HSBC Unit Ordered to Pay $2.46 Billion for Securities Fraud

, The Litigation Daily

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Robbins Geller Rudman & Dowd has secured a record $2.46 billion judgment in its long-running securities fraud class action against a unit of British banking giant HSBC Group.

U.S. District Judge Ronald Guzman in Chicago entered final judgment on Thursday ordering HSBC and three former executives of its Household International Inc. unit, now known as the HSBC Finance Corporation, to pay a total of $1.48 billion in damages and $986.4 million in prejudgment interest.

As Kevin LaCroix at the D&O Diary blog pointed out in this post Friday, about half of the two dozen or so securities class actions that have gone all the way to trial since the passage of the Private Securities Litigation Reform Act of 1995 have resulted in defense verdicts. The only verdict remotely close to the dollar amount in the Household case—a $280 million verdict against Apollo Group—resulted in a $145 million settlement after the case was appealed all the way to the U.S. Supreme Court.

In the Household case, investors filed suit back in 2002 alleging that the company and its executives engaged in "a massive predatory lending scheme" that inflated the company's financial returns. As we've previously noted, the case has dragged on so long that William Lerach of Milberg Weiss Bershad Hynes & Lerach is listed on the shareholders' amended complaint.

When the case went to trial in 2009, it was just the seventh securities class action tried to a verdict since the passage of the PSLRA. HSBC was represented first by Milbank, Tweed, Hadley & McCloy, then Wachtell, Lipton, Rosen & Katz, before turning to Cahill Gordon & Reindel as trial counsel. Cahill has continued to represent the bank posttrial, but HSBC also brought on Skadden, Arps, Slate, Meagher & Flom in late 2010 to help with posttrial motions and, in the run-up to a potential appeal, brought on Paul Clement of Bancroft PLLC in July, according to the docket.

In a defense motion filed shortly after Clement signed on, HSBC's lawyers asked Guzman to reverse the jury finding that Household fraudulently misled investors about its lending practices, the quality of its loans, and its financial accounting, or—in the alternative—to retry the case. Guzman denied that motion in early October, a little less than two weeks before entering final judgment.

Defense lawyers directed our calls to Rob Sherman, a spokesman for the bank. “We plan to appeal and believe we have a strong argument,” Sherman said. He declined to comment on which firm would be heading up the bank's appeal.

In a statement, Robbins Geller's Mike Dowd said, “The fact that, after 11 years of hard-fought litigation, we obtained the largest judgment ever in a securities fraud trial demonstrates our firm’s resolve to vindicate the rights of defrauded investors.” The statement noted that the firm is continuing to litigate defendants’ objections to more than 25,000 additional claims with losses of more than $650 million. If the defendants' objections are denied, the firm plans to seek judgment on those claims as well.

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