TD Bank Loses Bid to End Stanford Investments Lawsuit

Toronto-Dominion Bank Canada’s second-biggest bank by assets, must face a lawsuit accusing it of negligence for accepting deposits for the Antigua-based bank run by alleged Ponzi scheme operator R. Allen Stanford.

Investors in Alberta and Quebec claim in the suit that they lost C$17 million ($16.1 million) when Stanford International Bank Ltd. collapsed last year amid fraud allegations. The case can move ahead on narrower grounds than initially proposed, Ontario Superior Court Judge Herman Wilton-Siegel in Toronto said in a ruling released yesterday.

“The court has allowed the negligence claim to proceed based on actual knowledge, willful blindness and recklessness,” Jim Patterson of Bennett Jones LLP, who represents the plaintiffs, said today in a phone interview. “We will proceed.”

Stanford faces 21 criminal charges that he swindled investors of more than $7 billion in a scheme that paid above- market rates to early investors by taking money from those who bought certificates of deposit sold by his bank. The investors included the plaintiffs in the Ontario case, who bought the deposits through Toronto-Dominion, the correspondent bank for Stanford International.

Susan Webb, a spokeswoman for the Toronto-based bank, declined to immediately comment.

Five Plaintiffs

The five plaintiffs in the case are closely held Dynasty Furniture Manufacturing Ltd., which is based in Calgary; Alberta investors Shafiq Hirani, Hanif Asaria and Dinmohamed Sunderji; and a Quebec company. The high-yield certificates of deposit bought by the plaintiffs appear to have been issued as part of a Ponzi scheme that collapsed in February, Wilton-Siegel wrote.

Toronto-Dominion maintained 12 accounts for Stanford International and accepted deposits into the accounts, the judge said.

Wilton-Siegel dismissed the investors’ claims that the bank had a duty of care to investigate the Stanford accounts and to verify they were legitimate. The law doesn’t require banks to conduct such investigations for their clients, the judge said.

“Nor is there any case law imposing liability on a bank for failing to conduct such an investigation,” Wilton-Siegel wrote.

The judge also dismissed claims the bank ought to have known the Stanford scheme was illegal.

Wilton-Siegel allowed the investors to change the wording in their filing to proceed with a claim that the bank failed to comply with the Proceeds of Crime Act, a federal anti-money laundering law.