TD Bank’s $1.2 billion settlement over its links to a disreputable Ponzi scheme does not bode well for the financial institutions that seemed to look the other way while the crypto Ponzi scammers dominated the space.
On February 27, TD Bank Group confirmed that it had agreed to a “settlement in principle relating to litigation involving the Stanford Financial Group.” This settlement will see TD pay US$1.205 billion to the court-appointed receiver meant for the Stanford Receivership Estate.
Assuming that the courts approve, this payment will resolve all the current and future claims brought by the Official Stanford Investors Committee, the receiver, and other plaintiffs in this litigation.
Today, Texas native Allen Stanford is serving a 110-year federal prison sentence after he was convicted in 2012 on several fraud charges and violations of United States Securities and Exchange Commission (SEC) rules. The Stanford Financial Group provided certificates of deposit that alleged to constantly deliver above-average rates of return for the investors, but the firm was essentially squandering billions in investors’ funds for its enrichment.
TD Bank “expressly” denied all “liability or wrongdoing” about Stanford’s Ponzi, stating that it just:
“Provided primarily correspondent banking services to Stanford International Bank Limited and maintains that it acted properly at all times.”
TD agreed to pay the settlement “to avoid the distraction and uncertainty of continuing a long legal proceeding.”
Notably, TD was one of three banks that were involved in the settlement. HSBC Holdings is paying $40 million while Independent Bank (formerly the Bank of Houston) agreed to give $100 million as a settlement.
Just like TD Bank, neither of the other banks admitted any wrongdoing or liability. Two other banks – Mississippi’s Trustmark Corp and France’s Société Général SA – previously agreed to pay a cumulative $257 million to cater to their lack of adequate oversight.
These banks were sued by former Stanford investors who accused them of ignoring many red-flag indications of money laundering, which included:
“Large, round-dollar, high-velocity, in and out layering transactions, with no apparent connection to any investing that Stanford claimed he was doing.”
The settlement was reached a day before the trial was to start in Houston. TD Bank is now in the process of acquiring two US-based companies worth almost $15 billion and never considered the possible exposure to dirty laundry that may have complicated or wrecked these deals.
Although TD won a similar case in the Canadian province of Ontario, it did not feel confident that it could expect a similar favorable result south of the 49th parallel.
Crypto Bank On The Chopping Block
These settlements have ominous implications for all banks that handled these transactions on behalf of what has now been termed as crypto-based Ponzis, including Alex Mashinsky’s Celsius Network, Sam Bankman-Fried’s FTX exchange, Alameda Research, and several other dubious token-focused entities.
The two banks that are likely to find themselves at the center of this matter are New York’s Signature Bank and California-based Silvergate Bank. Both of these financial institutions saw their respective stock prices drop on February 27, suggesting that investors could see a possible link with the Stanford settlement. Nevertheless, both firms managed to record some small gains on February 28.
These banks operate proprietary ‘settlement networks’ that enable crypto companies to execute transactions 24/7. Silvergate’s platform is known as the Silvergate Exchange Network (SEN), while Signature’s is known as Signet. Both of these banks have slowly sought to limit particular firms’ access to the networks, mostly after the damage has already been done.
Considering the Stanford case, the banks most involved in cryptocurrency activity had huge financial incentives to ignore the obvious signs of fraud and other criminal activities. Silvergate became highly dependent on its crypto clients, to a point that the financial institution endured a flurry of withdrawals in the time after FTX’s November bankruptcy that it was compelled to tap a Depression-era federal solvency program to maintain active operations.
A recent superseding indictment against SBF added bank fraud to his long list of financial crimes. This indictment offered particulars on how Sam Bankman-Fried (with the assistance of attorney Daniel Friedberg) created a phony electronics retailer known as North Dimension and utilized it to funnel United States customer payments to and from his Alameda/FTX entities.
Buy Bitcoin NowThis indictment indicated that Bank-1 – aka Silvergate – blatantly accepted SBF’s account application coupled with due diligence questionnaire and went on to open an account on behalf of North Dimension in April 2021 “without enhanced due diligence or review by Bank-1’s executive committee.”
Silvergate was also accused recently of providing financial rails through which the Binance exchange managed to siphon at least $400 million from accounts that belonged to the Binance.US crypto exchange. This was after the international Binance platform was supposed to have been stopped from accessing Silvergate’s SEN platform.
