Business
Column: A huge bank pleaded guilty to conspiring to launder money, so why weren't top executives charged?
By any measure, the lawbreaking by the U.S. subsidiary of Canada’s Toronto-Dominion Bank was spectacular.
The bank, which goes by the name TD Bank in the U.S., facilitated the laundering of more than a half-billion dollars by human traffickers, fentanyl dealers, a major Ponzi schemer and others. It failed to file legally mandated reports of suspicious transactions even though one of the launderers had deposited and withdrawn “more than $1 million in cash in a single day.”
All this was laid out in settlements with the Department of Justice and the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, announced on Oct. 10. The settlement will cost TD Bank more than $3 billion in penalties and includes a guilty plea to a count of conspiring to violate anti-money-laundering laws. The settlement notes sourly that the bank’s cooperation with authorities was “limited.”
A big bank engaging in criminal conduct has finally been properly punished, but failing to charge individual banking supervisors and executives is wrong and dumb.
— Dennis Kelleher, Better Markets
Noting that the bank’s slogan is “America’s Most Convenient Bank,” Atty. Gen. Merrick Garland stated, “There is something terribly wrong with a bank that knowingly makes its services convenient for criminals.”
Yet the settlement is prompting Justice Department critics to ask whether its terms are just too convenient for the bank. That’s because it lacks a critical deterrent in white collar crime cases: criminal charges against TD’s top executives who were in place while the lawbreaking was in full cry.
That was just one way that the deal allowed “this lawbreaking bank and its reckless leadership to escape the full scope of penalties … necessary to effectively deter future criminal acts,” Sen. Elizabeth Warren (D-Mass.) stated last week in a scathing letter to Garland.
The Justice Department also charged the bank with “conspiring … to launder” money rather than with money laundering itself, Warren observed — a distinction that frees the bank from a federal law that might have resulted in the loss of its banking license in the U.S.
The department’s failure to charge TD Bank’s top executives thus far, Warren wrote, is at odds with the agency’s own explicit commitment to “individual accountability,” as Deputy Atty. Gen. Lisa Monaco put it in a speech earlier this year. “Companies can only act through individuals,” she said. As of now, only two low-level TD Bank employees have been charged in the money-laundering scheme. Warren asked Garland to explain his approach to the TD Bank deal by Nov. 15.
Garland stated in announcing the settlement that his agency’s “criminal investigations into individual employees at every level of TD Bank are active and ongoing” and that he expects “more prosecutions.” He didn’t specify who was in the agency’s gunsights, but the plea agreement says the wrongdoing extended from branch-level employees, who accepted bribes to keep suspect accounts open, to “senior executive management.”
Warren is correct to point out that the failure to charge and convict the high-level executives who oversee wrongdoing, often over a period of years, is a major contributor to the persistence of corporate white collar crime. Official wrist-slaps and “wet smooches” delivered to corporate leaders by federal regulators and prosecutors are the rule, no matter how egregious the misdeed — even when it’s as bad as the Wells Fargo customer fraud.
In that case, the Securities and Exchange Commission imposed a $2.5-million penalty on John Stumpf, the bank’s ex-chairman and chief executive, who had collected about $300 million in compensation while the fraud was going on under his nose. The SEC didn’t even require him to admit his responsibility.
Over the last quarter-century, notes the corporate corruption watchdog Better Markets, the nation’s six largest banks “have been the subject of 490 legal actions against them and more than $207 billion in fines and settlements.” Nevertheless “the responsible individuals at the banks almost always walk away unpunished, with their pockets stuffed with bonus money.”
That applies to the TD Bank case. The settlement is “a big and long-overdue win for Main Street Americans and the financial system,” noted Dennis Kelleher, co-founder and CEO of Better Markets. “A big bank engaging in criminal conduct has finally been properly punished, but failing to charge individual banking supervisors and executives is wrong and dumb. “
Letting them off the hook “sends the wrong message: big banks can still buy get-out-of-jail-free cards for their executives by paying big fines and agreeing to other penalties,” Kelleher commented.
It’s true that the Justice Department and FinCEN lowered the boom on TD Bank nearly to the maximum in their power. In addition to the financial penalties, which are the largest ever imposed on a U.S. bank in a money-laundering case, the U.S. subsidiary is forbidden for now to grow beyond the $434 billion in assets it held as of Sept. 30 and is restricted from opening more branches or offering new services without government oversight. It must employ an outside compliance monitor for at least five years.
Among the casualties of the government investigation is TD Bank’s planned $13.3-billion merger with Memphis-based First Horizon Bank. The deal collapsed in May 2023 when it emerged that the money-laundering probe would obstruct government approval of the merger.
TD Bank is the tenth-largest commercial bank in the U.S., with 1,100 branches along the Eastern Seaboard from Maine to Florida. But it has been determined to grow while keeping its focus on customer relations — an ambition that regulators say led it to shortchange its anti-money-laundering programs even as it became clear that they were increasingly unable to handle the flow of suspect transactions.
TD Bank Group, the Canadian parent holding company, hasn’t downplayed the gravity of the charges.
