Court orders TD Bank to repay $16 million to defrauded investors

Before the money arrived, TD had sued the broker and his firm over the alleged fraud and frozen their accounts under a Mareva injunction. Days after the funds landed, the bank obtained consent orders permitting repayment and discontinued its own action. The two investors, the court found, knew nothing of the fraud allegations or the freeze.

The companies sued TD to recover the money, arguing negligence, knowing receipt, conversion and unjust enrichment. TD denied liability and said any award should be reduced for the investors’ own failure to check on the broker.

The court dismissed the negligence claim, finding TD had no actual knowledge of the fraud – and was neither wilfully blind nor reckless – so it owed the investors no duty of care. But it found the bank liable in knowing receipt, conversion and unjust enrichment, claims that require only constructive knowledge.

The bank’s own anti-money-laundering policy drove the result. The court found the red flags around the client – the suspected cheque kiting, a suspended mortgage-broker licence and repeated false statements about repayment – required enhanced due diligence before TD accepted the funds. The bank asked where the money came from but took it in without answers. On that record, the court held that “TD Bank had constructive knowledge of the breach of trust.”

The court also declined to reduce the award for the investors’ conduct, though they admitted they never verified the broker’s licence or ran litigation searches that would have exposed the fraud claim. A lack of due diligence, it noted, is not a defence to fraud, and TD’s argument that the investors were 50 percent at fault failed.