* US judge throws out federal securities law claims
* Other fraud, misrepresentation claims may proceed
* Inadequate link found to US markets on non-US trades
By Jonathan Stempel
June 4 (Reuters) – Banco Santander SA on Monday won
the dismissal of U.S. federal securities law claims in a lawsuit
by investors in a $3.1 billion hedge fund arm that funneled
money to the now-imprisoned swindler Bernard Madoff.
U.S. District Judge Shira Scheindlin said investors in a
feeder fund advised by the Spanish bank’s Optimal Investment
Management Services SA unit could not rely on U.S. securities
laws to recover losses on investments made outside the United
States.
The Manhattan judge said investors may still pursue other
fraud claims and a negligent misrepresentation claim.
According to the investors, the Optimal Strategic U.S.
Equity Fund invested 100 percent of its assets with Madoff and
his firm Bernard L. Madoff Investment Securities LLC, despite
red flags signaling a Ponzi scheme.
They said their purchases deserved protection under U.S.
securities law because they related to Madoff’s alleged trades
of New York Stock Exchange stocks, and that the “economic
reality” equated their purchases to investments in these stocks.
Scheindlin disagreed, saying no contract bound the parties
in the United States. She added that Madoff never actually made
his trades, and that there was at best an “extremely tenuous and
speculative” link between the investments and the Big Board.
The investors “failed to overcome the presumption against
the extraterritorial reach” of the law created by a 2010 U.S.
Supreme Court ruling, National Australia Bank Ltd v.
Morrison, Scheindlin added.
Javier Bleichmar, a lawyer for the investors, did not
immediately respond to a request for comment. Shawn Regan, a
lawyer for Santander, declined to comment.
Optimal has faced other litigation by investors in U.S. and
Swiss courts over its role in the Madoff fraud.
Madoff, 74, is serving a 150-year prison sentence.
The case is In re: Optimal U.S. Litigation, U.S. District
Court, Southern District of New York, No. 10-04095.