“We have taken full responsibility for the failures of our U.S. [anti-money-laundering] program and are making the investments, changes and enhancements required to deliver on our commitments,” Bharat Masrani, CEO of the parent, said after the settlement announcement. “These failures took place on my watch as CEO and I apologize to all our stakeholders.” Masrani is scheduled to step down in April.
To assess whether the penalties levied on TD Bank are appropriate, consider the facts as set forth in the bank’s plea agreement. Money launderers exploited what they saw as holes in the bank’s anti-money-laundering practices from January 2014 through October 2023. Three illicit networks laundered more than $600 million in ill-gotten lucre through TD Bank accounts within that period.
Perhaps the most prolific launderer, according to the governments, was Da Ying Sze, who was known to bank employees as “David” and laundered some $400 million in narcotics profits at the bank.
Sze scarcely tried to conceal his activities: He would often walk into branches carrying bags of cash. It was he who would sometimes make deposits of more than $1 million a day and withdraw it almost immediately by bank checks. The bank “failed to identify Sze” in more than 500 currency transaction reports totaling about $474 million, according to FinCEN.
One day, after witnessing Sze buy more than $1 million in bank checks with cash, according to FinCEN, a branch employee asked a bank office staff member, “How is that not money laundering?” The staffer replied, “oh it 100% is.”
Sze pleaded guilty to federal money-laundering charges in 2022.
The shortcomings of its money-laundering oversight were known to the executives directly responsible for the program and to the bank’s board, the Justice Department said. The bank’s operational response was hopelessly inattentive. Accounts involved in “David’s” network, the department said, made $168.4 million in transactions even “after the Bank determined the accounts should be closed.”
As is so often the case when an institution is found to have broken the law in a major way, this isn’t TD Bank’s first walk on the wrong side. In 2020, it reached a $122-million settlement with the Consumer Financial Protection Bureau over accusations that it charged more than 1.4 million customers illegal overdraft fees. (The bank didn’t admit to the allegations, but the settlement included $97 million in customer restitution. Four years later, the CFPB ordered the bank to pay nearly $28 million for allegedly sending inaccurate negative reports about its customers to credit reporting firms. (The bank again didn’t admit guilt, but the order included about $8 million in compensation to the affected customers.)
Last year, the bank agreed to pay $1.2 billion to settle a lawsuit accusing it of involvement in a $7-billion Ponzi scheme orchestrated by conman Allen Stanford, who is now in prison. The money is earmarked to compensate victims; the bank didn’t admit liability and asserted that it merely provided Stanford’s company with conventional banking services.
In 2017, officials at the Trump-controlled Office of the Comptroller of the Currency quietly reprimanded the bank for a Wells Fargo-like scheme in which bank employees secretly created new accounts for customers or enrolled them in services without their knowledge. The agency didn’t fine the bank or even disclose its action at the time.
As for whether the government’s action will cure TD Bank of its slipshod approach to money laundering, only time will tell.
But there’s reason to wonder if it is effectively cleaning house. Under “clawback” provisions of its executive pay policies, Masrani’s pay was reduced by about $1.245 million last year to $9.55 million, an 11.3% cut from the $10.8 million he received in 2022. (Those figures are U.S. dollar equivalents although he and other executives are paid in Canadian dollars.) Further clawbacks may be imposed on his 2024 pay. His designated successor, Raymond Chun, has been with the company since 1992.
As for the board of directors, who receive annual stipends of $260,000 (Canadian) per year, none of the 14 directors other than Masrani has publicly indicated any intention to step down. Eleven were in place during the 2014-23 period, when money launderers ran rampant through the bank; the longest-serving director has been on the board since 2010. If TD Bank is to get a new broom, it’s unclear where it will come from.
Business
The Container Store files for bankruptcy amid stiff competition
The Container Store has filed for Chapter 11 bankruptcy protection amid steep losses, slumping sales and increased competition.
Business in its stores and online will continue as usual while it restructures, the Texas-based home goods, storage and custom closets chain said late Sunday. Customer deposits for in-home services will be honored, and merchandise orders will be delivered as normal.
“The Container Store is here to stay,” Chief Executive Satish Malhotra said in a statement. “Our strategy is sound, and we believe the steps we are taking today will allow us to continue to advance our business.”
The Container Store peaked in its 2021 fiscal year, when the company exceeded $1 billion in sales for the first time and posted record earnings as consumers spent heavily on home remodeling and redecorating projects during months of pandemic quarantine. A national de-cluttering craze, set off by organization expert Marie Kondo, also benefited the chain.
But since then, the Container Store has struggled.
Part of the company’s struggles are due to competition from rivals including Target, Walmart and Amazon, which often sell storage items that are similarly stylish at a lower price point. And with housing prices and mortgage rates remaining stubbornly high, many prospective home buyers have been forced to wait on the sidelines, dampening demand for a wide range of products and services that come with outfitting a new property.
For the three months ended Sept. 28, the Container Store reported a loss of $16.1 million. Sales totaled $196.6 million, down 10.5% compared with the same quarter a year earlier. Same-store sales fell 12.5%.
Founded in 1978, the Container Store operates more than 100 stores around the country. In Los Angeles County, it has locations in Century City, El Segundo, Pasadena and Woodland Hills.
