agreement and for audit, accounting or internal
compliance purposes of each Party.
Notwithstanding the foregoing, a Party May disclose Information if and to the extent such disclosure is: (i)
required
by any applicable laws, administrative or judicial order, or by the rules or regulations of
any stock exchange or
other regulatory body to which such Party is subject; (ii)
required to complete the actions, fulfil the obligations and
west or enforce the rights set forth hereunder; or
(iii) the disclosed Information has come into the public domain
through no fault of the Party making the disclosure.
4.2. ilankyarliglis.afflinchlligAusfitumnit
This Agreement shall, apply to, inure ta the benefit of; and be binding upon and enforceable against the Parties
(and their successors and permitted assignees) only, except that all rights, waivers and benefits set forth
hereunder
.for the Bank Parties shall be deemed aceepted by the Bank for the
benefit of the Beek Parties and, themfore, 'this
Agreement, in as much as it contains those rights and benefits for the.Bank Parties shall inure to the benefit of, and
be enforceable by, the Bank Parties (and their successors and
permitted assignees).
Any atsignment of rights or obligations hereunder byany Party will require the prior written consent of the other
l'arty, except that assignments of rights or obligations bythe Bank taany Bank
Party shall not reclaim the consent of
:the Clientif the Bank remains jointly and severally liable with the relevant
BaaPartywith respect tathe obligations
assigned to such bank Party,
4.3. Entire Agreement. Severability
It is expressly understood and agreed by the Parties that this Agreement contains the
entire agreement between
the Client, on the one hand, and the Bank Croup, on the other hand,
regarding the subjact matter hereof and this
'Agreement supersedes any and all prior agreements, arrangements or understandings between the Parties
to the subject matter of this Agreement. No oral
relating
understandings, statements, promises or inducements contrary to
the terms of this Agreement exist.
If any of the provisions of this Agreementis or becontes invalid,
illegal or unenforceable under any applicable laws
of any competent jurisdiction, the validity, legality or enforceability. of the
remainingprovisions shall not in any
way be affected or impaired. The Parties shall nevertheless negotiate in good faith in order
to agree the terms of
.muteally satisfactory provisions, achieving as closely as possible the Same conimeneial effect, to be substituted for
tbe proviSions so found to be void or unenforceable.
fttlieztissUrance
Each Party to this Agreement covenants and agrees that it will, at the
'request and expense of the. requesting
:tarty, execute and deliversuch documents, including all such additional conveyances, transfers, consents.ancl other
;Assurances and do all such other acts and things as the other Patty hereto,
acting reasqnably, may from time tatime
request to be executed or done in order to evidence better or perfect or effectuate
any provision of this Agreement
:or Cif any agreement er other decument executed pursuant to this Agreement or any of the
respective obligations
intended to be created hereby or thereby.
The Parties agree to take all actions, and to do all things
necessary, proper or advisable to consummate and make
:effective, in the most expeditious practicable manner, the transactions contemplated
hereby, ineludingthe defending
of any lawsuits or other legal proceedings, whether judicial or
adminisuative, challenging this Agreement or the
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 8 of 26
1
7 4CE0795
consummation of the transactions contemplated hereby, including seeking tohave any stay or temporary restraining
order entered by any court or other competent authorities vacated or reversed.
To the fullest extent permitted in law, the Client irrevocably and unconditionally authorizes and instructs the Bank
to take in the name and on behalf of the Client any and all actions that the Client may be required to take under
thisAgreement, including, but not limited to, the execution of any stock transfer forms with respect to the Client's
Opdmal SUS, Securities and any other formalities or actions contemplated in, or required pursuant to, Clauses 1.2
and 4.
GOVERNINO LAW
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of The
Bahamas, including any applicable statutes of limitation, without regard to any otherwise applicable principles of
:conflicts of law or choice of law rules that would result in the application of the laws of any other jurisdiction.
:6. AMMIXAMM
6.1. ELIVISSIORTQABBITRATION
:(A) THE FARTIE• AGREE THAT ALL CONTROVERSIES BETWEEN THE CLIENT AND THE BANK
.OR THE BANK PARTIES ARISING OUT OF OR.RELATING TO THIS AGREEMENT OR MAZITtRS.
