The Toronto-Dominion Bank must repay more than $16 million to two investors whose money was used to clear a client’s fraudulent overdraft, an Ontario court ruled. The decision, released July 3, 2026, orders TD to pay one investor $15,406,200 and the other $906,451, plus pre-judgment interest.
Two companies invested $17.8 million in October 2022.
They invested with a private mortgage firm. They expected the money to go into mortgage deals. Instead, the firm’s principal used it to repay an unauthorized overdraft of more than $21 million in his personal TD accounts — an overdraft the bank had already traced to a cheque-kiting scheme.
An Investment Gone Wrong
Before the investors’ money landed, the bank had sued the broker and his firm over the alleged fraud and frozen their accounts under a Mareva injunction. Days after the funds arrived, the bank obtained consent orders permitting repayment and discontinued its own action. The two investors, the judge found, knew nothing of the fraud allegations or the freeze.
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The companies sued TD to recover the money.
They argued negligence, knowing receipt, conversion and unjust enrichment. The bank denied liability and said any award should be reduced because the investors failed to check on the broker themselves.
The judge dismissed the negligence claim.
It found 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 the bank was held liable in knowing receipt, conversion and unjust enrichment — claims that require only constructive knowledge.
The Role of Anti-Money-Laundering Policies
The bank’s own anti-money-laundering policy drove the result.
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The judge found that red flags around the client — suspected cheque kiting, a suspended mortgage-broker licence, and repeated false statements about repayment — required enhanced due diligence before the bank 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 ruling clarifies what happens when a financial institution accepts a deposit while suspecting fraud. For private banking and wealth teams, it’s a pointed reminder: once anti-money-laundering red flags trigger enhanced due diligence, the duty runs to the whole customer relationship, not just one transaction. Accepting a deposit to clear a suspect account without finishing that inquiry can expose a bank to restitution claims from third parties it never dealt with.
The judge also declined to reduce the award for the investors’ conduct.
The investors admitted they never verified the broker’s licence or ran litigation searches that would have exposed the fraud claim. But a lack of due diligence, the court noted, is not a defence to fraud. The bank’s argument that the investors were 50 percent at fault failed.
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