HSBC Wins New Trial in $2.46 Billion Securities Fraud Suit

Updated on

HSBC Holdings Plc won a new trial in a decade-old securities fraud lawsuit that led to a $2.46 billion judgment against the bank’s Household International unit.

A federal appeals court on Thursday set aside a 2009 verdict that three Household executives misled investors about its business practices. While jurors made that initial determination after a monthlong trial, it took four and a half more years to determine the proper amount of damages.

The three-judge appeals panel said the investors hadn’t shown the lenders shares drop wasn’t the result of other factors. The judges rejected the investors’ accounting for what it called “nonfraud information” that could have affected the stock price. An expert witness had testified that that such information was insignificant.

“That’s not enough,” U.S. Circuit Judge Diane Sykes wrote.

The judges also questioned whether some of the false statements for which the lender itself remains responsible could be properly attributed to former Household Chief Executive Officer William Aldinger and two other executives named as defendants in the suit.

Jury Trials

Jury trials are seldom seen in securities class actions as cases frequently fail to survive initial legal challenges and those that do are typically settled.

The lead lawyer for investors, Mike Dowd of San Diego-based Robbins Geller Rudman & Dowd LLP, said he’s pleased the appeals court rejected almost all the bank’s arguments and ordered only “very limited issues” to be revisited as the case proceeds.

“We believe that we will prevail and that class members will finally get the justice they deserve,” he said in an e-mail.

Rob Sherman, a spokesman for HSBC, said the lender looks forward to returning to court.

“We argued on appeal that the verdict in this 12-year class action based on events that took place prior to HSBC’s acquisition of Household was defective and needed to be reversed, and the court of appeals has now agreed,” he said in an e-mail.

A consumer lending business, Household in 1999 “implemented an aggressive growth strategy,” according to the court’s ruling. “Over the next two years, the stock price rose dramatically, but the company’s growth was driven by predatory lending practices.”

‘The Reality’

While shares had climbed from $40 at the outset to the mid- $60 range by 2001, “the reality of Household’s situation eventually caught up with it’s stock price,” and the truth came out, Sykes wrote. The company paid $484 million to settle several states’ lawsuits. Its shares fell 54 percent, to $28.20.

Household was acquired by London-based HSBC in March 2003 for $15.5 billion. The case was filed in 2002. Household is now known as HSBC Finance Corp.

The case is Glickenhaus & Co. v. Household International, 13-3532, U.S. Court of Appeals for the Seventh Circuit (Chicago).

Before it's here, it's on the Bloomberg Terminal. LEARN MORE