TD bank. stock photo
iStock/Roman Tiraspolsky

A proposed shareholder class action for alleged secondary market misrepresentation is underway against TD Bank, and certain directors and officers, over the bank’s weak anti–money laundering (AML) controls and the impact on the bank’s operations.

The proposed class action, which is being brought by Sotos LLP in the Ontario Superior Court of Justice, alleges the bank failed to properly disclose the systemic deficiencies in its AML controls, which resulted in its stock price dropping when these weaknesses were finally revealed in the bank’s latest quarterly results on April 30, when the bank took a US$450-million provision for expected U.S. penalties.

“Despite knowing of the significant regulatory risks, TD exhibited systemic deficiencies in its AML controls since at least 2012. The seriousness of TD’s lax AML controls, particularly in its U.S. operations, were notorious within TD,” the suit alleged.

“These deficiencies had been, and throughout the class period continued to be, exploited by criminal organizations, including drug traffickers, to launder hundreds of millions of dollars and transfer the proceeds of crime across international borders using basic methods that should have been flagged by properly functioning AML controls,” the filing said.

The lawsuit, which is being brought on behalf of shareholders who purchased the bank’s stock between August 2021 and June 2024, alleged that, by August 2021, the bank and its senior executives should have known that “U.S. regulators were likely to take steps that would materially impact the growth of TD’s U.S. operations.”

It also alleged that the bank should have known that a material penalty from U.S. regulators was likely by August 2023.

“As a result of this failure to recognize a provision, TD made accounting misrepresentations by overstating its net income and by positively stating that it did not believe outstanding regulatory and legal actions would have a material effect on its consolidated financial position,” it said.

The allegations have not been proven, and the case has not been certified as a class action.

The bank now has 20 days to file its defence.