By Jonathan Stempel

(Reuters) -Three banks agreed to pay $1.35 billion to resolve litigation by former Allen Stanford investors who accused them of contributing to the imprisoned financier’s massive Ponzi scheme.

Canada’s Toronto-Dominion Bank <TD.TO> will pay $1.205 billion, HSBC Holdings Plc will pay $40 million and Independent Bank Group Inc, formerly Bank of Houston, will pay $100 million.

Money will go to a court-appointed receiver who is repaying victims of Stanford’s $7.2 billion fraud, which was uncovered in Feb. 2009, two months after the arrest of Bernard Madoff.

Stanford’s Ponzi scheme was at the time considered the largest other than Madoff’s.

The settlements require a judge’s approval.

They avert a trial that had been scheduled for Monday in Houston federal court, where TD, HSBC and Independent Bank were the last remaining defendants.

Two other defendants, France’s Societe Generale SA and Mississippi-based Trustmark Corp, settled for a respective $157 million and $100 million earlier this year.

Once considered a billionaire, Stanford, 72, is serving a 110-year prison sentence after being convicted in 2012 for defrauding about 18,000 investors.

Prosecutors said he sold fraudulent high-yielding certificates of deposit through his Antigua-based Stanford International Bank, and used investor money to make risky investments and fund a lavish lifestyle.

The receiver, Ralph Janvey, has recovered more than $2.7 billion for Stanford’s investors.

Given all the challenges faced by the receivership since 2009, this is nothing short of a monumental recovery,” said Kevin Sadler, a Baker Botts partner who represents Janvey and the Official Stanford Investors Committee.

TD denied liability and said it settled to avoid the distraction and risk of further litigation. It will record a C$1.2 billion (US$885 million) first-quarter after-tax charge.

The payout is “far less than the worst-case scenario envisioned by some,” and should be “positive for TD’s outlook,” Barclays analyst John Aiken said in a research note.

HSBC and Independent Bank also denied liability. Independent Bank expects to recognize a $100 million first-quarter expense for its settlement, a regulatory filing shows.

(Reporting by Jonathan Stempel in New York and Niket Nishant in Bengaluru; editing by Arun Koyyur and Jason Neely)