* Securities law claims allowed to proceed
* Judge says some claims should be litigated in Bahamas
* Lawyer for Santander had no immediate comment
By Jonathan Stempel
NEW YORK, May 2 (Reuters) - Spain's Banco Santander SA (SAN.MC) lost its bid to dismiss a U.S. lawsuit by investors in its $3.1 billion hedge fund arm to recover losses tied to imprisoned swindler Bernard Madoff's Ponzi scheme.
The ruling will let investors in a "feeder" fund advised by the bank's Optimal Investment Management Services SA unit pursue a federal securities law claim against Santander. Claims also can be pursued against Optimal and an Optimal analyst who the investors say was hired to monitor Madoff.
However, Manhattan U.S. District Judge Shira Scheindlin also dismissed a variety of other claims, saying they should be litigated in the Bahamas, where Optimal is incorporated.
Scheindlin said she would discuss the reasoning for her decision at a May 10 conference with the parties.
"It is one of the first courts to sustain a claim by Madoff investors accusing a major bank of fraud," said Javier Bleichmar, a partner at Labaton Sucharow LLP representing the investors. "We're very pleased, and see the court as having agreed with the core of our allegations."
A lawyer for the defendants had no immediate comment.
According to an amended complaint filed on Nov. 15, Optimal Strategic U.S. Equity Fund was "nothing more than a pass-through vehicle" that invested 100 percent of its assets with Madoff and his firm Bernard L. Madoff Investment Securities LLC.
The investors accused the defendants of ignoring "red flags" signaling Madoff's fraud and misleading them about how closely they were monitoring Madoff, even as Santander collected millions of dollars of annual management fees.
When Madoff's fraud was uncovered in December 2008, the Optimal fund's assets "simply vanished," the complaint said.
Optimal faces a series of legal actions by investors in both U.S. and Swiss courts over its role in the Madoff fraud. [ID:nLDE6500RO]
Irving Picard, the U.S. court-appointed trustee seeking to recover money for former Madoff investors, is also pursuing litigation against a variety of former Madoff feeder funds.
Madoff turned 73 last week. He pleaded guilty to running a Ponzi scheme in March 2009, and is serving a 150-year sentence in a North Carolina federal prison.
The case is In re: Optimal U.S. Litigation, U.S. District Court, Southern District of New York, No. 10-04095. (Reporting by Jonathan Stempel in New York; Editing by Phil Berlowitz)