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failed to file legally mandated reports of suspicious transactions even though one of the launderers had deposited and withdrawn “more than $1 million in cash in a single day.”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.
The American casual restaurant chain TGI Fridays filed for Chapter 11 bankruptcy protection on Saturday, citing a flawed capital structure and joining a host of its peers that have struggled this year in the face of rising everyday prices and changing consumer trends.
The chain — recognized by its red-and-white striped logo and kitschy interior design — has quietly been closing locations since January and shuttered 50 more last week before filing for Chapter 11 protection.
The company, based in Dallas, has not disclosed the locations of the store closings.
There are five TGI Fridays in California, including one in Los Angeles near Hollywood Boulevard, according to the company’s website.
TGI Fridays said it operates 39 company-owned locations and has secured financing to keep the restaurants open during bankruptcy. The bankruptcy will not affect 56 franchised restaurants, which are independently owned and operated.
“The next steps announced today are difficult but necessary actions to protect the best interests of our stakeholders,” Executive Chairman Rohit Manocha said in a statement. “This restructuring will allow our go-forward restaurants to proceed with an optimized corporate infrastructure that enables them to reach their full potential.”
Fallout from the COVID-19 pandemic has also been a major driver of the company’s financial struggles, Manocha said. The chain plans to use its bankruptcy protection “to explore strategic alternatives in order to ensure the long-term viability of the brand,” the statement said.
The company did not respond to a request for comment.
TGI Fridays offers customers a wide array of classic American entrées along with milkshakes and ice cream sundaes. The chain, which got its start in Manhattan in 1965, helped popularize the “happy hour” concept and was at its peak a popular spot for celebrations and gatherings.
TGI Fridays bartenders trained Tom Cruise for his role in the 1988 film “Cocktail,” the company has boasted, and its waitstaff’s colorful button-filled uniforms were parodied in the 1999 film “Office Space,” starring Jennifer Aniston.
The chain has been owned by private equity firms TriArtisan and Sentinel Capital Partners since 2014 and does not release financial results. According to the market research firm Technomic, company sales in the U.S. declined to $728 million last year, down 15% from the prior year, the Wall Street Journal reported.
TGI Fridays’ woes are part of a dominant trend that has also affected American casual restaurant chains such as Red Lobster and Denny’s. Middle-class consumers who once frequented such places are cutting back on discretionary spending, experts say, and the high price of goods and labor are squeezing profits.
Red Lobster filed for bankruptcy protection earlier this year after an all-you-can-eat shrimp fiasco contributed to financial losses; Rubio’s Coastal Grill did the same following the abrupt closure of 48 locations in California. The fast-casual burger spot Shake Shack closed nine underperforming restaurants in September, including five in the Los Angeles area.
The Associated Press contributed to this report.
Apple has been accused by the National Labor Relations Board of trying to prevent employees from discussing pay equity and pressuring an engineer who attempted to circulate an online survey about wages to quit.
In a complaint issued last week by the NLRB’s regional office in Oakland, federal labor regulators alleged Apple has unlawfully blocked discussion among workers in corporate offices by enforcing overly broad confidentiality rules and restricting their activity on the Slack messaging app and social media, as well as hampering their conversations with journalists.
The complaint alleges the company in 2021 barred employees from creating a Slack channel called #community-pay-equity and prohibited workers from discussing the financial incentives Apple uses to reach sales goals by claiming the topic included “confidential and proprietary information.”
Apple has publicly denied the allegations. “We strongly disagree with these claims,” a company spokesperson told Reuters. Apple did not immediately respond to a request for comment from The Times.
According to the complaint, Cher Scarlett, an engineer at Apple, faced reprisals after she participated in Slack discussions about workplace discrimination, helped found a campaign called “Apple Too” modeled after the #MeToo movement that was meant to encourage employees to share their experiences with racism and sexism, and created an online employee survey about pay equity.
Instead of addressing her requests that the company clarify its rules regarding pay discussions, NLRB investigators found Apple told an attorney representing Scarlett at the time that she needed to stop making social media posts, while also pressing her to go on medical leave and offering her a severance agreement. These actions by the company, the complaint said, unlawfully forced Scarlett to quit.
Apple managers allegedly threatened other employees who posted on social media and in Slack and spoke to the press about workplace concerns, according to the complaint. Some were interrogated about their involvement with Scarlett’s pay equity survey and were told their activities were being monitored, and that they could be demoted, according to the complaint.
Issuing the complaint represents the NLRB’s first step in litigating the case after investigating an unfair labor practice claim submitted by employees and finding merit to the allegations. If a settlement with Apple is not reached, the case will be reviewed by an administrative law judge at a hearing scheduled for next June. The judge’s decision on what, if anything, Apple must do to address the issues raised in the complaint could then be appealed to the labor board in Washington and from there it could be appealed to federal court.
