Ontario judge dismisses lawsuit against TD Bank over role in Ponzi scheme

Ontario judge dismisses lawsuit against TD Bank over role in Ponzi scheme

An Ontario judge has dismissed a US$4.5-billion lawsuit against Toronto-Dominion Bank over its role in providing bank accounts used in one of the world’s largest Ponzi schemes.

The decision deals a blow to liquidators seeking to recover funds for investors in a US$7.2-billion fraud masterminded by ex-billionaire Allen Stanford. Lawyers for the liquidators argued that TD helped move billions of dollars for an offshore company controlled by Mr. Stanford, and was liable for investors’ losses for failing to detect the fraud or heed warning signs about questionable activity.

After a 43-day trial that featured testimony from 29 witnesses and thousands of documents, Justice Barbara Conway of the Ontario Superior Court of Justice decided “there is no basis to conclude that TD Bank knew or suspected” that Mr. Stanford was engaging in fraudulent behaviour. She found that the bank did not owe a duty of care to protect its client from abuse by company insiders.

Justice Conway further concluded that even if that duty of care existed, TD did not fall below the a reasonable banker’s standard of care.

“The bank undertook to provide banking services,” she wrote. “It did not assume the role of a regulator, auditor or insurer.”

“We are pleased with the decision,” said TD spokesperson Paolo Pasquini.

The lawsuit was launched in 2011 by liquidators charged with winding up Stanford International Bank Ltd., or SIB, an offshore company in Antigua and Barbuda that Mr. Stanford controlled. After the fraud was uncovered in 2009, it emerged that he and other company insiders looted investors’ funds and lived lavishly, acquiring private jets, helicopters, mansions and a Caribbean island.

Lawyers for the liquidators from Bennett Jones LLP argued that TD had been “willfully blind” or at least “negligent” in failing to respond to alleged red flags that might have alerted it that something was wrong with Mr. Stanford’s empire. They cited an advisory issued by the U.S. Financial Crimes Enforcement Network, or FinCEN, that warned banks to enhance their scrutiny of clients in Antigua and Barbuda, and news articles that cited Mr. Stanford as a target of FinCEN’s concerns.

But Justice Conway found that the plaintiffs sought to “cast many of the events in a nefarious light” when there were more innocuous explanations for the decisions bankers made at the time.

“Hindsight is 20/20,” she wrote. “While we now know that Mr. Stanford was a fraudster who operated a Ponzi scheme, TD Bank did not know or have any reason to suspect that he was engaged in fraudulent behaviour at the time.”

If the judge had found TD breached a duty of care, she said she would have awarded damages that could have ranged from US$1.1-billion to US$4.3-billion – sizeable sums even for a bank as large as TD, which has nearly $1.7-trillion in assets and reported profit of $11.9-billion in 2020.

A spokesperson for the plaintiffs, Nick Ryan, said lawyers for SIB are considering a possible appeal. “We are deeply disappointed with today’s judgment,” he said in a statement.

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Published at Thu, 10 Jun 2021 03:21:14 +0000