Members of the Stanford Claimholders Coalition and certain individual investors that unknowingly purchased fraudulent certificates of deposit (“CDs”) issued by Stanford International Bank, Ltd. prior to 2009 (collectively, the “Plaintiffs” or “Victims”) today filed claims in federal court against the correspondent banks that assisted Allen Stanford and his criminal enterprise (collectively, the “Stanford Financial Group”) as they carried out the second-largest Ponzi scheme in history. Approximately $7 billion in CDs held primarily by individual investors turned out to be worthless when it was discovered that the Stanford Financial Group had been systematically misappropriating investment capital for years.
The Plaintiffs illustrate in their complaint that as CDs were issued and misrepresented to thousands of Americans, including many who lost their life savings, some of the world’s most recognizable banking entities (collectively, the “Defendants”) aided, abetted, and conspired with the Stanford Financial Group to maximize their own profits. To date, Victims have recovered approximately $0.05 for every dollar that they allege was stolen from them.
The named Defendants in the Victims’ complaint include Toronto-Dominion Bank (“TD Bank”), Societe Generale Private Banking S.A. (“SocGen”), HSBC Bank, PLC (“HSBC”), Trustmark National Bank (“Trustmark”), and Independent Bank f/k/a as Bank of Houston (“BoH”). Although a common set of banking standards require that the Defendants should have known and understood their client, the Victims assert that these sophisticated institutions helped conceal and prolong the fraud because of their long-term, profitable relationship with the Stanford Financial Group. Their betrayal of the public’s trust is punctuated by the following summaries of allegations detailed at length in the full complaint filed today:
- TD Bank – The Stanford Financial Group had become TD Bank’s largest correspondent banking client in the years before its Ponzi scheme was exposed, making it an important and lucrative relationship. We believe records show that billions in CD investor funds flowed into TD Bank over the years, but they were never invested in sufficient volume or in a proper fashion to come close to earning the returns that the bank knew the Stanford Financial Group had promised its investors. We believe that although evidence shows TD Bank held deep and abiding suspicions about the legitimacy of the CDs for years, it would not report the fraud or cut its ties due to its profit motives.
Our view is that this legacy of ignoring fraudulent behaviour at the expense of individual investors is particularly troubling when one takes into account that TD Bank has a large direct interest in TD Ameritrade, a major North American brokerage firm with a massive retail customer base. We also believe it is very noteworthy that TD Bank previously agreed to pay tens of millions of dollars in fines to the U.S. government for its alleged involvement in Scott Rothstein’s $1.2 billion Ponzi scheme.1
- HSBC – We view the Stanford Financial Group’s relationship with HSBC, a bank that paid $1.92 billion in penalties for its involvement in money-laundering on behalf of drug entities2, as particularly peculiar and troubling. HSBC handled the purchases of CD investors in Euros and Pounds Sterling. Investor funds were simply parked in accounts uninvested and, thus, unable to earn the returns that HSBC knew had been promised to CD investors. While CD investors could not have known this, it was plain as day to HSBC. We believe the bank chose to look the other way and continue supporting the Stanford Financial Group at the expense of ordinary Americans.
- SocGen – We believe SocGen, which recently agreed to pay more than $1 billion to resolve alleged sanctions and money-laundering violations3, played a central role in the Stanford Ponzi scheme. Allen Stanford and the Stanford Financial Group were very long-standing clients of SocGen, dating back to the late 1980s through its predecessor (Compagnie Bancaire Genève). We believe records show that SocGen hosted a secret “slush fund” that was held off the books of any of the Stanford Financial Group’s entities. The fund provided tens of millions of dollars of personal payments to Allen Stanford and also served as the source of bribes paid to Stanford International Bank, Ltd.’s auditor and to regulators. Moreover, our complaint highlights how SocGen ignored warnings about the Stanford Financial Group that were provided by its own external risk consultants. We contend that it was clear to SocGen – for years – that the broader Stanford empire was using investor funds in an obviously improper and illegal manner.
- BoH – BoH regularly received enormous transfers of money from Stanford Financial Group accounts at other banks. We believe that BoH knew these were transfers of CD investor funds, but readily facilitated the transfer of funds to other entities controlled by Allen Stanford that provided no value to investors. We believe the banking relationship was so lucrative for the relatively tiny BoH that it was unwilling to report the fraudulent activity.
- Trustmark – Trustmark carried out hundreds of millions of dollars in unusual check “pouching” activities, wherein investors’ checks to purchase CDs were bundled by the dozen on a daily basis and mailed in pouches from Houston to Antigua and back to Houston. CD investor funds were routinely transferred in large, round sums to other Stanford entities in order to fund those entities.