A Madoff feed fund investors, who lost upwards of $3.1 billion, won a court ruling to proceed with its U.S. lawsuit against Banco Santander SA.  U.S. District Judge Shira Scheindlin in Manhattan denied the bank's bid to have the suit dismissed, and will let investors in a "feeder" fund advised by the bank's Optimal Investment Management Services SA unit pursue a federal securities law claim against Santander.  Claims also can be pursued against Optimal and an Optimal analyst who the investors say was hired to monitor Madoff.

The Judge also dismissed a variety of other claims, saying they should be litigated in the Bahamas, where Optimal is incorporated.  Judge Scheindlin said she would discuss the reasoning for her decision at a May 10 conference with the parties.

"It is one of the first courts to sustain a claim by Madoff investors accusing a major bank of fraud."  - - Javier Bleichmar, partner at Labaton Sucharow LLP, which is representing the investors.

        Amended Complaint.   According to an amended complaint filed on 11/15/10, Optimal Strategic U.S. Equity Fund was "nothing more than a pass-through vehicle" that invested 100% of its assets with Bernie Madoff and his firm, Bernard L. Madoff Investment Securities LLC.  The defendants are accused of ignoring "red flags" signaling Madoff's fraud and misleading them about how closely they were monitoring Madoff, even as Santander collected millions of dollars of annual management fees.  When Madoff's fraud was uncovered in December 2008, the Optimal fund's assets "simply vanished."

Optimal faces a series of legal actions by investors in both U.S. and Swiss courts over its role in the Madoff fraud.  Madoff trustee Irving Picard, for one, is pursuing litigation against a variety of former Madoff feeder funds.

        The case is:  In re: Optimal U.S. Litigation, U.S. District Court, Southern District of New York, No. 10-04095.    [Reuters, 5/2/11]