Allen Stanford’s house of cards: How TD banked the 2nd-largest Ponzi scheme in U.S. history

Allen Stanford’s con was epic. He was responsible for the second biggest Ponzi scheme in U.S. history outdone only by Bernie Madoff.

With a silver tongue and endless charisma, the brash Texan built a multi-billion dollar bank on the island of Antigua. By the late 2000s Stanford Financial Group had grown into an empire with over 21,000 clients throughout the U.S. and South America.

When it collapsed in 2009, over $7 billion in investments disappeared in what one U.S. judge would call “one of the most egregious criminal frauds ever presented to a trial jury in federal court.”

To pull off that massive scam, Stanford needed help and he found it in the most unlikely of places – the Toronto Dominion Bank in Canada.

TD banked Stanford and his Antiguan bank for 18 years, starting in 1991, helping him move money from his clients in the U.S. and South America – to accounts he controlled in Toronto.

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“[In] the approximate last 12 months almost $3 billion went through the correspondent account [in Toronto],” said Lincoln Caylor, whose firm Bennett Jones is suing TD. “Without external set up banks that have access to the U.S. market financial system, he couldn’t have done what he did.”

According to Caylor, Stanford used TD to move billions. Much of that money came from investors who put their cash into Stanford’s certificates of deposit. These were advertised as ultra-safe investments promising returns that were roughly three per cent higher than similar investments sold by his competitors.

In reality, the crooked banker “sat atop a massive Ponzi scheme” a U.S. court of appeals would later say. According to the court, by 2008 he bilked approximately $1 million per day from investors to finance his “personal endeavors.”

WATCH: Lincoln Caylor is a Toronto lawyer whose firm is suing TD over its involvement with Allen Stanford. He tells 16×9 why one of Canada’s biggest banks was important for Stanford.

Click to play video: '16×9 investigation “The Billionaire and the Bank”  looks at Allen Stanford’s Ponzi scheme'
16×9 investigation “The Billionaire and the Bank” looks at Allen Stanford’s Ponzi scheme

When the bank fell apart, so too did many of Kathleen Mier’s retirement dreams. Mier, a retired high school teacher from rural Louisiana, didn’t live the high life. She and her husband, Louis, lost $240,000, a big chunk of their savings.

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“We just wanted to retire comfortable and not rely on the government or our children,” Mier said.

Stanford funnelled much of the money from unsuspecting investors to fund a lavish lifestyle. From big boats to a fleet of private jets, and mansions including an 18,000 square foot castle in Florida.

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In one instance, according to prosecutors, from 2000 to 2002 he spent more than $400,000 on suits from “a private Beverly Hills clothier that advertised itself as the world’s ‘most expensive’ men’s clothing store.”

A major money laundering bank?

Before the fancy suits and mansions, Stanford started small. In the mid-1980s he set up a bank on the island of Montserrat, considered the Wild West of banking at the time. But by 1990, things were changing as Monserrat authorities decided to crack down on shady operators.

According to one former FBI official, Stanford left in a hurry before the government had a chance to shut him down.

“He realised the handwriting was on the wall that the British government was going to revoke his license and …he saw an opportunity to buy a bank very cheaply in Antigua,” said Ross Gaffney who ran the white collar crime squad for the Miami FBI.

In the early 1990’s, Stanford set up Stanford International Bank in Antigua. According to Caylor, TD was crucial in giving that bank access to U.S. dollar accounts.

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Gaffney says Stanford ran a major money laundering operation in Antigua and the FBI moved to take him down.

“We set up a sting operation based on actionable intelligence,” Gaffney said. “We recorded conversations with Stanford in which he very candidly laid out what he charged to launder money, who he paid off. He was very boastful that he was a major money laundering bank.”

But the FBI could not make a case against Stanford stick. Gaffney says drug kingpins were good at hiding their tracks and investigators couldn’t conduct extensive covert operations in Antigua because of tough jurisdictional rules.

However, the U.S. government did keep a close watch as Stanford’s operation expanded.

According to prosecutors Stanford bribed Antiguan officials with money, free flights and “expensive Super Bowl tickets” to run interference and keep his operation from being disclosed to U.S. regulators.