RELATED THERETO, SHALL BE FINALLY AND EXCLUSIVELY SETI'LED BY ARBITRATION
IN LAW IN ACCOIWANCE WITH THE RULES OF ARBITRATION OF THE INTERNATIONAL
CHAMBER OF COMMERCE' BY ONE ARBITRATOR APPOINTED IN ACCORDANCE WITH ME
SAID RULES, WHICH THE PARTIES DECLARE TO KNOW. ALL ARBITRATION PROCEEDINGS
WILL BE HELD IN GENEVA, SWITZERLAND. THE LANGUAGE OF THE ARBITRATION WILL
BEENGLISH. THE PARTIES AND THE ARBITRATOR WILL KEEP THE CONFIDENTIALITY OF
THE ARBITRATION AND THE PROCEEDINGS. THE AWARD OF THE ARBITRATOR SHALL BE
FINAL AMONGST THE PARTIES TO THE ARBITRATION.
(8) BOTH THE CLIENT AND THE BANK ACKNOWLEDGE AND AGREE THAT ARBITRATION IS
FINAL AND BINDING ON THE PARTIES.
6.2. Consent to jurisdiction
Subject to and without limiting the provisions of the Parties' agreement to arbitrate, the Client irrevocably agrees
that all claims: (i) to enforce the Parties' agreement to arbitrate, (ii) to confirm any arbitration aviard entered
pursuant to the Parties' agreement to arbitrate, (iii) in the event that the Parties' agreement to arbitrate is found to
beunenforceable, or (iv) in the event that a court finds that claims brought by the Bank or the Client are not covered
Within:the scope cif the Parties' agreement to arbitrate will be heard and determined exclusively inthe courts sitting
in Geneva, Switzerland. The Client herebyirrevocably submits to the exclusive jurisdiction of any court sitting in
Geneva; Switzerlandrelated to these claims. In any such action or proceeding, the Client waives any objection based
on forurri non conveniens or venue. Without affecting the Bank's right to serve legal process in any other manner
perinitted by applicable law, the Client irrevocably consents to the service of any arid all process in any such action
orproceeding by the mailing of copies of the.process to the address for the Client indicated in the Agreement or
:the Client's address of record on the Bank's books. The Client also agrees that a final judgment in any such action
or proceeding and/or final arbitration award is conclusive and may be enforced in any jurisdiction by suit on the
judgmeht min any other manner provided by law.
6.3. JURY WAIVER
IN CIRCUMSTANCES CONTEMPLATED BY CLAUSE 6.2, EACH OF THE CLIENT AND THE BANK
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY 11:I^1 ANY PROCEEDING
ARISING OUT OR RELATED TO THIS AGREEMENT, THE MATTERS, OR 'IHE TRANSACTIONS
CONTEMPLATED HEREE Y.
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 9 of 26
REDACTED
8 4030795
44, •ndemft.for prevailing. party
In the event any Party brings an action against any other
Party to enforce a provisiOn of this Agreement (including
this Clause) Or any arbitratien award With respect to the Agreement, 'the
prevailing. Party in such action shall
lre indemnified' by the rion-movalling Party for the reasonable expense% 'including the reasonable fear: and
disbursenients of 'counsel or other professional and court costs, incurred in connection therewith by the prevailing
PlYty.
IN WITNESS WHEREOF, the Parties hereto have etecuted this Agreement as of.the date first above written.
Client
By:
By: By:
By:. By:
By; By:.
Jay; Y:
Beak
By:
Name;
AI WM
'MOW
Bank
By;
Name:
1I 4
A
41e
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 10 of 26
160 Santander
PRIVATE BANKING REDACTED
Solvmar Investment Ltd.
March 13, 2009
Dear Client:
We hereby refer to the Exchange Agreement that was signed
by you with our Bank on
March 13, 2009 for the Exchange of the Optimal SUS Securities for the Preferred Securities. All
capitalized terms not defined herein shall have the meaning ascribed in the Exchange
Agreement.
