HSBC Holdings Plc (HSBA) was denied a request for dismissal of a lawsuit by a group of Taiwanese banks that accuse HSBC Bank USA of helping deceased financier Danny Pang’s PEMGroup defraud them of more than $500 million.
U.S. District Judge Philip Gutierrez on May 19 rejected HSBC’s arguments that the banks should have brought their claims in the British Virgin Islands, where the PEMGroup entities that issued the securities were based, rather than in Los Angeles. He also dismissed contentions that the banks didn’t provide enough facts to support their fraud and conspiracy claims.
“These allegations, taken together, create a reasonable inference that, based on the close business relationship between HSBC and PEM Group, as well as the material incentives HSBC stood to gain by providing investors with misleading or inaccurate data regarding the investments, HSBC had sufficient knowledge of PEM Group’s fraud,” Gutierrez said in his order.
Hua Nan Commercial Bank claimed $191 million in losses; Hua Nan Investment Trust, $48 million; Cosmos Bank Taiwan (2837), $45 million; EnTie Commercial Bank (2849), $50 million; Bank SinoPac, $122 million; and Taichung Commercial Bank (2812), $70 million, according to their October 2010 complaint.
The banks said HSBC, the cash and asset custodian for the PEMGroup securities, lied to investors about how long the bank had serviced PEMGroup’s investments and falsely represented that PEMGroup’s prior investment products had been performing in conformity with their offering memoranda.
Gutierrez dismissed fraud and negligent misrepresentation claims by EnTie and Taichung. The banks were allowed to restate their claims in an amended complaint.
Juanita Gutierrez, a spokesman for HSBC in New York, said the bank wouldn’t comment on pending litigation.
The court-appointed receiver for Irvine, California-based Private Equity Management Group Inc. sued HSBC in May 2010, alleging the bank had helped Pang defraud Taiwanese investors. Judge Gutierrez the previous year had frozen the assets of PEMGroup and appointed a receiver after the U.S. Securities and Exchange Commission leveled accusations against Pang.
The SEC accused Pang of lying about his credentials, forging insurance documents and paying existing investors with funds raised from new ones, while claiming the returns came from investments in life insurance policies. Pang, 42, committed suicide in September 2009.
The case is Hua Nan Commercial Bank v. HSBC Bank USA, 10- 8773, U.S. District Court, Central District of California (Los Angeles).
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