It filed for bankruptcy protection in the Southern District of Texas, two weeks after the New York Stock Exchange notified the company that its shares would be suspended for failing to maintain an average global market capitalization of at least $15 million over 30 consecutive trading days.
The Container Store said it expected to confirm a plan of reorganization within 35 days and emerge from bankruptcy soon after as a private company. The company said at least 90% of its term loan lenders had pledged $40 million in new money financing.
The Chapter 11 process does not include Elfa, a separate customized closet business based in Sweden, which is owned by the Container Store.
In an email to customers Monday, Malhotra said the company had felt “the impact of the challenging macro-economic environment” but reassured them that “our obligations to you will be fulfilled as expected.”
“You can feel confident that any orders, deposits or business you have with us are safe,” he said.
It has been a tough month for large-format retail chains. Last week Party City filed for Chapter 11 bankruptcy and said it would close all of its roughly 700 stores nationwide, and Big Lots said it would begin going-out-of-business sales at about 870 stores after a deal to sell the company fell through.
Business
Judge enters default judgment in suit against Kanye West's private school
A judge entered a default judgment against Kanye West’s Christian private school in Los Angeles Superior Court on Wednesday in connection with a lawsuit filed by a former employee.
Isaiah Meadows, Yeezy Christian Academy’s former assistant principal, sought a default judgment in his wrongful termination and unpaid wages lawsuit against the school — later rebranded Donda Academy — and other defendants for failure to appear through licensed attorneys.
The judge, Christopher K. Lui, ruled in favor of Meadows’ motion. He also ruled that the answers given by defendants — Yeezy Christian Academy, Donda Services LLC and Strokes Canyon LLC — in response to Meadows’ complaint be stricken.
Last year, a lawyer representing West, and the three other defendants denied “each and every allegation of Meadows complaint,” in a filing with the court.
In August, Brian Blumfield, West’s most recent attorney who was representing the music mogul and other business entities in the matter, sought his removal from the case on the grounds that the defendants had terminated their relationship in June and that they had refused to speak to or pay Blumfield, according to court filings. The judge granted the request.
Meadows had alleged that he brought many of the school’s health and safety issues to the attention of West and the school’s director. But they were left unaddressed and Meadows was later fired.
According to the complaint, a skylight in one of the classrooms didn’t have glass, allowing rain to fall in the building. West reportedly did not like glass.
“Water would soak into the floor, which would lead to a moldy smell for the next few days.”
Further, electrical and telephone wires were also allegedly left exposed and on one occasion an electrical fire started near a student dining area.
In 2020, Meadows was offered $165,000 salary to work, according to the suit. However, he claimed that West later reneged on his promise to pay for his rent after doing so for three months — Meadows had relocated with his family from North Hollywood to Calabasas to work at the school.
The rent payments ended in February 2021, Meadows claimed after he “was suspended after calling for meetings and raising concerns regarding operations of the school.”
Meadows alleged that his salary was then cut and he was later demoted and worked as a teacher’s assistant and physical education teacher. That April, he sent an email outlining his concerns about his pay and that of other staff members.
Nearly two weeks before the new school year was to start in 2022, Meadows was told that he was being terminated “with no explanation as to why.”
The suit is one of at least five filed against West and Donda Academy since 2023 that allege a hostile workplace as a result of West’s conduct, which includes claims of discrimination and antisemitism, and retaliation, as well as various health and safety issues at the school’s property that was located first in Calabasas, then Simi Valley and finally in Chatsworth.
Donda Academy abruptly shut down in October 2022, amid a cascade of fallout from West’s antisemitic comments, which led a number of his business partners such as the Gap and Adidas to sever ties with him.
There were reports that the school reopened shortly thereafter; however, according to the California Department of Education, the school has been closed since June of this year.
Business
Santa, aka the IRS, might be dropping $1,400 into your stocking this year
Everyone’s favorite Christmas gift giver, the Internal Revenue Service, has announced that it will be doling out more than $2 billion in checks to Americans this month as part of its effort to make sure everyone received their stimulus payments from 2021.
The federal tax agency has announced that an internal review showed many Americans had never received their economic impact payments, which were supposed to go out following the filing of 2021 tax returns. Because of this, the agency is paying out the money they still owe Americans who never received their checks.
Although most eligible Americans received their stimulus payments, the checks will be sent to those who qualified but filed a 2021 tax return that left the space for recovery rebate credit blank.
Those people are eligible for up to $1,400 from the federal government. The payments should be received by late January 2025, at the latest.
“These payments are an example of our commitment to go the extra mile for taxpayers. Looking at our internal data, we realized that 1 million taxpayers overlooked claiming this complex credit when they were actually eligible,” said IRS Commissioner Danny Werfel. “To minimize headaches and get this money to eligible taxpayers, we’re making these payments automatic, meaning these people will not be required to go through the extensive process of filing an amended return to receive it.”
Stimulus payments of $1,400 were sent out to Americans as part of a $1.9-trillion COVID-19 relief bill. Millions of Americans were eligible for the payments.
To get a check, Americans were required to make less than $75,000 per year or under $150,000 as a household.
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