Under an agreement with two funds managed by Optimal Investment Services, the Geneva-based hedge fund arm of Spanish bank Banco Santander, has settled its outstanding claims of over $235 million against Bernard L Madoff Investment Securities (BLMIS).

According to the trustee for the liquidation, Irving Picard of law firm Baker Hostetler, Optimal will pay the trustee an amount equal to 85% of the amount of the Trustee's claims against Optimal. Optimal will receive a claim in the BLMIS US Securities Investment Protection Act (SIPA) proceedings.

The Strategic US Equity Fund will pay $129 million and the Optimal Arbitrage Fund will pay $106 million to the trustee. Picard is overseeing the Madoff liquidation on behalf of the Securities Investors Protection Corporation.

The settlement was reached without litigation against Optimal. After conducting an investigation into the circumstances relating to the Trustee's claims against Optimal, the trustee concluded the settlement with Optimal is appropriate and is in the best interests of Madoff's victims.

With approval and payment of this settlement, the trustee has collected around $1.225 billion which will be paid to the victims of Madoff's fraud.

Typically when a brokerage fails, the Securities Investor Protection Corporation (SIPC), set up under SIPA, arranges to have the failed brokerage's accounts transferred to a different securities brokerage firm. If the SIPC is unable to arrange the accounts' transfer, the failed company is liquidated. SIPC then sends investors either certificates for the stock that was lost or a check for the market value of the shares.

A total of over $116 million in SIPC protection funds have been committed to 237 BLMIS customers. These figures exceeded the trustee's previous goal to have $100 million in SIPC protection funds committed by May 25, 2009.

The 237 proposed allowed customer claims total around $720.88 million in approved claims against BLMIS. These allowed customer claims exceed the statutory limit of SIPC protection by $604.6 million.

SIPA provides that customers with allowed claims share pro rata in customer property to the extent of their allowed claim. SIPC funded protection up to the SIPA statutory limit of $500,000 per customer is used to supplement the pro rata distribution.

The only source of payment for the unprotected portion of these and other claims is the recovery of BLMIS property by the trustee through various actions including avoidance actions and other recoveries of BLMIS property.