FERRERE is representing Banco Patagonia Uruguay in a series of lawsuits filed in 2010 by individual foreign investors for alleged misleading advice in the context of the 2008 world financial crisis. Plaintiffs invested in a foreign fund which failed as a consequence of the fraud committed by Bernard Madoff. Their main contention was that Madoff’s fraud was a foreseeable event and that therefore Banco Patagonia was liable for having placed the investment in the fund even though the investment was made under the name and on behalf of the plaintiffs.

On April 9, 2012 a Court of First Instance hearing the case dismissed all the claims and concluded that Banco Patagonia was not liable for plaintiff´s alleged losses. It essentially considered that Banco Patagonia complied with the contract it had with its clients, that Madoff’s fraud could not have been predicted or detected before and, even if that had been the case, plaintiffs should then have been able to anticipate it themselves.

This is the first ruling issued in Uruguay relating to Bernard Madoff’s fraud. The judgment is relevant as it clearly stated the legal standard under Uruguayan law: custodians are only liable in cases of willful misconduct or gross negligence.

Soledad Díaz, who acted for Banco Patagonia, says: “The main conclusion from this judgment is that plaintiffs, as private banking clients, were bound by enforceable clauses in the general terms and conditions acknowledging the risks associated to their investment, that they were investing in a foreign investment fund, and that the bank would therefore not be liable for their loss. The judgment is the first decision clarifying this legal standard in the context of the 2008 crisis (as well as regarding Madoff´s fraud)”.

On the relevance of the decision, Diego Rodríguez comments: “This is a very relevant precedent for banks and investment advisors in Uruguay in general, not only in the context of Madoff’s fraud but also in relation to other types of claims involving investment decisions. We have seen many cases where clients try to blame their advisors when there is a default on certain investments made by the client. This ruling will certainly help clarify the liability of banking entities under these circumstances.