Stanford Investors Sue Five Banks Tied to Alleged Scam

Stanford investors are suing five banks, including two in the US, that handled billions of dollars in customer deposits for Stanford International Bank in Antigua, the offshore bank at the heart of the alleged Ponzi scheme.

Allen Stanford
Allen Stanford

The lawsuit, filed on behalf of investors by the New York law firm of Morgenstern & Blue, claims the banks should have known that Stanford was running an alleged scam. The suit, filed in a Texas state court in Houston, seeks at least $7 billion and comes one week after CNBC first reported that several outside banks were under scrutiny.

The suit names Toronto Dominion Bank , Mississippi-based Trustmark National Bank, the Bank of Houston, London-based HSBC Bank and the Swiss private banking division of France's Societe Generale.

As reported last week, purchasers of Stanford International Bank certificates of deposit would send their funds directly to the banks in question, so virtually none of the money went to Antigua.

The money was then allegedly used to pay "returns" to prior investors, and to fund CEO Allen Stanford's lavish lifestyle. A forensic accountant detailed the transaction in court papers filed in the Securities and Exchange Commission suit against Stanford, which has denied wrongdoing.

A Trustmark spokesperson last week denied any wrongdoing in its handling of the Stanford accounts. Neither Toronto Dominion nor the Bank of Houston responded to CNBC's request for a comment. HSBC and Societe Generale were not immediately available for a comment.

The suit says HSBC and Toronto Dominion in particular handled "enormous volumes" of customer funds, providing an "essential conduit" for the alleged fraud. Toronto Dominion accepted billions of dollars in dollar-denominated wire transfers, while HSBC handled deposits made in Euros, British Pounds and other European currencies.

Trustmark and the Bank of Houston received deposits made by check, and Societe Generale provided banking services to Stanford and his companies.

Stanford remains in jail without bail after US District Judge David Hittner ruled in June that he is a flight risk. Hittner also denied Stanford's motions to be moved to a different jail and to change attorneys. Most recently, the 5th Circuit Court of Appeals denied his petition to replace Hittner as the judge on the case.