When a Ponzi scheme is finally uncovered and stopped, many wonder how it could continue without anyone noticing something was wrong. Do banks that handle fraudulent transactions have any internal processes, or do they simply look the other way?
In a long-standing case beginning in 2009, banks that facilitated transactions for one of the biggest Ponzi scheme since Bernie Madhoff have agreed to settle in order to avoid litigation and the uncertainty of a trial. More banks participating in cryptocurrency transactions without due diligence could be next in fines and legal action.
TD Bank of Toronto’s Settlement
On February 27, 2023, TD Bank issued a press release that it had settled a lawsuit related to its handling of the Stanford Financial Group’s Ponzi scheme. In the press release, the bank insisted that it settled the case “to avoid the distraction and uncertainty of continuing a long legal proceeding.” The bank denied any liability or wrongdoing, stating that it only “provided primarily correspondent banking services to Stanford International Bank Limited and maintains that it acted properly at all times.”
The bank agreed to pay $1.205 billion to the court-appointed receiver for the Stanford Receivership Estate. With the court’s approval, TD Bank’s payments will resolve all current and future claims brought by Official Stanford Investors Committee, the receiver in the case, and other plaintiffs involved in the litigation.
Two other banks that were involved with Stanford Financial also agreed to a settlement: Independent Bank, formerly the Bank of Houston, agreed to pay $100 million, while HSBC Holdings settled for $40 million. Both these banks also denied any liability or wrongdoing.
Previously, Trustmark Corp of Mississippi and France’s Société Général SA agreed to a combined settlement amount of $257 million for failing to oversee Stanford’s operations.
Robert Allen Stanford of Mexia, Texas, has been serving a 110-year prison sentence since 2012 for his role in masterminding what was simply another Ponzi scheme that eventually defrauded investors out of a total of $8 billion. Others involved in the Stanford Financial scheme received prison sentences from three to five years.
More Banks Could Be Next for Aiding and Abetting a Ponzi Scheme
Other banks and financial institutions involved in cryptocurrency processes should be concerned over TD Bank’s settlement. Betting on cryptocurrency deposits and transactions has other banks looking over their shoulder, and wondering if they will be next in the fallout over the crypto Ponzi schemes like Celsius and FTX. One bank has already felt the pain: the demise of Silicon Valley Bank in California when regulators seized the bank on March 10, 2023. Investors were left with multiple unsecured deposits. Thousands of small businesses that sell via online DIY platform Etsy were notified that they wouldn’t receive any payments until the company could find another method to process them. (The platform is working with alternative payment processors to make payments to those small business sellers who depend on their Etsy stores for income.) But SVB isn’t the only bank facing scrutiny over their practices.
On March 8, 2023, Silvergate Bank announced that it was voluntarily winding down its operations and closing. A week earlier the bank announced the discontinuation of its Silvergate Exchange Network (SEN), which allowed crypto exchanges like Coinbase to transfer money. These companies ended their affiliations after Silvergate warned that it was unsure about staying in business. The liquidation plan of the La Jolla-based bank informed customers that all deposits will be paid. One of its main customers for cryptocurrency was the ill-fated FTX exchange headed by Sam Bankman-Fried.
On Sunday, 3/12/23, Signature Bank of New York announced that it was also closing its doors. Customers rushed to withdraw as much as they could before the shutdown. Signature Bank was also heavily involved in cryptocurrency, with $16.52 million in digital deposits. The bank provides banking services to law firms that have escrow accounts for holding client funds, as well as other financial services.
Silvergate and Signature were two of the main banks for the cryptocurrency industry in the US. When the crypto industry began failing last year, both banks were severely impacted, since they bet heavily on cryptocurrencies. As many are discovered to be potential Ponzi schemes, the possibility of more banks being sanctioned for “looking the other way” increases.
Other banks and financial services companies that may have been complacent about due diligence for cryptocurrency transactions may soon be facing closer examination for the same activity that brought down these banks and endangered investors’ funds.
Is the Bank Liable For Aiding and Abetting a Ponzi Scheme?
Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. Our attorneys have significant experience in claims against commercial banks and other professionals for allegedly aiding a Ponzi scheme. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today at (800) 975-4345 and let us know how we can help.