In connection with Clause 2.(B) of the Exchange Agreement, we wish to
clarify that such clause
is not intended to place a pledge or otherwise block your
positions with the Bank Group, except
in such cases where it has been or will be agreed so by you and
any of the members of the
Bank Group in a separate written agreement other than the
Exchange Agreement.
Sincerely,
zzq
José G onzal de .1111111111jit
Director Santander Bank & Trust Ltd.
Santander Bank & Trust Ltd.
P.O. Box N-1682, Goodman's Bay Corporate Centre, 3rd Floor, West Bay Street & Seaview Drive, NASSAU, BAHAMAS
Tel: (242) 502-7900 Fax: (242) 322-3585
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 11 of 26
EXHIBIT 2
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 12 of 26
Original Message
From: "Ana Jaureguizar" <alaureguizarabpi-Ltruposantander.com>
To: <Olasmiz@eyelq4.com>
Sent: Monday, March 14, 2005 3:21 PM
<<SUS.pdf>>
Ehas:
Aqui esta el fondo que Manuel te comento que estaba cerrado, y puede que tengamos
oportunidad de palicipar en las proximas sernanas,
Saiudos,
Ana J.
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 13 of 26
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Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 15 of 26
EXHIBIT 3
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 16 of 26
REDACTED
From: Vanessa Remond <vremond@pb-santander.com>
Subject: FW: Inversiones
REDACTED
Date: Tuesday, September 30, 2008, 3:21 PM
Estimada
Banco Santander esta recomendando la liquidaciem de una de sus inversiones. El nombre es "OPTIMAL SUS
EQ
IRL A USD". El banco considera que es de alto riesgo y debido a la volatilidad del mercado
preferimos ser
conservadores y liquidar la inversiOn.
Por favor Ilememe para converser de este tema.
Saludos,
Vanessa Remond
Vice President
Banco Santander Intl Private Bank
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 17 of 26
11401 Brickell Ave.
Floor
115th
1 Miami, Fl. 33131
I Phone#305-530-7256
VRemond@PB-Santander.com
Internet communications are not secure and therefore Banco
Santander International does not accept legal responsibility for
the contents of this message. Any views or opinions presented are
solely those of the author and do not necessarily represent those
of Banco Santander International unless otherwise specifically
stated.
Las comunicaciones via Internet no son seguras y por lo tanto
Banco Santander International no asume responsabilidad
legal ni
de ningun otro tipo por el
contenido de este mensaje. Cualquier
opinion transmitida pertenece unicamente al autor y no
necesariamente representa la opinion del Banco Santander
International a no ser que este expresamente detallado.
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 18 of 26
EXHIBIT 4
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 19 of 26
44 Santander
PRIVATE RANKING
REDACTED
March 13, 2009
Astro lite Investment Ltd
Account
Dear Sirs:
Here is the final term sheet agreed upon:
FINAL TERM SHEET
Hybrid Facility: (i) As to principal, non-recourse 10 year term loan secured
by face value of 2%
preferred shares.
(ii) As to interest, recourse to assure payment of interest, secured
by a 20% security
interest the investments made with loan
on
proceeds, but no acceleration "Use shall
appear in the note.
Lender: Santander Central Hispano Bank & Trust
(Bahama44
Borrower: S085. All 4 companies will sign Exchange zdree—Ogentii
Amount: (the "Loan")
Funding: Funded no later than Friday, Ami,L25, 200k Delivbry of draft loan documents before
March 25th.
th -Ai
Ba lion Note: balloon payriAltiluelkl 0 ar niversary date.
Fixed Rate: 10 year fixed ratAti.p.:"41:-X, F--4-i-'.wap Rate plus 1% spread. The rate is at
http://www.econotiliadecom/em-cd'raata.exe/fedbod/swp10y. The current rate is 3.10%,
but the rate to haAreffect on
to exragd 4_25° bktsed is the the loan disbursement date, but in no event
Amortization: Simple intertslitanlyWamarly on anniversary date computed on a 360 year.
Notice: Bank shall
peleast 30 days prior written notice of interest due.
