3 Top Banks to Pay over $1 Billion in Allen Stanford Ponzi Settlement

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What happened

This week, TD Bank, HSBC, and Independent Bank agreed to pay a total of $1.345 billion to settle a lawsuit brought by clients who lost money to a Ponzi scheme run by a former financier called Robert Allen Stanford. 

Stanford sold certificates of deposit (CDs) with much higher rates of return than other banks. However, the scheme turned out to be a scam that was uncovered when media and regulators started to question how it generated those returns. In 2012, Stanford was sentenced to 110 years in prison for misappropriating $7 billion in a scheme that ran for 20 years.

So what

Since 2009, when the SEC brought charges against Stanford and shut down his operations, around 18,000 clients have struggled to recoup their losses. The recent settlements are a significant step forward. According to Baker Botts, lead counsel for the receiver, the payments from these three banks will bring the total it has recovered to $2.7 billion. Once the settlements are approved by the court, some of this money can be distributed to the victims.

The banks deny any wrongdoing in the case, which accused them of ignoring red flags in Stanford's activities. TD Bank, which will pay $1.205 billion, issued a statement saying, "TD elected to settle the matter to avoid the distraction and uncertainty of continuing a long legal proceeding."

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Now what

Ponzi schemes are a type of investment fraud. Rather than investing money to generate income, these schemes use the money they get from new investors to pay returns to the existing ones. As a result, they require a constant flow of new money. When the cash runs out, the schemes unravel and victims often find their so-called investments are worthless. 

As Stanford's clients have discovered, it can take years to recover even a small part of the losses. Here are some ways to avoid banking scams:

  • Check what protections are available: One reason it's been difficult for victims of Stanford's fraud to recover money is that his bank was not covered by FDIC insurance. FDIC insurance covers customers for up to $250,000 per account in the event of bank failure. Similarly, look for brokerage firms with SIPC insurance.
  • Question returns that are significantly higher than the rest of the market: If a savings account or investment product is offering returns that seem too good to be true, find out why. 
  • Research before you buy: Look to see what company is behind the product you're considering and who is behind that company. See if the firm is registered with the SEC or other state authorities, and how transparent it is about its investment activities.

Unfortunately, banking and investment fraud is all too common, and tricksters are always on the lookout for ways to steal your cash. The more due diligence you can do, the safer you'll be.

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