A continuing sore subject is that no bank senior executive or board member who was responsible for the activities that nearly drove the world financial system off the cliff faced any meaningful penalties afterward. For instance, one of the welfare queens, Goldman Sachs, paid record bonuses for 2009 and 2010. And that happened despite major Goldman institutional investors calling on CEO Lloyd Blankfein in 2009 and telling him to curb payouts in light of the fact that they were coming out of the public purse. So much for shareholder democracy.
A new suit over flagrant misconduct at TD Bank, including running a massive money-laundering operation and to add insult to injury, executives and board members making off with an alleged $850 million in insider trading profits, has the potential to reverse this sorry, long-standing trend of bank executives not even getting their hair mussed after being caught out enriching themselves by having engaged in or enabled criminal activity. Admittedly, at TD Bank, the facts are unusually well substantiated and simple to understand. The guts of the complaint are a much faster read than its length suggests, since a big part of its body is taken up with material about each of the 22 board members and 37 executives names as defendants.
As the filing embedded at the end of this post documents, TD Bank, which has paid record fines and penalties, in excess of $4 billion, for its recidivist behavior in money laundering, from 2008 to 2023. TD Bank is the first to ever plead guilty to conspiracy and a scheme to commit money laundering. TD bank’s partners in these crimes included financial fraudsters Seth Rothstein and Charles Sanford as well as the usual lot of cartels, drug dealers, and sex traffickers.
The authorities did catch the original crime caper, of money laundering in 2008 and 2009. The lame excuse was that TD Bank set very ambitious targets for expansion in US markets, particularly New York and New Jersey, without bothering to set up adequate money laundering controls. In a 2013 settlement, TD Bank paid $52.5 million in fines and swore up and down it would implement the needed controls and would sin no more.
Nothing of the kind happened. From the complaint:
Because money laundering continued after the 2013 fines and penalties, in 2023 Toronto Dominion had to pay $1.2 billion to a court-appointed receiver who sued with court permission following a jury verdict that it had assisted another swindler, Allen Stanford, in laundering the proceeds of his massive Ponzi scheme. He was sentenced to 110 years.
Then, due to the continuation of these blatantly illegal practices, on October 10, 2024, two TD Bank entities were forced to plead guilty to conspiracy to commit money laundering and violations of the United States Bank Secrecy Act from January 2014 to October 2023….Toronto Dominion agreed to pay US prosecutors and regulators $3.1 billion in fines and penalties. Criminal guilty pleas by two TD Bank entities and several individuals occurred. More will come. Toronto Dominion’s Directors and Officers simply never stopped money laundering or doing business with crooks and criminals, even after the September 2013 incident and its fines and penalties and being sued by a court-appointed receiver on behalf of Stanford’s victims. According to the US authorities, Toronto Dominion simply continued that money laundering until it was caught again in late 2023.
For instance, the pleading tell us:
In recent years, multiple money laundering schemes took place, including, but not limited to:
- A criminal network that processed over $470 million through the Bank between 2018 and 2021. The operators of this scheme bribed employees with gift cards to process their transactions.
- A jewelry business that moved nearly $120 million through fraudulent shell accounts between 2021 and 2023.
- A criminal network that deposited funds in the United States and withdrew them using ATMs in Colombia. Five TD Bank employees conspired with this network to launder drug money.
And mind you, TD Bank executives and board members can’t contest bad facts like these because TD Bank already admitted to them in settlements in 2024:
The detailed facts of the money laundering aspects of the wrongdoing complained of are set out in 1) United States of America v. TD Bank U.S. Holding Company, Crim No. 24-668 (Oct. 10, 2024), negotiated in NYC by the Paul Weiss and Sullivan & Cromwell law firms’ NYC office and their partners, and 2) the October 10, 2024 Plea Agreement negotiated by those firms on behalf of TD Bank and Toronto Dominion, and (3) United States Financial Crimes Enforcement Network Department of the Treasury, In the Malter of TD Bank N.A. and TD Bank USA, N.A, No. 2024-02, Consent Order Imposing Civil Money Penalty, and (4) In the Matter of TD Bank, United States Department of the Treasury Comptroller of the Currency, AA — EC — 2013-67, Sept. 20, 2013, Consent Order for a Civil Money Penalty.
