Franklin Templeton, TD Bank in Regulators’ Crosshairs

If you can’t pay the fine, don’t (allegedly) do the crime. 

Regulators are intensifying their focus on two major financial institutions, and potential fines stretching into the billions of dollars may become some of the heftiest levied in the wealth management and banking sector this year. The Securities and Exchange Commission sent a Wells notice last week to a top executive at the $1.5 trillion Franklin Templeton network over discrepancies in trade allocations. In a separate case, the Justice Department, the Treasury, and other regulators are investigating TD Bank over alleged widespread money laundering and other infractions at several of its US branches. 

“Banks should take heed,” said Christopher Bosch, an associate at the law firm Sheppard Mullin. “These issues are squarely on regulators’ radars and in their crosshairs,” he told The Daily Upside, adding that federal regulators have been particularly aggressive in regulating banking practices, including anti-money laundering, off-channel communications, and cryptocurrency. 

Wouldn’t Notice

Ken Leech, the co-chief investment officer of Franklin’s fixed income manager Western Asset Management, was served with a Wells notice last week, which warns that the agency plans to bring enforcement. That led to a leave of absence and forced Western Asset Management to close the $2 billion macro opportunities strategy that Leech ran, according to a press release:

• The firm launched an internal investigation focusing on certain past trade allocations of treasury derivatives, according to a 10-Q.
• It’s unclear exactly how much this could cost, but Franklin’s stock fell roughly 8% last week. Its share price is down nearly 30% year-to-date.

Do the Laundry. TD Bank is facing even steeper challenges, with a possible $3 billion penalty due to compliance failures looming. Federal agencies allege that TD Bank employees at branches in New Jersey, New York, and Florida were involved in money laundering operations. In some instances, TD is accused of facilitating the laundering of money linked to Chinese crime groups involved in US fentanyl sales, The Wall Street Journal reported. 

To address these financial pressures, TD Bank sold 40.5 million shares of Charles Schwab, reducing its stake to 10.1% from 12.3%. Bosch noted that multibillion-dollar AML penalties are rare, usually not topping $1 billion, but highlighted the gravity of the situation, especially with the alleged involvement in a $653 million fentanyl conspiracy. 

“I think it’s fair to call that figure high and pretty extraordinary,” he said.