Toronto-Dominion Bank, HSBC Holdings and a smaller bank in Texas have agreed to pay a total of $1.345 billion to settle litigation involving the Ponzi scheme built by disgraced financier Allen Stanford.
TD said it will pay $1.205 billion, which is easily the largest of the three settlements announced Monday. McKinney, Texas-based Independent Bank Group agreed to pay $100 million, and HSBC is on the hook for $40 million.
The settlements came on the eve of a trial in federal court that had been scheduled to start Monday in Houston. Plaintiffs in the litigation alleged that the banks aided the Ponzi scheme. None of the three banks admitted wrongdoing under the settlements.
If Judge David Godbey approves the deals, the money will go to a court-ordered receiver who is responsible for making payments to victims of the massive Ponzi scheme.
“This is an extraordinary result for the victims of the Stanford fraud,” Kevin Sadler, lead counsel for the receiver, said Monday in a press release. “We look forward to obtaining prompt approval of the settlements and distributing these much-needed funds to the Stanford victims.”
Last month, Trustmark Corp. in Jackson, Miss., agreed to pay $100 million, and Société Générale Private Banking agreed to a $157 million settlement, in connection with the Stanford litigation. No banks remain as defendants in the litigation after the settlements announced Monday.
As of Jan. 31, losses to investors from the Stanford fraud totaled $5 billion, Sadler said in an email. Including the $1.6 billion that the five aforementioned banks have agreed to pay, total recoveries are now around $2.7 billion, according to data that Sadler provided.
If the cases had gone to trial this week, TD, HSBC and Independent could potentially have been on the hook for even bigger payouts. In a separate Ponzi scheme case last November, a Minnesota jury ordered BMO Harris Bank to pay $564 million to plaintiffs. BMO has said it plans to appeal.
In a statement Monday, Toronto-based TD said that it will record a provision of roughly $1.2 billion in Canadian dollars, or around $880 million in U.S. dollars, as a result of the Stanford settlement.
TD, which reported total assets of $1.9 trillion Canadian as of Oct. 31, said that it “expressly denies any liability or wrongdoing as with respect to the multiyear Ponzi scheme,” that it “acted properly at all times” and that its role mainly involved providing correspondent banking services to Stanford International Bank Limited.
“TD elected to settle the matter to avoid the distraction and uncertainty of continuing a long legal proceeding,” the bank said in its statement. It also noted that a Canadian court previously ruled in its favor in connection with the same matters.
HSBC, which is based in London and has $3 trillion of assets, said in a separate statement that it “is pleased to have resolved this claim, which relates to matters over a decade old, with no admission of any liability or wrongdoing.”
Independent Bank, a subsidiary of Independent Bank Group, said in a securities filing that it expects to recognize a $100 million litigation settlement expense, which it expects to be tax deductible, during the first quarter of 2023.
The bank, which has total assets of around $18.2 billion, also said that it “will remain substantially above levels considered to be well capitalized under all relevant standards.”
Independent, which denied any liability or wrongdoing, inherited the Ponzi scheme litigation in connection with its 2014 merger with Bank of Houston. “The bank has agreed to the settlement to avoid the cost, risks and distraction of continued litigation,” Independent said in the securities filing.
Stanford International Bank, which was based in Antigua, sold certificates of deposits, and typically paid a premium over interest rates on CDs issued by U.S. banks. The bank purportedly invested the CD proceeds in conservative, highly liquid securities, but actually diverted most of the money into various other businesses, including restaurants, a cricket tournament and real estate projects, according to prosecutors.
The plaintiffs in the litigation argued that investors’ money flowed through accounts at TD and the other banks, and that they received substantial fees for the banking services they provided to Stanford International Bank.
Allen Stanford was convicted of fraud in 2012 and sentenced to 110 years in federal prison.