The NLRB’s general counsel is asking for a court order that would require Apple to post notices in offices and electronically in Slack and email explaining the rights of employees, as well as to conduct training for managers, supervisors and employees. The NLRB is also looking to force Apple to reinstate Scarlett, compensate her for lost pay and issue an apology letter.
The complaint is the third in recent weeks to hit Apple.
On Sep. 27, the board’s regional office in Los Angeles issued a complaint accusing Apple of requiring employees across the U.S. to sign overly broad confidentiality and non-compete agreements and adhere to sweeping policies on misconduct and social media that violated employees’ ability to exercise their rights under federal labor law. The complaint stems from charges filed in 2021 by Ashley Gjovik, a former senior engineering program manager at the company, who claimed that an email sent by Apple Chief Executive Tim Cook, in which he pledged to punish employees who leaked company information, had a chilling effect on workers’ discussions of pay equity and discrimination.
And on Oct. 9, the NLRB’s office in Oakland issued another complaint alleging the company had maintained unlawful work rules and created an impression of surveillance, unfairly enforced policies and wrongly terminated an employee for their involvement in an open letter criticizing a technology entrepreneur Apple had hired. The complaint arose from claims made by Janneke Parrish, a former Texas-based product manager on Apple Maps and a leader of a #MeToo activist movement within Apple, who was fired in 2021.
The complaints by federal regulators highlight ongoing turmoil around organizing efforts by Apple employees both at the iPhone maker’s corporate headquarters and at retail stores. In recent years the board has also lodged complaints that Apple interrogated its retail workers in New York about their union support and confiscated pro-labor fliers in a store break room, and similarly interrogated employees in an Atlanta store and told staff that they would be in a less advantageous position if they voted for a union.
The company has denied wrongdoing.
Franchise Group, the company at the heart of a troubled management buyout that has devastated the stock of B. Riley Financial, has filed for bankruptcy — but plans to keep open most of its retail brands, including Vitamin Shoppe.
The retailer filed for Chapter 11 bankruptcy protection on Sunday, announcing it already had a deal with about 80% of its senior secured lenders that would allow them to convert their debt into ownership stakes and continue operating the businesses.
The company’s chains also include Pet Supplies Plus and Buddy’s Home Furnishings. Its fourth retailer, discount furniture and appliance seller American Freight, will be closed. American Freight operates more than a dozen stores in California, including outlets in Torrance, West Covina and Palmdale.
Westwood-based B. Riley took the Delaware, Ohio, company private last year in a $2.8-billion management-led buyout that turned disastrous amid slowing sales for Franchise Group and a scandal involving ties between its founder, Brian Kahn, and Prophecy Asset Management, a hedge fund that federal prosecutors allege defrauded investors of $294 million. Kahn has denied any wrongdoing.
B. Riley took on $600 million in debt to underwrite the deal and lent Kahn $200 million over the years to establish Franchise Group and take it private — with most of the loan secured by shares of the retailer. B. Riley founder and co-ceo Bryant Riley has denied knowledge of any wrongdoing, but his firm’s dealings with Kahn are the subject of a Securities and Exchange Commission investigation.
Riley, in a letter Monday to employees, said he felt “personally sick about this result,” which would likely result in a total loss of any equity stakes in Franchise Group for the company, 69 employees and others, including wealth clients and institutional investors.
He added that the downturn in consumer spending and the scandal involving Prophecy could not have been foreseen, but that B. Riley is in “far better shape than folks give us credit for.”
B. Riley has already announced that it would mark down its investment in Franchise Group by up to $370 million and record a loss of up to $475 million when it files its second quarter earnings, which it has yet to do.
Shares of B. Riley were down 13% to $4.95 Monday on the Nasdaq. The stock traded close to $90 three years ago.
Riley told The Times in September that the firm had lowered its debt related to the deal to about $380 million and was carrying $1.9 billion in total debt.
The financial services company has since been selling off assets to continue cutting its debt. Riley, in his letter, said that debt related to the Franchise deal would lower to $125 million by the end of the month.
In September, B. Riley said it had sold a majority stake in its Great American appraisal and liquidation business for about $203 million to Oaktree Capital Management, while retaining a 47% stake valued at roughly $183 million in a new holding company it formed with the L.A. distressed asset manager.
The company also sold off its its interests in a number of apparel brands and the former mall retailer Brookstone for about $236 million.
A few days ago, it said it had sold off a small portion of its wealth management business to Stifel Financial Corp. for up to $35 million in cash. Some 40 to 50 advisors, along with the associated customer accounts, are expected to move to Stifel early next year.
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