After Allen Stanford’s $7.2 billion fraud scheme imploded in 2009, court-appointed attorneys charged with liquidating his crumbling empire scrambled to recover whatever assets they could find for 21,000 victims in 113 countries. Tracking the megafraudster’s global jet-set lifestyle, the receivers in the US and liquidators in Antigua sought to freeze Stanford’s bank accounts and properties in the US, UK, Switzerland and the Caribbean. The criminal proceeds Stanford generated have been exceeded thus far only by Bernard Madoff.
Three years later, with hundreds of millions of dollars still tied up in legal proceedings and more than 7,000 victims still left with no recompense, the receivers and liquidators have trained their sights on an unexpected target – TD Bank in Montreal.
The liquidators are suing TD Bank in the Canadian city alleging collusion in Stanford’s megafraud. Their lawsuit alleges that TD Bank maintained correspondent accounts for Stanford’s financial institution, Stanford International Bank, which moved the “vast majority” of victim’s funds in the enormous, long-running Ponzi scheme.
“The plaintiffs seek to recover damages arising from [TD Bank’s] knowing assistance, recklessness and failure to act as a reasonable bank in response to a multi-billion dollar fraud,” says the complaint, which was filed in Quebec Superior Court on behalf of all investors in Stanford International Bank (SIB) by liquidators Marcus Wide, of the British Virgin Islands, and Hugh Dickson, of the Cayman Islands. Both are operating from Antigua, where SIB was located.
“But for TD Bank’s conduct… the [fraud] would have been discovered and prevented, the fraudulent transactions… would not have been completed and damages would not have been suffered by SIB and its customers,” the complaint charges.
Canada suit mirrors landmark ‘aiding and abetting’ case against TD in US
This is the second of the billion-dollar headline cases of the past decade in which TD Bank has found itself confronting fraud victims of its customers in courtrooms. In January 2012, it suffered a $67 million jury verdict in favor of Coquina Investments, a victim of TD Bank customer, Scott Rothstein, a former Ft. Lauderdale attorney who is serving a 50-year prison term.
The landmark verdict in Miami federal district court was based on the novel legal theory that TD “aided and abetted fraud” and money laundering by Rothstein. He fraudster used his TD accounts to perpetrate the fraud and laundering scheme with the active collusion of senior TD officials. Rothstein has testified recently, under the watchful eye of his FBI and IRS Criminal Investigation handlers who are believed to be pursuing criminal cases, that he paid money to the bankers and gave them a “rock-star lifestyle” to buy their cooperation.
A concept similar to the “aiding and abetting fraud” theory successfully deployed in the Coquina case is now at work in Canada, where the stakes may be much higher for TD Bank. The Quebec suit is seeking $20 million in damages, but the plaintiffs have said their claims may exceed $3 billion pending “further investigation.”
Bank denies wrongdoing, moves to dismiss suit
TD Bank has moved to dismiss the liquidator’s suit. When asked for comment, a TD Bank spokesman told ACFCS, “We believe these allegations are false and plan to defend ourselves vigorously. Given that the matter is before the courts, we cannot comment further.”
In a separate case in Ontario Superior Court, the same liquidators are seeking $23 million of Stanford funds held in a TD Bank account that was frozen by the Ontario Attorney General’s Office. The liquidators are battling US receivers, who are also seeking to recover these funds.
TD Bank had ‘window’ into fraud, plaintiffs say
In the complaint, the plaintiffs say TD maintained 14 correspondent accounts for Stanford’s bank starting in 1991, and provided banking services to Stanford-owned Bank of Antigua and Caribbean Star Airlines.
Given these relationships, plaintiffs argue that TD Bank had a “privileged vantage point” and a “window” into the inner workings of SIB that should have made it obvious that Stanford was perpetrating a fraud.
“This window provided TD Bank with the knowledge that… SIB at no time had any legitimate business or economic purpose for requiring or using correspondent bank accounts in Canada,” the plaintiffs say. “As a result, TD Bank should at no time have commenced or continued its correspondent banking relationship with SIB.”
As other banks retreated, TD continued Stanford relationship
The plaintiffs also argue that TD continued its relationship with SIB long after four United States financial institutions declined to do business with Stanford or shuttered Stanford-related accounts.
According to the complaint, Bank of America closed a Stanford correspondent account in 1996 after it had been open for less than one year when the bank’s “compliance department repeatedly insisted to… management that providing services to SIB constituted an intolerable risk.”
The complaint also says JPMorgan Chase Bank also closed the SIB correspondent account in 1994 because of its concerns concerning checks that were suspicious.
The complaint cites a 2000 report by Swiss bank SocGen that stated it was an “accepted fact” that Stanford’s bank was a conduit for Mexican traffickers laundering drug money. That report concluded that if SocGen continued providing banking services to Stanford, “it would be very difficult for [SocGen] to defend itself or its reputation should any problems arise….”
Plaintiffs say TD Bank violated money laundering laws, monitoring duties
TD Bank maintained the SIB correspondent accounts until the fraud’s explosive collapse in June 2009, when the US Securities and Exchange Commission sued Stanford’s brokerage firm for selling false certificates of deposit. That scheme was at the heart of the overall Stanford megafraud. Stanford was arrested by the FBI and subsequently convicted in a Houston federal court and is serving a 110-yearsentence.
Even in the waning days of the massive scam, the plaintiffs say, money still moved abundantly and rapidly through the Stanford correspondent accounts at TD. They allege that $1.68 billion in the funds of victims were wired through the TD Bank Montreal branch to SIB in the fraud’s last year.
Plaintiffs allege that TD Bank failed to conduct proper due diligence on Stanford’s accounts or was “willfully and recklessly blind” to the fraud. As support for their contentions, the plaintiffs say that in either case, TD Bank violated the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and did not comply with international money laundering control standards promulgated by the Financial Action Task Force, in Paris.
Liquidators may face long costly legal struggle
Stanford’s liquidators may face a lengthy legal battle in making their case against TD Bank. An earlier suit against TD Bank in Canada, brought by a group of five Stanford victims in late 2009, is still creeping its way through the courts with no clear end in sight.
For now, the liquidator’s suit provides no immediate relief to legions of defrauded Stanford victims. But, just as the Coquina case did, it does carry the seed of producing a helpful legal template for future fraud victims in other cases in Canada, if the plaintiffs ultimately prevail.