HSBC Holdings PLC has reached a $1.575 billion settlement that will resolve a securities class action involving fraudulent lending practices. This ends 14 years of litigation that included a prior $2.4 billion judgment that was vacated by the Seventh Circuit Court of Appeals last year. This settlement is believed to be the largest ever in a securities fraud class action case. It is also said to be the largest in the Seventh Circuit. The settlement was agreed to just prior to the start of trial.
The investors had claimed back in 2002 that Household International Inc., which HSBC acquired in 2003, and three of Household’s former top executives lied about the company’s lending practices, financial accounting and loan quality. The shareholders won a jury verdict in 2009, but the Seventh Circuit reversed the partial final judgment last year and sent the case back for a new trial. The bank said:
The settlement is subject to court approval and is expected to result in a pretax charge to HSBC Finance of approximately $585 million, including legal fees and expenses, in the second quarter of 2016.
Household focused on credit card, auto finance and mortgage lending, particularly for subprime borrowers. In August 2002, the company, then one of the top consumer finance firms in the country, restated nine years’ worth of earnings, disclosing that it had earned $386 million less than it had reported. HSBC acquired Household in 2003, and the company was later renamed HSBC Finance Corp.
In the suit, Household shareholders accused the financial institution of misrepresenting interest rates, improperly charging prepayment penalties and excessive fees, and perpetrating other fraudulent lending practices. The Plaintiffs also alleged that Household and its executives manipulated the credit quality of the firm’s loan portfolio. A jury in 2009 found the company and three former executives, including former Household CEO William Aldinger, recklessly made misleading public statements that deceived shareholders, according to case filings.
The Plaintiffs are represented by Michael J. Dowd, Spencer A. Burkholz, Daniel S. Drosman, Luke O. Brooks, Jason C. Davis, Maureen E. Mueller and Hillary B. Stakem of Robbins Geller Rudman & Dowd LLP. The case is in the U.S. District Court for the Northern District of Illinois.
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