Three banks — Toronto-Dominion Bank, HSBC Bank and Independent Bank (formerly Bank of Houston) — have agreed to pay $1.34 billion to Ponzi-scheme victims of Houston financier R. Allen Stanford and his investment firm.
TD Bank, HSBC and Independent Bank were scheduled to stand trial starting today in Houston federal court where they were accused of aiding and abetting Stanford in perpetrating an $8 billion fraud against 18,000 investors.
Lawyers for the court-appointed receiver and the Official Stanford Investors Committee sued five banks – two settled earlier this year – and planned to ask a Houston jury to award between $4 billion and $10 billion.
The three remaining banks vowed to fight the allegations, but their legal arguments were dealt significant blows during the past two weeks when U.S. District Judge Kenneth Hoyt issued orders that restricted or even prohibited the testimony of key defense witnesses, severely limiting the defense arguments that the banks planned to employ during the trial.
Under agreements reached over the weekend, TD Bank will pay $1.205 billion, Independent Bank will pay $100 million, and HSBC Bank will pay $40 million.
The terms of the agreements are expected to be made public later today.
Two other banks – Trustmark National Bank and Société Générale Private Banking (Suisse) – settled in January and February for a combined $257 million.
This brings the total amount of money recovered by the court-appointed receiver, Ralph Janvey, for victims of the Stanford fraud to more than $2.7 billion.
“This is an extraordinary result for the victims of the Stanford fraud,” said Baker Botts partner Kevin Sadler. “Given all the challenges faced by the receivership since 2009, this is nothing short of a monumental recovery.”
The litigation started 14 years ago when the U.S. Securities and Exchange Commission obtained court orders to freeze all assets of R. Allen Stanford and his financial investment firm. The judge the same day appointed a receiver, Janvey, to recover funds for investors.
Stanford, now 72, was convicted and is serving a 110-year sentence in federal prison. Stanford sold certificates of deposit to the public, promising that their money would be invested in high-quality securities. Instead, Stanford used much of the money to support his extravagant lifestyle and put the rest into risky private equity ventures that did not pay off.
Sadler said it will take a few months to process the settlement agreement with the banks and Stanford victims will receive significant payments later this year.
The receiver and the investors committee had recovered $1.09 billion at the end 2022. More than $680 million had been distributed to the 18,000 investors – several thousand of them located in the Houston area and South Texas.
Forensic accounting experts say that the investors were defrauded $5 billion in actual investments and $8 billion in paper or projected losses, which were amounts that their accounts showed their increases from investment returns.
Sadler, in an interview Monday, said that investors will receive more than $1 billion from today’s settlement agreement. Combined with the two bank settlements earlier this year will push the amount returned to investors to about $1.8 billion.
The federal judge overseeing the Stanford litigation has approved about $290 million in expenses and fees paid to the lawyers, forensic accounting experts and other professionals who have worked on the cases during the past 14 years.
TD Bank issued a statement that it did nothing wrong.
“TD elected to settle the matter to avoid the distraction and uncertainty of continuing a long legal proceeding,” the bank stated in a written release. “TD previously had a trial in Canada regarding the same Stanford matter, and the trial court ruled entirely in TD’s favor and found no liability. The Ontario Court of Appeal affirmed, and there is now an application for leave to appeal pending in the Supreme Court of Canada.”
Besides Sadler, Baker Botts’ legal team included Scott Powers, Stephanie Cagniart, David Arlington, Brendan Day, Mary Margaret Steinle, Ariel House and Brad Bowen.