Security 1: Non-recourse loan
secured by in Santander (Spain) non-cumulative
perpetual preferredshares yielding 2% tax free (no withholding taxes apply in
any
jurisdiction). At endof k:lan term, if the preferred shares are not purchased by bank at
face value, bank forecloses on preferred shares to extinguish the note in full
(all costs
borne by Bank). No margin call applies and no
deficiency judgment is possible.
Security 2: Borrower undertakes to pay all interest under the note
during the ten years. To secure
this obligation, Borrower will grant a security interest in 20% of the investments made
with the loan proceeds, which shall be in a separate account. Borrower
may use income
generated in the separate secured account to make payment of interest on the loan. At
the end of the 10 year term, provided interest on the loan has been
paid in full, the
security interest shall be cancelled by the bank, the separate secured account closed and
the money transferred to the unencumbered 8085 account
(all costs to create or cancel
the security interest are borne by the bank).
Currency: U.S. Dollar.
_Case_t_l_0_,cv.,20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 20 of 26
Final Term Sheet for:
Astrolite Investment Ltd.
Account
REDACTED
Law: Commonwealth of the Bahamas.
Trading Costs: As agreed with Manuel, bank shall absorb all
trading costs and not charge custodial or
other fees on the investments made with the loan proceeds.
Assignment: Bank to allow assignment of
Exchange Agreement from 3 companies to S085. The
companies will transfer the preferred shares issued to them to S085. Bank shall confirm
assignment and that all legal requirements have been fulfilled. No costs shall be borne
by Borrower to transfer the Exchange Agreement or Preferred Shares.
Fees: No fees, costs, expenses, taxes, or other
payments of any kind, other than interest due
under the note, shall be borne
by the client, except for the fees of its own advisors and
consultants (if any).
/q45
José Gonzalez de
Castepn
Managing Director Santander f3ankieTriist Ltd.
Santander Bank & Trust
Goodman's Bay Corpora 4- C.;1" 3rd Floor
West Bay Street & Seavle..f-
Po Box N-1652, Nassau, nuts
Tel (242) 502 7900 Fax (242) 322 3585
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 21 of 26
44. Santander
PRIVATE BANKING
March 13, 2009
REDACTED
Etemalite Investment Ltd.
Account
Dear Sirs:
Here is the final term sheet agreed upon:
FINAL TERM SHEET
Hybrid Facility: (i) As to principal, non-recourse 10 year term loan secured
by face value of 2%
preferred shares.
(ii) As to interest, recourse to assure payment of interest, secured
by a 20% security
interest on the investments made with loan proceeds, but no acceleration clause shall
appear in the note.
Lender: Santander Central Hispano Bank & Trust
(Bahamar LtdA,
Borrower S085. All 4 companies will sign Exchange,tre nt.
Amount: (the "Loan").
Funding: Funded no later than Friday, Apsil.25, 200k DeliVery of draft loan documents before
March 25th.
Ballon Note: balloon
payrrptiWuewithL101" niversary date,
Fixed Rate: 10 year fixed rat 47,,,?wap Rate plus 1% spread. The rate is at
htt ://mvw.econo a ic!tom/em-col_'iata.exe/fedbog/swp 10y. The current rate is
3.10%,
but the rate to bused is the effect on the loan disbursement date, but in no event
to exceed
VW,
Amortization: Simple intertsvwxyzawarly on anniversary date computed on a 360 year
Notice: Bank shall
prkvieleNt*least 30 days prior written notice of interest due.
Security 1: Non-recourse loan secured by II 0 Santander
in (Spain) non-cumulative
perpetual preferred shares yielding 2% tax free
(no withholding taxes apply in any
jurisdiction). At end of loan term, if the preferred shares are not purchased by bank at
face value, bank forecloses on preferred shares to
extinguish the note in full (all costs
borne by Bank). No margin call applies and no
deficiency judgment is possible.
Security 2: Borrower undertakes to pay all interest under the note during the ten
years. To secure
this obligation, Borrower will grant a security interest in 20% of the investments made
with the loan proceeds, which shall be in a separate account. Borrower
may use income
generated in the separate secured account to make payment of interest on the loan. At
the end of the 10 year term, provided interest on the loan has been
paid in full, the
security interest shall be cancelled by the bank, the separate secured account closed and
the money transferred to the unencumbered 5085 account
(all costs to create or cancel
the security interest are borne by the bank).
