HSBC, Taiwanese Banks Settle Lawsuit Over PEMGroup Fraud

HSBC Holdings Plc (HSBA) settled a lawsuit brought by a group of Taiwanese banks that accused HSBC Bank USA of helping deceased financier Danny Peng’s PEMGroup defraud them of more than $500 million.

The banks involved in the case -- HSBC Bank USA, Hua Nan Commercial Bank, Hua Nan Investment Trust Corp., Cosmos Bank, Entie Commercial Bank (2849), Bank SinoPac and Taichung Commercial Bank (2812) -- said in a filing today in federal court in Los Angeles that they entered into a settlement agreement and asked for the case to be dismissed. Terms of the settlement weren’t disclosed.

The Taiwanese banks accused HSBC Bank USA of lying to investors about how long the bank serviced PEMGroup’s investments and falsely representing that PEMGroup’s previous investment products had performed in conformity with their offering memorandums. Hua Nan Commercial Bank claimed $191 million in losses.

“The parties to the litigation did reach a settlement on mutually agreeable terms,” Alexander Pilmer, a lawyer for the Taiwanese banks said in an e-mail. He said he couldn’t provide additional information.

Neil Brazil, a spokesman for London-based HSBC, had no immediate comment on the settlement.

Taiwanese Investors

The court-appointed receiver for Irvine, California-based Private Equity Management Group Inc. also sued HSBC, alleging the bank helped Pang defraud Taiwanese investors. A judge in 2009 froze the assets of PEMGroup and appointed a receiver after the U.S. Securities and Exchange Commission leveled accusations against Pang and his company.

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 committed suicide in September 2009 at the age of 42.

The defrauded Taiwanese investors, including eight financial institutions and about 35 wealthy individuals, had $823 million invested with PEMGroup, the receiver has said.

The case is Hua Nan Commercial Bank v. HSBC Bank USA, 10-8773, U.S. District Court, Central District of California (Los Angeles).

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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