So it appears the most that these named board members and executives can fall back on in the way of defense is:
I was in charge and paid big bucks but had no idea there was gambling in Casablanca
My professional advisors signed off on it1
The suit described how the bank suffered additional harm by being barred from making attractive acquisitions, paying the cost of monitors, defending against class action suits that may lead to additional charges, having its stock price fall from $86 in 2022 to $50 recently, and suffering reputational damage. Yet:
While Toronto Dominion has been badly damaged, many of the Toronto Dominion insiders benefited personally by illegally selling off over 11 million shares of Toronto Dominion stock, pocketing more than $850,000,000 in proceeds, knowing of, or recklessly disregarding confidential material corporate information about the lack of adequate Controls, the “flat cost paradigm,” that the Bank was doing business with, and the money laundering assistance provided to criminals that was going on Toronto Dominion’s US/NY/NJ operations. These stock sales were in violation of both the CBCA [The Canadian Business Corporations Act] and Toronto Dominion’s Code of Conduct and Ethics and Insider Trading Rules and NY BCL § 1317/720….
Bad actors have also walked off with over $1 billion in unjustified, inflated compensation and bonuses generated by their misconduct and have been promised (and if nothing is done, will pocket) hundreds of millions more in retirement benefits. This is the worst public company governance failure and scandal in modern financial history. The current Board is deeply implicated in the wrongdoing that took place on the watch of a majority of them — continuing until October 2023.
Yet after the 2013 fines and consents, TD Bank made repeated sanctimonious representations to shareholders and customers that it had made sure its misdeeds were a thing of the past:
Year after year, the Board reported to the shareholders that its Audit Committee had “thoroughly reviewed key financial controls and was overseeing internal audit compliance and global AML functions to assure that there are adequate resources with experience and knowledge in each of the key oversight functions.” Because of the money laundering incidents for which Toronto Dominion had been punished in 2013, the subsequent annual reports and proxy circulars were explicit that the Board “was overseeing the execution and ongoing effectiveness of the anti- money laundering, anti-terrorist financing, economic sanctions, anti-bribery and anti-corruption program (AML) and received regular updates from the Chief Anti Money Laundering Officers on the design, operation and status of key initiatives respecting controls and received regular updates on the status of key technology upgrades to enhance operational efficiencies of AML.
If you page through the complaint, you’ll see pages and pages of representations about all of the careful supervision, adherence to high ethical standards, training, policies and what not….all cynical blather to cover up the ongoing criminal conduct.
Oh, and remember those egregious insider trading profits? See the fabrications about those controls:
Because of the strict prohibitions and restrictions of the CBCA as to insider trading, the Board assured shareholders and regulators of the efficiency and sufficiency of Toronto Dominion’s insider trading policies, saying “Safeguards are in place to monitor personal trading of executive officers and other officers and employees in key positions for insider trading. The monitoring is conducted by trained and experienced compliance officers who have access to records of the bank trading accounts in which these individuals hold securities. All officers and employees covered by the bank’s insider trading policies are required to disclose trading accounts to the bank and ensure that such accounts are maintained in house or at an approved financial institution. In addition, these persons are required to preclear any sales of stock with the bank’s Compliance department.”
If you read the many claims made about the supposedly stringent controls, they are both treacle-y and grandiose. But they do, or should, have consequences of their own:
This was not “puffery.” These are representations made by the Board, carefully reviewed by internal and external lawyers in official communications to the owners of the enterprise which the Directors and Officers were overseeing and managing and to whom they owned duties of honesty and candor. Together with the outrageous nature of the facts pleaded, these lies and the personal benefits they obtained from the corporation justify an award of punitive damages under the laws of Canada or New York.