Currency: U.S. Dollar.
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 22 of 26
Eternalite Investment Ltd.
Account
REDACTED
Law: Commonwealth of the Bahamas.
Trading Costs: As agreed with Manuel, bank shall absorb all
trading costs and not charge custodial or
other fees on the investments made with the
proceeds.
Assignment: Bank to allow assignment of
Exchange Agreement from 3 companies to S085. The
companies will transfer the preferred shares issued to them to S085. Bank shall confirm
assignment and that all legal requirements have been futfilled. No costs shall be borne
by Borrower to transfer the Exchange Agreement or Preferred Shares.
Fees: No fees, costs, expenses, taxes, or other
payments of any kind, other than interest due
under the note, shall be borne by the client,
except for the fees of Its own advisors and
consultants (if any).
/7C)43,
José Gonzalez de Castej.k
Managing Director Santafider Bank &TriAt Ltd.
Santander Bank & Trus
Goodman's Bay CorporJ,,,. -31d1r1oor
West Bay Street & Seavl A
Po Box N-1682, Nassau,
Tel (242) 502 7900 Fax (24 322 3586
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 23 of 26
44) Santander
PRIVATE BANKING
March 13, 2009
Solymar Investment Ltd.
Account
REDACTED
Dear Sirs:
Here is the final term sheet agreed upon:
FINAL TERM SHEET
Hybrid Facility: (i) As to principal, non-recourse 10 year term loan secured
by face value of 2%
preferred shares.
(ii) As to interest, recourse to assure payment of interest, secured
by a 20% security
interest the investments made with loan
on
proceeds. but no acceleration clause shall
appear in the note.
Lender: Santander Central Hispano Bank & Trust
(BahamaSUM
Borrower: S085. All 4 companies will sign Exchange iggreertiapt.
Amount: (the "Loan").
Funding: Funded no later than Friday, Apcil-25. 2009'.L Delivtry of dratt loan documents before
March 25th.
Ba llon Note: balloon payruerrdue 10"' afy niversary date.
Fixed Rate: 10 year fixed rat .awap Rate plus 1% spread. The rate is at
http://www.econ agictom/em-ccf ata.exetfedbog/swp10y. The current rate is 3.10%,
but the rate to b4used is the brigrOf effect or) the loan disbursement date, but in no event
to exceed
.1.,
Amortization: Simple intereStmnivIMieurk.kly on anniversary date computed on a 360 year.
Notice: Bank snail
prvide"4least 30 days prior written notice of interest due
Security 1: Non-recourse loan secured by in Santander (Spain) non-cumulative
perpetual preferred shares yielding 2% tax free (no withholding taxes apply in any
jurisdiction). At end of loan term, if the preferred shares are not purchased by bank at
face value, bank forecloses on preferred shares to extinguish the note in full
(all costs
borne by Bank). No margin call applies and no
deficiency judgment is possible.
Security 2: Borrower undertakes to pay all interest under the note during the ten years. To secure
this obligation, Borrower will grant a security interest in 20% of the investments made
with the loan proceeds, which shall be in a separate account, Borrower
may use income
generated in the separate secured account to make payment of interest on the loan. At
the end of the 10 year term, provided interest on the loan has been
paid in full, the
security interest shall be cancelled by the bank, the separate secured account closed and
the money transferred to the unencumbered S085 account (all costs to create or cancel
the security interest are borne by the bank).
Currency: U.S. Dollar.
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 24 of 26
Solymar Investment Ltd.
Account
REDACTED
Law: Commonwealth of the Bahamas.
Trading Costs: As agreed with Manuel, bank shall absorb all trading costs and not charge custodial or
other fees on the investments made with the loan proceeds.
Assignment: Bank to allow assignment of Exchange Agreement from 3
companies to S085. The
companies will transfer the preferred shares issued to them to S085. Bank shall confirm
assignment and that all legal requirements have been fulfilled. No costs shall be borne
by Borrower to transfer the Exchange Agreement or Preferred Shares.
