updated 5/26/2009 3:50:05 PM ET 2009-05-26T19:50:05

A European bank that was among the biggest losers in the Bernard Madoff swindle has agreed to pay $235 million to resolve potential legal claims by the trustee trying to unwind the massive pyramid scam.

The payment by Banco Santander would return about 85 percent of the money that the bank's hedge fund affiliate, Optimal Investment Services, had withdrawn from its accounts with Madoff in the years before the fraud collapsed.

The settlement, announced Tuesday, still needs to be approved by a U.S. court. If authorized, the deal would swell the pool of money available to compensate Madoff's victims to more than $1.2 billion.

Irving Picard, the court-appointed trustee overseeing the remnants of Madoff's firm, has sued a number of banks and hedge funds that steered customers into the fraud, arguing that they should have figured out the operation wasn't legitimate.

He has also asked investors who withdrew profits from their Madoff accounts in recent years to return the money, saying the gains were fictitious. Madoff has admitted stealing billions of dollars from some investors to pay fraudulent profits to others.

Banco Santander has said that clients of Geneva-based Optimal saw more than $3 billion in presumed wealth evaporate in the fraud. Separately, it has offered to reimburse those clients for much of their lost principal.

Picard said in a statement that he hoped the deal with Optimal would spur other companies to settle, "for the benefit of all of Madoff's victims."

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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