As for the legal portion of the presentation, keep in mind that this is a derivative suit, which here means a shareholder has stepped up to assert rights that normally belong to the corporation which it has failed to exercise for its, and derivatively, the shareholders’ benefit. The filing sets for the features of the Canadian Business Corporations Act that are relevant. It points out that the imposed both duties of due care and prudence and liability for negligence, breach of duty or trust, or lack of due care upon board members and executives. So far, this is not all that different from US principles.
Here’s where it gets fun:
The CBCA contains stringent provisions concerning and penalties for insider trading, placing the burden proof on the insider seller as to the innocence of his/her sales, and his or her lack of knowledge of any internal confidential information that may affect the stock price. While the conduct complained of and the facts pleaded herein constitute intentional or reckless misconduct, there is no substantive liability requirement of conduct beyond lack of due care.
On top of that, the CBCA is very friendly to derivative suits. In the US, to sue derivatively, the plaintiffs must satisfy at least one test of “demand futility,” that a majority of the directors were incapable of making an independent decision to bring suit against the alleged bad actors because 1. they were not impartial (aka they were part of the problem), 2. they didn’t inform themselves when they should have (they played ostrich), or 3. the behavior was so heinous “on its face that it could not have been the product of sound business judgment.”
Look at how clean and easy the CBCA is, by contrast:
Putting on my amateur lawyer hat, as I read this, all a Canadian derivative plaintiff has to do is:
Find something potentially valuable to the corporation that it has failed to act upon
Give the company at least 14 days advanced warning that you will be filing suit if its executives and officers do not Do Something
To keep this post to a not-taxing length, we’ll skip over other parts of the lawyering, such as why the plaintiff is within his rights to haul TD Bank board members and executives into court in New York to enforce their duties under the CBCA, why the action should not be removed to Federal court, and why it has personal jurisdiction over this very large number of defendants. Those of you who like carefully crafted legal thinking will presumably very much enjoy this part of the filing.
As indicated, despite its length, this filing is comparatively easy to grasp, so I hope you’ll give it a skim. And do cheer it on. There are so few cases where grifting board members and executive are held to account. The conduct here was so bad in such a big ticket way that some, hopefully many, could be reduced to penury.2 The time is long overdue for executives and board members to bear the cost of their bad actions. Pass the popcorn.
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1 No joke, this is a get out of liability free card. From ECONNED:
Legislators also need to restore secondary liability. Attentive readers may recall that a Supreme Court decision in 1994 disallowed suits against advisors like accountants and lawyers for aiding and abetting frauds. In other words, a plaintiff could only file a claim against the party that had fleeced him; he could not seek recourse against those who had made the fraud possible, say, accounting firms that prepared misleading financial statements. That 1994 decision flew in the face of sixty years of court decisions, practices in criminal law (the guy who drives the car for a bank robber is an accessory), and common sense. Reinstituting secondary liability would make it more difficult to engage in shoddy practices.
Now there are some fine points here if someone were to have managed to get a dodgy advisor to sign off on any of the executive bad acts (not the money laundering, which TD Bank has ‘fessed up to, but the additional cover-ups in public discloses and the insider trading and pre-denial of that). If the executives in question did not engage the adviser personally, but it was paid for by TD Bank, recall that this suit is a derivative action, as in shareholders asserting rights and damages on behalf of the corporation. So this legal team would look to have the chops to go after any professional firm enablers. And it would be another hopefully deep to tap.
2 Canadians please pipe up as to what the Canadian analogue to “fraudulent conveyance” is, as the limits on making transactions to move assets that would otherwise be part of the estate of a bankruptcy to third parties. The filing mentions potentially chasing down heir and other recipients of these ill-gotten gains to make recoveries. Not hard to think that some of the defendants set up trusts or used other means to transfer funds to relatives to try to get them out of the hands of a court.
2025 01 31 Stamped Complaint (TD Bank)-compressed
