TD Bank and HBSC Make ‘Monumental’ Settlement in $7B Ponzi Case

TD Bank

A group of banks have agreed to settle a lawsuit tied to a $7 billion Ponzi scheme.

Among these is TD Bank, which announced in a Monday (Feb. 27) news release that it will pay $1.2 billion to settle the suit, which accused it and other banks of aiding the pyramid scheme run by convicted fraudster Allen Stanford.

“As has been the case throughout these proceedings, TD expressly denies any liability or wrongdoing with respect to the multi-year Ponzi scheme operated by Stanford and makes no admission in connection to any Stanford matter as part of the settlement,” the Toronto-based bank said in a news release.

The bank chose to settle the suit to “avoid the distraction and uncertainty of continuing a long legal proceeding,” according to the release, with the bank noting it had already prevailed in a trial in Canada dealing with the Stanford case.

Joining TD in settling were HSBC, which agreed to pay $40 million, and Independent Bank Group, which will pay $100 million. All three banks were set to go to trial in the case Monday, Bloomberg reported.

France’s Société Générale agreed to pay $157 million to settle the case last week, Reuters reported. Like TD Bank, none of the other financial institutions admitted to wrongdoing.

Plaintiffs’ attorney Kevin Sadler called the settlements “nothing short of a monumental recovery,” in a statement to Bloomberg.

Stanford, now serving a 110-year prison sentence, was convicted in 2012 of cheating investors by selling fraudulent certificates of deposits from his offshore bank, Stanford International Bank.

Investors alleged in their lawsuit that the banks should have known the CDs were phony, given the outsized number of large wire transfers and shipments of bags filled with investor checks leaving Standord’s bank in Texas for Antigua.

Fraud — already a perennial problem — is becoming more significant amid the rise of digital banking. Criminals no longer need to be face-to-face with their victims to carry out scams on FIs and their customers — and the risk of fraud is growing as a result.

In an interview with PYMNTS, Seth Ruden, senior director of fraud operations for First Tech Federal Credit Union, talked about how his FI is dealing with the challenge.

While fraudsters use many methods, account takeovers stand out. Ruden said there has been a sharp rise in this type of attack in which a criminal takes control of someone’s account by leveraging their login credentials, making it arguably the top threat. An overreliance on passwords is helping fuel this trend.

“You share a password between different sites — and that’s a huge problem with passwords,” he said. “We need to be far more diligent as organizations to ensure that we shore up those risks, as individuals are compromised every day.”