* Lawyers say Baer broke rules by placing funds with Madoff
* Maximum fine up to 5 percent of bank's capital
* Baer says did not break any rules
* Shares down 1.4 percent
(Adds additional details and comments)
By Sarah Morris and Martin Sa'Pinto
MADRID/ZURICH, July 6 (Reuters) - Lawyers representing victims of U.S. fraudster Bernard Madoff are to file a complaint with Spanish authorities alleging Swiss bank Julius Baer did not have the licence it needed to operate in Spain.
"This bank's activities in Spain lack the appropriate authorisation, which is a very serious infraction with very serious penalties and important economic sanctions that can amount to up to 5 percent of the bank's capital," the global group of lawyers said in a news release organised by Madrid law firm Cremades & Calvo-Sotelo.
Property firm Capital 7, which contacted the law firm, said it had lost more than 1 million euros ($1.4 million) in three Madoff-hit funds it invested in through Julius Baer in contracts signed in Madrid.
The Swiss bank denied it had sold or advised clients to invest in Madoff funds, but said in a written statement it had "been the custodian for external asset managements in particular, as well as for some self-directed clients".
A Baer spokesman said the bank could not comment on client relationships but said it always acted according to the law in the countries where it did business.
"Rest assured that Bank Julius Baer always acts in full compliance with applicable rules and regulations," he said.
Cremades & Calvo-Sotelo said it would lodge complaints with the Bank of Spain and stock market regulator CNMV and a law suit could follow to try to recover its client's money.
The Global Alliance of Law Firms, a grouping of international law firms of which Cremades is part, is also investigating Julius Baer's licensing in other countries.
Shares in Julius Baer were down 0.4 percent at 41.20 Swiss francs at 1412 GMT, outperforming a 1.7 percent fall in the European banking index. Earlier in the session Baer stock had been 2.2 percent down.
The lawyers said the case highlights the need for better regulation across borders to ensure that banks and financial advisors operate good practice.
Regulators worldwide have been looking at proposals to tighten up financial regulation after investors big and small lost money in Bernard Madoff's $65 billion fraud, a Ponzi scheme that paid off earlier investors with money from newcomers.
Burnt investors from around the world have sued Madoff intermediaries. In Spain, Banco Santander agreed to compensate investors after they lost money to Madoff via its Geneva-based hedge fund Optimal. (Reporting by Sarah Morris in Madrid with Sam Cage, Lisa Jucca and Martin Sa Pinto in Zurich, editing by Will Waterman) ($1=1.087 Swiss Franc) ($1=.7154 Euro)