Nov. 11 (Bloomberg) -- Manuel Echeverria, the former head of Banco Santander SA’s Optimal Investment Services unit in Geneva, has been charged with criminal mismanagement over his handling of client funds invested with Bernard Madoff.

Echeverria failed to protect the interests of his clients because of “abnormally high remuneration,” according to charges outlined in a ruling by the Court of Appeal in Geneva that was obtained by Bloomberg News. Investigating Magistrate Marc Tappolet confirmed the contents of the document, which was sent to the parties in the case on Nov. 6.

Optimal’s customers invested about 2.33 billion euros ($3.49 billion) with Madoff, according to Santander. The Geneva case may help other Optimal clients, because the court recognized the firm’s responsibility to safeguard investor assets even though day-to-day management was delegated to Madoff, said Carlo Lombardini, the attorney who filed the initial complaint on behalf of asset manager Franck Berlamont.

“It’s one thing for a small money manager in Geneva to be misled by Mr. Madoff, but we’re talking here about one of the largest banking groups in the world, which could easily have found out what happened had it taken some precautions,” said Lombardini, a partner at Poncet Turrettini Amaudruz Neyroud & Partners in Geneva.

Echeverria denied the charges, which were filed Aug. 21, when he lodged an appeal challenging the allegations against him and Berlamont’s right to file the complaint that triggered the investigation. That appeal was rejected after a hearing on Nov. 4, according to the appellate court ruling.

Saverio Lembo, Echeverria’s attorney at Baer & Karrer SA in Geneva, didn’t return two calls seeking comment on the case.

‘Due Diligence’

Santander, Europe’s second-biggest biggest bank by market value, always acted with “due diligence” in managing client accounts at Optimal, according to a spokesman who declined to be identified by name, citing company policy. The sale of Optimal products is transparent and in accordance with all applicable regulations, he said in an e-mail.

Santander, based in the Spanish city of the same name, in January offered Optimal customers preference shares paying 2 percent a year as compensation for 1.38 billion euros of losses on Madoff-related investments.

Tappolet said the case is still under investigation and it will be several months before he decides how to proceed. He declined to speculate about whether the case would be expanded to others. The charges against Echeverria carry a maximum penalty of 7 1/2 years in prison, he said.

“The person involved wasn’t doing this during the weekend as a hobby,” Lombardini said. “It was his profession and Optimal’s activity, and it will be up to the investigating judge to determine whether anyone else should bear a share of the responsibility.”

Safeguarding Investors

There is no suggestion that Echeverria was involved in Madoff’s fraud, according to the court ruling. Madoff, 71, was sentenced in June to 150 years in prison for masterminding the biggest Ponzi scheme in history.

Optimal Investment Services’ clients had about $3.1 billion invested through Optimal Strategic U.S. Equity Ltd., the fund used to feed investments to Madoff, according to data compiled by Bloomberg.

“It was incumbent on OIS to manage the funds, first and foremost to safeguard the interests of investors, whether or not the asset management, properly speaking, was delegated,” the appeals court said in its ruling.

Echeverria, who was Optimal’s chief executive and chief investment officer, drew a salary equal to 0.15 percent of the assets in the product, which was 100 percent invested with Madoff, according to a revised lawsuit filed Oct. 21 in U.S. District Court in Miami.

‘Never the Case’

Optimal said in a prospectus for the fund that it conducted reviews of Madoff’s operation, including visiting his New York offices, analyzing trades and interviewing his chief risk and chief financial officers.

Echeverria told clients that assets in the Madoff investments were deposited with a third party and that there were more than 10 counterparties for options-type investments, “which was never the case,” according to the charges outlined in the Geneva appeals court ruling.

“Abnormally high remuneration” led Echeverria to “not carry out necessary checks, accepting the eventuality of an impact on the interests” of clients, according to the document.

Echeverria resigned from Optimal last year and joined Geneva-based money manager Notz, Stucki & Cie. on Oct. 1, 2008. Notz Stucki said July 24 that Echeverria had left the company “by mutual agreement.”

Berlamont said he invested $101,000 of his own money in the Optimal fund and put about 10 percent of his clients’ funds in the product. He said he chose to invest through Optimal because of the greater security provided by a large bank.

“Santander has ignored the legitimate claims of investors whose only mistake was to rely on the bank’s reputation and professionalism,” Berlamont said, explaining why he filed the complaint.

To contact the reporter on this story: Warren Giles in Geneva at wgiles@bloomberg.net

Last Updated: November 10, 2009 19:54 EST