Fees: No fees, costs, expenses, taxes, or other payments of
any kind, other than interest due
under the note, shall be borne by the client, except for the fees of its own advisors and
consultants (if any).
/c)45
José Gonzalez de CastejOnjt_
Managing Director Santal3anlat Taist Ltd.
Santander Bank & T Ltdl
Goodman's Bay Corp,:
eCeiRargierloor
110.
West Bay Street & Se "'It
ve P
Po Box N-1682, Nesse J ^I', ":as
Tel (242) 502 7900 Fax _s.;". .f, 3585
Case 1:10-cv-20695-FAM Document 1-2 Entered on FLSD Docket 03/08/2010 Page 25 of 26
S antander
PRIVATE BANKING
Sunrays Investment Ltd.
Account
Dear Sirs:
REDACTED
Here is the final term sheet agreed upon:
FINAL TERM SHEET
Hybrid Facility: (i) As to principal, non-recourse 10
year term loan secured by face value of 2%
preferred shares.
(ii) As to interest, recourse to assure
payment of interest, secured by a 20% security
interest on the investments made with loan
proceeds, but no acceleration clause shall
appear in the note.
Lender: Santander Central Hispano Bank & Trust
(Bahamaerret
Borrower: S085. All 4 companies will sign Exchange Acarempellr
Amount: (the "Loan").
Funding: Funded no later than Friday, April 2 20% Delivqy of draft loan documents before
March 25`b.
Ballon Note: balloon date.
payrnewuele 1u-sainivertary
Fixed Rate: 10 year fixed rate CI ea 1% spread.
.SVPalaiorRate plus The rate is at
http://www.econorsc ata.exeifedboa/swp10y. The current rate is 3.10%,
but the rate to beirsed i the one in ..-:ffect on the loan disbursement date, but in no event
to exceed 4.25%1
Amortization: Simple inteiptonftaid ye/1y on anniversary date computed on a 360 year.
Notice: Bank snail prtivigent least 30 days prior written notice of interest due.
Security 1: Non-recourse loan secured by in Santander (Spain) non-cumulative
perpetual preferred shares yielding 2% tax free
(no withholding taxes apply in any
jurisdiction). At end of loan term, if the preferred shares are not purchased by bank at
face value, bank forecloses on preferred shares to
extinguish the note in full (all costs
borne by Bank). No margin call applies and no
deficiency judgment is possible.
Security 2: Borrower undertakes to pay all interest under the note
during the ten years. To secure
this obligation, Borrower will grant a
security interest in 20% of the investments made
with the loan proceeds, which shall be in a
separate account. Borrower may use income
generated in the separate secured account to make payment of interest on the loan. At
the end of the 10 year term, provided interest on the loan has
been paid in full, the
security interest shall be cancelled by the bank, the separate secured account closed and
the money transferred to the unencumbered S085 account
(all costs to create or cancel
the security interest are borne by the
bank).
Currency: U.S. Dollar.
1.0-cv-20695-FAM Docurnent 1-2 Entered on FLSD Docket 03/08/2010 Page 26 of 26
Sunrays Investment Ltd.
REDACTED
Account
Law: Commonwealth of the Bahamas
Trading Costs: As agreed with Manuel, bank shall absorb
all
other fees on the investments made with the
trading costs and not charge custodial or
I loan proceeds.
Assignment: Bank to allow assignment of
Exchange Agreement from 3 companies to S085. The
companies will transfer the preferred shares issued to them to S085. Bank
shall confirm
assignment and that all legal requirements have been fulfilled. No costs shall be borne
by Borrower to transfer the Exchange Agreement or Preferred Shares.
Fees: No fees, costs, expenses,
taxes, or other payments of any kind, other than interest due
under the note, shall be borne
by the client, except for the fees of its own advisors and
consultants (if any).
/C)43
José Gonzalez de
Castet&n
Managing Director aantaler Bankt, Trust Ltd.
Santander Bank & Trust.
n3rd
Goodman's Bay Corpora
West Bay Street & Seavie Ikive w.
