Ponzi Scheme Suit Against TD Bank To Be Settled For $1.2 Billion

It has been reported that Toronto-Dominion Bank has agreed to pay investors more than $1.2 billion to settle a lawsuit in which investors claim the bank assisted R. More than a decade ago, Allen Stanford was involved in a $7 billion Ponzi scheme, according to a regulatory filing and the appointment of a court-appointed receiver.

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In addition to Stanford International Bank, there was a settlement reached with HSBC Holdings Plc, which will pay an additional $40 million, as well as Independent Bank Group Inc., formerly known as Bank of Houston, which will pay $100 million, according to Ralph Janvey, the receiver for Stanford International Bank.

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Stanford's scheme to divert billions of dollars into his lavish lifestyle was revealed on the same day that a suit against the three banks was set for trial in Houston, 14 years after the collapse of Stanford's scheme to divert billions into his lavish lifestyle collapsed. In 2012, he was convicted of fraud and money laundering, and he is currently serving a 110-year sentence for his crimes.

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Despite denying wrongdoing, the banks were accused of ignoring red flags for years.

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Stanford, according to the lawsuit filed by investors, promised above-market returns on certificates of deposit which banks should have known were fakes. This is particularly relevant given the unusually large number of wire transfers and daily shipments of bags stuffed with investors' checks that flow from a bank in Antigua to the Texas financier's US accounts every day.

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A total of $1.6 billion will be recouped by Stanford investors from the financial institutions implicated in the fraud if the three settlements are added up. It was announced on Feb. 21 that Societe Generale Private Banking (Suisse) would pay $157 million, and Trustmark National Bank announced in December that it would pay $100 million. There was no admission of guilt by either party.

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The settlements are nothing less than a monumental recovery, according to Kevin Sadler, the lead attorney for the receiver and the investors in the case, in an emailed statement he sent to me.

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It is believed that if the trial had been held this week, investors would have asked jurors to award damages of as much as $10 billion each against TD and HSBC, and as much as $6.5 billion each against Independent Bank.

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‘Routine Banking Services’

The HSBC, TD, and Independent Bank all claimed in earlier court filings that they simply provided routine banking services to Stanford and were not aware of - or could not have been aware of - the Ponzi scheme.”

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In November, investors filed a lawsuit against the banks alleging they knew Stanford, his aides, and entities were engaged in wrongdoing and yet they "aided and stood by, watching" as Stanford engaged in a systematic pattern of account activity that had nothing to do with Stanford's stated business model, according to a summary of the claims by US District Judge Kenneth Hoyt.

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The investors claim in their lawsuit that the banks should have been able to see the signs that Stanford's operation was a sham as soon as they began considering it. Stanford International Bank, for instance, offered CDs that paid 11.5% interest in 2005, allowing the financier to claim that between the years 2000 and 2005, the CDs outperformed the S&P 500 Index by 13%.

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Those holding CDs were also in the dark as to where their money was going, according to the lawsuit. Stanford deposited about $1.7 billion in CD sale proceeds from January 2008 through February 2009 into a TD bank account instead of keeping the funds in the Caribbean bank investors believed held their funds between January 2008 and February 2009.

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Moving Money

There was a transfer of approximately $474 million in 2008 from SIB's TD account to SIB's Bank of Houston account, which was mainly distributed to various Stanford entities after it was transferred from the TD account. Stanford Financial Group, a broker-dealer, was one of the companies that received at least $47.5 million for its own Trustmark account, as well as for operating expenses.

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Investors have indicated that email records from 2006 indicate Trustmark had expressed “concerns” with Stanford entities regarding the trust mark's unusual pattern of “wire activity.”

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During its peak in December 2008, SIB claimed to have 30,000 clients from 131 countries and $8.5 billion in assets, mostly the sales of CDs, at its disposal. It is unfortunate, however, that Stanford and his lieutenants chose to invest the money into risky ventures, vanity projects and island resort developments rather than placing it in conservative, liquid assets as promised. Most of these investments never turned a profit.

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A criminal trial evidenced that Stanford lived like a millionaire, spending as much as $2 billion on a jet-set lifestyle that included five overlapping families, yachts, private islands, sponsorships of charity golf tournaments, professional cricket teams, celebrity golfers, and tennis players, according to evidence presented at his criminal trial.

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Bribing Regulators

Moreover, Stanford also plowed investor funds into hospitals and infrastructure on the island of Antigua, where he bribed auditors and regulators to hide his schemes. A knighthood from Antigua resulted in him misdirecting US investigators and enthralling busloads of unsophisticated retirees with catered lunches and dog-and-pony shows at the Houston headquarters of his company, and he used that aura to enthrall busloads of unsophisticated retirees.

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In late 2008, when the financial crisis hit, Stanford was forced to halt redemptions of CDs for investors at an unsustainable rate, as a result of investors cashing in CDs at an unsustainable rate. It was Stanford's attempt to staunch the bleeding that led to him telling nervous SIB employees at an all-hands meeting that SIB had $5 billion in "excess liquidity," although his controller was sending him frantic text messages informing him that the company had only $173 million on hand at the time. Stanford's two-decade financial empire was seized by US regulators in February 2009.

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In order to recover investors' assets, the US Securities and Exchange Commission appointed a receiver. It is estimated that the receiver will collect more than $2.7 billion through settlements, clawback litigation, and the sale of Stanford assets, including more than 100 mostly money-losing companies and properties scattered across the Caribbean and Latin America if these five bank deals are approved by the court.

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In the past year, at least $340 million has been devoted to paying attorney fees and the receiver, leaving just pennies on the dollar for SIB's 18,000 remaining investors to make up for their losses.

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According to Stanford's court filings, he argues that if the Securities and Exchange Commission hadn't shut down and liquidated his business, he would have been able to pay everyone back in full.

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This case is Rotstain et al v Trustmark National Bank et al, 4:22-800, US District Court, Southern District of Texas (Houston).