Spanish bank to repay $235M it withdrew from Madoff scheme

— -- A Spanish banking giant that channeled $3 billion of its clients' funds to Bernard Madoff has agreed to repay more than $235 million it withdrew from the confessed Ponzi scheme architect in the months before the scam collapsed in December.

Pending federal bankruptcy court approval, the deal announced Tuesday by a hedge fund investment subsidiary of Banco Santander would boost the amount recovered to help repay Madoff's victims past the $1.2 billion mark.

The settlement would return 85% of the total sought from Spain's largest bank by Irving Picard, the court-appointed trustee seeking Madoff's assets for redistribution to thousands of victimized investors worldwide. Picard has so far issued more than $100 million in repayment commitments, a fraction of the total losses.

Madoff pleaded guilty in March to running a scam that used funds from new investors to pay earlier ones. He faces a maximum 150-year prison term at a sentencing next month that's expected to feature statements from burned investors.

"We hope that other entities against which we have claims will likewise come forward to settle those claims for the benefit of all of Madoff's victims," Picard said in a written statement.

Optimal Investment Services, the Geneva subsidiary the bank used to send funds to Madoff, said the deal formally acknowledges it lost more in the scam than it withdrew. Under the agreement, the trustee recognizes the more than $1.5 billion claim two Optimal funds have against the jailed financier, placing them in line with other investors seeking a proportionate share of the total ultimately recovered.

The subsidiary also said the agreement does not give Picard legal grounds to assert additional financial claims against Optimal "or any other entity of the Santander group."

Banco Santander is one of several large banks that have offered to compensate clients for money they lost with Madoff.

In a court affidavit filed Tuesday, Picard said his investigation concluded that the bank subsidiary and its affiliates "were not complicit" in the scam and "did not have actual knowledge of the fraud."