NEW YORK ( TheDeal) --TD Bank (TD - Get Report) has agreed to settle a class-action lawsuit for $20 million with European investors who lost more than $223 million in Dutch life settlement company Quality Investments.
The bank signed an agreement to settle the suit, which is expected to get preliminary court approval in a few weeks, according to the plaintiffs' attorney. A notice of the settlement was filed Thursday, July 16, with the U.S. District Court in Miami.
The lawsuit alleges that the defendants sought investors to buy interests in life settlement policies that were put in Florida trusts formed and managed by Peck. Peck, an attorney who was acting as the trustee for the investment, was disbarred in December, according to the New Jersey Office of Attorney Ethics.
Each investment sold at Laan's direction through Quality Investments was a beneficial interest in a trust formed to hold and maintain a policy.
The suit said the TD Bank vouching letters allowed the defendants to carry out their scheme.
One letter by the bank in April 2009 said that Peck held a balance of $600,000 in a premium reserve account, that she kept the account in good standing and was a valued bank customer.
Actually, she had opened the account the day before, the suit says. Three days after the bank wrote the vouching letter, Peck drew down the balance to $167,500. Three weeks later, she drew down the balance again to $5,000.
"TD Bank's letters lulled investors into believing that a regulated U.S. financial institution was keeping watch over these trust based transactions and the individuals and entities, including Peck and Watershed, that were involved in them," the suit alleged.
The bank also failed to report Peck to authorities, although it was aware of her conduct, the suit further said.
If the bank had complied with its reporting obligations under New Jersey law, the defendants would not have been able to continue the scheme, take in more investor money and misappropriate it, the suit added.
TD Bank also knew that Peck was not licensed to practice law in Florida, but failed to report her, the suit said.
The bank further failed to report suspicious activity in the trust accounts, which included substantial wire transfers to Cyprus, the United Arab Emirates and other known money laundering destinations, the suit said.
The suit alleged numerous violations of laws, including breach of fiduciary duty against Peck and aiding and abetting breach of fiduciary duty against the bank, Moens, Laan and Hume. It also alleged civil conspiracy against Moens, Peck and Laan. It alleged negligence, attorney malpractice and professional negligence and unlicensed practice of law against Peck. It alleged negligence and negligent misrepresentation against the bank. The suit further claimed that Peck, Laan and Moens sold unregistered securities under Florida law.
TD Bank had unsuccessfully sought to dismiss the case last August, arguing that banks don't owe a duty to non-customers regarding maintenance of customer bank accounts. It also said that banks aren't responsible for protecting non-customers from frauds perpetrated by customers. The court denied the bank's motion to dismiss the complaint in October.
The Quality Investment portfolio was sold in a bankruptcy auction for $9.85 million to McKinsey & Co. in September 2013. The 25 policies in the portfolio had a total face value of $135 million.
Leslie Cloyd, an attorney with the Berger Singermanlaw firm in Fort Lauderdale, Fla., who is representing the bankruptcy trustee in U.S. Bankruptcy Court in West Palm Beach, Fla., said the trustee has filed 12 lawsuits to pursue recoveries in the case.
She said the trustee has just been accepted as an interested party in a criminal prosecution in the Netherlands. In September 2011, the Dutch tax intelligence agency, known as FIOD, arrested four Dutch men on suspicion of fraud in connection with the Quality Investment case. Two of the four, Laan and Moens, are defendants in the class-action lawsuit.