Lawyers say TD Bank should be liable for US $4.5B in losses tied to Ponzi fraud

Toronto-dominion Bank should be held liable for more than US$4.5 billion of losses at the collapsed Antigua bank of former Texas financier Robert Allen Stanford, lawyers for its liquidators argued in a Canadian court on Monday.

The joint liquidators of Stanford International Bank (SIB) allege negligence and “knowing assistance” by TD, Canada’s second-biggest lender, in allowing SIB to maintain a correspondent account that Stanford used to perpetrate fraud, according to opening arguments made in the Ontario Superior Court of Justice.

Stanford is serving a 110-year prison term after being convicted in 2012 of running a Us$7.2-billion Ponzi scheme. Correspondent banking is the business of providing services to offshore financial institutions. The joint liquidators are Grant Thornton in the British Virgin Islands and the Cayman Islands. The plaintiffs allege that TD knew of the “extraordinary risks” from providing the services and that the bank was therefore “reckless.”

“Like everyone else, during the time that Stanford International Bank was a customer of TD, we had no knowledge of, and no reason to suspect, any fraudulent activity was taking place,” a TD spokesman said prior to the start of the trial. “TD is not responsible for the fraud committed by Allen Stanford.”

In earlier court filings, the plaintiffs had sought damages of US$5.5 billion. The trial is scheduled to last three months, a spokesman for one of the plaintiffs’ lawyers said.

“If there was evidence sufficient to warrant criminal prosecution, TD would have been charged years ago,” said James Shanahan, an analyst at Edward Jones. “A judgment or settlement of +$500 million would surprise the market.”

TD estimated reasonably possible losses from legal and regulatory actions including the Stanford litigation of between zero and $951 million as of Oct. 31.

Provisions related to legal action will be taken when a loss becomes probable and an amount can be reliably estimated, it said in its 2020 annual report.

In November, a Swiss court ordered Societe Generale SA to surrender US$150 million deposited by Stanford, saying it had failed to do proper due diligence.