Po Box N-1682, Nassau, Bahamas
Floor
Tel (242) 502 7900 Fax (242) 322 3585
Case 1:10-cv-20695-FAM Document 1-3 Entered on FLSD Docket 03/08/2010 Page 1 of 1
k-LJS 44 (Rev. 2/08) CIVIL COVER SHEET
Thc JS 44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or other pape
the purpose of initiati
by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Cl r or
the civil docket sheet. (SEE INSTRUCTIONS ON THE REVERSE OF THE FORM.) NOTICE: Attorneys MUST Indicate All Re-fi D.C.
I. (a) PLAINTIFFS DEFENDANTS
Solymar Investments, Ltd., et al. Banco Santander, S.A., et al. MAR 08 2010
STEVEN M. LARIMORE
(b) County of Residence of First Listed Plaintiff County of Residence of First Listed Defendan
(EXCEPT CASES) (IN U.S. PLAINTIFF 1) SES
IN U.S. PLAINTIFF Sull)of FLA. MIAMI
(c) Attorney's (Firm Name, Address, and Telephone Number) NOTE: IN LAND CONDEMNATION CASES, USE THE LOCATION OF T"
LAND INVOLVED.
Martin B. Goldberg, Esq. & Lawrence B. Lambert, Esq.
Lash & Goldberg LLP Attorneys (If Known)
100 SE 2nd Street, Suite 1200 Sam Danon, Esq., Gus Membiela, Esq., Hunton & Williams LLP,
Miami FT 11111 la 1111 Brickell Avenue, Suite 2500, Miami, Florida 331321 a
(d) Check County Where Action Arose: 106 MIAMI- DADE 0 MONROE 0 BROWARD 0 PALM BEACH 0 MARTIN 0 ST. LUCIE 0 INDIAN RIVER 0 OKEECHOBEE
HIGHLANDS
II. BASIS OF JURISDICTION (Place an "X" in One Box Only) III. CITIZENSHIP OF PRINCIPAL PARTIES(Place an "X" in One Box for Plaintiff
(For Diversity Cases Only) and One Box for Defendant)
O I U.S. Government l0 3 Federal Question PTF DEF PTF DEF
Plaintiff (U.S. Government Not a Party) Citizen of This State 0 1 0 I Incorporated or Principal Place 0 4 3 4
of Business In This State
O 2 U.S. Government 0 4 D iversity Citizen of Another State 0 2 0 2 Incorporated and Principal Place 7 5 0 5
Defendant of Business In Another State
(Indicate Citizenship of Parties in Item III)
Citizen or Subject of a 0 3 0 3 Foreign Nation 0 6 0 6
Pnrpion Cnunn,
Tie A TITTIOU CITT'T n
I CONTRACT TORTS FORFEITURE/PENALTY BANKRUPTCY OTHER STATUTES I
O 110 Insurance PERSONAL INJURY PERSONAL INJURY 0 610 Agriculture 0 422 Appeal 28 USC 158 0 400 State Reapportionment
O 120 Marine 7 310 Airplane 0 362 Personal Injury 0 620 Other Food & Drug 0 423 Withdrawal 0 410 Antitrust
O 130 Miller Act 0 315 Airplane Product Med. Malpractice 0 625 Drug Related Seizure 28 USC 157 0 430 Banks and Banking
O 140 Negotiable Instrument Liability 0 365 Personal Injury of Property 21 USC 881 0 450 Commerce
O 150 Recovery of Overpayment 0 320 Assault, Libel & Product Liability 0 630 Liquor Laws I PROPERTY RIGHTS 0 460 Deportation
& Enforcement ofludgment Slander 0 368 Asbestos Personal 0 640 R.R. & Truck 0 820 Copyrights 0 470 Racketeer Influenced and
O 151 Medicare Act 0 330 Federal Employers' Injury Product 0 650 Airline Regs. 0 830 Patent Corrupt Organizations
O 152 Recovery of Defaulted Liability Liability 0 660 Occupational 0 840 Trademark 0 480 Consumer Credit
Student Loans 0 340 Marinc PERSONAL PROPERTY Safety/Health 0 490 Cable/Sat TV
