Banks Do Not Owe A General Duty Of Care To A Customer To Prevent "Insider Abuse"

• Published date: 21 June 2021
• Subject Matter: Litigation, Mediation & Arbitration, Criminal Law, Trials & Appeals & Compensation, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Affleck Greene McMurtry LLP
• Author: Mr David N. Vaillancourt

TD bank successfully defended an action brought against it by a customer in a Ponzi scheme case in McDonald and Dickson v. TD Bank, 2021 ONSC 3872. The result came after a 43 day trial before Justice Conway in Toronto on the Commercial List. This case is important in setting out the scope of a bank's obligations to a client who has been defrauded by an insider of the client.

SIB was an offshore bank operating in Antigua. It was solely owned by Allen Stanford. TD was the primary domestic correspondent bank for SIB for 18 years, offering on-shore US dollar banking services to the Antiguan bank. Stanford operated an $8 billion Ponzi scheme through SIB using its TD bank account. The Ponzi scheme collapsed during the 2008 financial crisis. SIB was found liable for billions of dollars in damages to Stanford's Ponzi victims. After the collapse of the Ponzi scheme, SIB's court-appointed liquidators commenced a claim against TD alleging knowing assistance in breach of fiduciary duty, and negligence. The underlying theme of the causes of action is that TD should have been on guard to protect SIB from "insider abuse" by the sole owner and controlling mind of SIB.

SIB alleged that TD did not act on various red flags associated with Stanford/SIB over the years. Those alleged red flags included: SIB was solely owned by one person; FINCEN had published a general warning about banks in Antigua; the US Senate produced a report outlining the criminal misuse of correspondent banks by offshore banks, particularly those situated in Antigua; there was an article in the US media that noted Stanford was using his financial and political clout to subvert banking laws in Antigua, threatening to make it a haven for money launderers; and that TD in 2006 reviewed in detail its relationship with SIB and failed to identify any problems in the course of that review. It was admitted by SIB that TD has no actual knowledge of Stanford's fraud.

Justice Conway found that Stanford's fraudulent scheme was elaborate, highly sophisticated, and...