By 1999, the U.S. government was fed up with Antigua and Stanford’s relationship. One State Department wire obtained by 16×9 said that “the Antiguan government has effectively ceded oversight of its offshore sector to an offshore banker and his minions.”

Around the same time, one TD official became nervous with the bank’s continued relationship with Stanford International Bank, according to a court document filed by Lincoln Caylor.

After taking a due-diligence trip to Stanford’s operation in Houston, Stephen Cullen, one of the TD personnel responsible for handling the Stanford account, told another TD official that he was uncomfortable with TD Bank’s continued correspondent banking relationship with Stanford International Bank.

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According to the court document, Cullen said that the bank needed to conduct a due diligence investigation of SIB, as “something did not seem right.”

Cullen, who is now retired, refused to speak with 16×9.

Over the next decade, TD officials took due diligence trips to look at Stanford’s operations.

But while Stanford was looting his own bank, Caylor says, TD was doing next to nothing.

“The content of the presentations that we’ve found given by SIB to the TD bankers were very superficial,” he said. “We know other bankers who asked the tough questions didn’t get the answers and stopped banking them.”

According to internal documents obtained by 16×9, there was also socializing between TD and Stanford officials. One TD official participated in the Stanford-sponsored St. Jude PGA Pro-Am golf tournament, and Stanford staff and TD bankers ate together at Spuntini Italian Restaurant, an upscale Toronto eatery.

The broker

By 2003, at least one of Stanford’s employees was asking hard questions.

“You know I was questioning…questioning the godfather if you will,” said Charles Hazlett, a former broker, who worked in Stanford’s Miami office.

“All they told me was something like it’s 20 per cent stocks, 15 per cent bonds, 10 per cent..but they didn’t give me enough. My client wanted more information. My client wanted to see the portfolio basically and they claimed it was proprietary,” he said. “Banks here …aren’t allowed to do that. Banks show their balance sheet.”

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Hazlett eventually quit.

“I was ruffling too many feathers, I wasn’t a team player, I wasn’t a family. It was almost like Mafia. I wasn’t family member.”

Stanford ended up coming after Hazlett for the bonus money he got when he joined, and Hazlett says he lost hundreds of thousands of dollars in fees and legal costs.

Stanford may have won that fight, but by 2008 his bank was facing big problems. Wall Street and the big banks were collapsing around him.

By 2009, Stanford’s problems got even bigger. The bank was raided by the Securities and Exchange Commission. He would eventually be convicted and sentenced to 110 years in a U.S. penitentiary.

“It was at night when it came on the evening news,” Mier says. “Louis had already gone to bed. And it said, ‘The SEC had shut the Stanford entity down,’ and I went and woke Louis up and I said, ‘Baby, we may have lost our money with Stanford.’”

Kathleen Mier is still angry at Stanford and his lies.

“Shame on you! That’s what I’d tell him. Poor people, who trusted … shame. For the lives you’ve ruined.”

In a statement to 16×9, Stanford said “Without exception everyone in the media has lied to [him], and swallowed hook, line and sinker the government propaganda.”
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Stanford maintains his innocence and says he plans to continue his legal fight. He will “walk out of prison a free man…[and] will lead the way for full restitution to…depositors who were financially harmed, all caused by the illegal and unconstitutional actions of the SEC…and DOJ.”

16×9 made repeated requests to speak with TD. In a statement the bank said “it is TD policy to not comment on matters before the courts.”

TD has in the past denied any knowledge of Stanford’s “fraudulent or illegal activities” and said it was neither reckless or willfully blind as Stanford’s correspondent bankers.

With rumours of money laundering, red flags about Antigua, the payment of bribes, and persistent questions about Stanford’s credibility, Caylor says TD should have been a lot more careful.

“There’s a level of due diligence they’re supposed to go and keep doing over the time of the relationship,” Caylor said. “It’s our client’s position that they fell below that standard when they dealt with Allen Stanford and his bank.”

16×9’s “The Billionaire and the Bank” airs Saturday, Jan 30, 2016 at 7pm.

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