(Excl. Veterans) 0 345 Marine Product 0 370 Other Fraud 0 690 Other 0 810 Selective Service
7 153 Recovery of Overpayment Liability 0 371 Truth in Lending I LABOR SOCIAL SECURITY Al 850 Securities/Commodities/
of Veteran's Benefits 0 350 Motor Vehicle 0 380 Other Personal 0 710 Fair Labor Standards 0 861 HIA (1395ff) Exchange
3 160 Stockholders' Suits 0 355 Motor Vehicle Property Damage Act 0 862 Black Lung (923) 0 875 Customer Challenge
CI 190 Other Contract Product Liability 0 385 Property Damage 3 720 Labor/Mgmt. Relations 0 863 DIWC/DIWW (405(g)) 12 USC 3410
O 195 Contract Product Liability 0 360 Other Personal Product Liability 0 730 Labor/Mgmt.Reporting 0 864 SSID Title XVI 0 890 Other Statutory Actions
O 196 Franchise Injury & Disclosure Act 0 865 RSI (405(g)) 0 891 Agricultural Acts
I_REAL PROPERTY CIVIL RIGHTS PRISONER PETITIONS 0 740 Railway Labor Act FEDERAL TAX SUITS 0 892 Economic Stabilization Act
O 210 Land Condemnation CI 441 Voting 0 510 Motions to Vacate 0 790 Other Labor Litigation 0 870 Taxes (U.S. Plaintiff 0 893 Environmental Matters
O 220 Foreclosure 0 442 Employment Sentence 0 791 Empl. Ret. Inc. Securit) or Defendant) 0 894 Energy Allocation Act
O 230 Rent Lease & Ejectment 0 443 Housing/ Habeas Corpus: Act 0 871 IRS--Third Party 895 Freedom of Information Act
O 240 Torts to Land Accommodations 0 530 General 26 USC 7609
O 245 Tort Product Liability 0 444 Welfare 0 535 Death Penalty I I IMMIGRATION 0 900 Appeal of Fee Determination
445 Amer. w/Disabilities 462 Naturalization Under Equal Access to Justice
O 290 All Other Real Property 71 0 540 Mandamus & Other 0
Employment Application
446 Amer. w/Disabilities 463 Habeas Corpus-Alien
0
Other
0 550 Civil Rights 0
Detainee
465 Other Immigration 950 Constitutionality of State
0 440 Other Civil Rights 0 555 Prison Condition 0 0
Actions Statutes
V. ORIGIN (Place an "X" in One Box Only) Transferred from
Ippeal to District
vri I OriginalCI 2 Removed from
Proceeding
0 3
State Court
Re-filed-
(see VI below)
10 4 Reinstated
Reopened
or 11 5
another district
(specify)
EI 6 Multidistrict
Litigation
0 7
Illiestfr aotme
Judgment
a) Re-filed Case 0 YES 0 NO b) Related Cases gi YES 0 NO
VI. RELATED/RE-FILED
(See instructions
CASE(S). second page): JUDGE HUCK/O'SULLIVAN DOCKET NUMBER 09-20215
Cite the U.S. Civil Statutc under which you are filing and Write a Brief Statement of Cause (Do not cite jurisdictional statutes unless
diversity):
VII. CAUSE OF ACTION Securities Exchange Act, 15 U.S.C. §78j(b); violation of federal and state securities statutes and common law
claims for breach of fiduciary duty, recklessness and negligence. el
LENGTH OF TRIAL via 14 days estimated (for both sidcs to tiy entire case)
IN 0 DEMAND CHECK YES only if demanded in complaint:
VIII. REQUESTED CHECK IF THIS IS, ASS ACTION
COMPLAINT: UNDER F.R.C.P, JURY DEMAND: .0 Ycs 0 No
ABOVE INFORMATION IS TRUE & CORREC 0 SIGNATURE 0 A 0 E OF REA 0 DATE
THE BEST OF MY KNOWLEDGE
7 ./../..i. March 8, 2010
fotsel
/or FOR OFFICE USE ONLY
AMOUNT RECEIPTS IFP
