HSBC Pays $62.5 Million to Settle Allegations of Securities Fraud in New York

New York securities lawyers are taking notice at the decision rendered to have HSBC pay $62.5 million in a class-action lawsuit claiming the bank was negligent as the custodian of client money lost in Bernie Madoff’s investment scam, according to Erik Larson and Linda Sandler’s article “HSBC Agrees to Pay $62.5 Million to End Madoff Civil Case” in Bloomberg’s Businessweek.

The civil securities fraud claim in New York was filed against HSBC and other defendants by investors in the Ireland-based Thema International Fund Plc. HSBC admitted no wrongdoing as a result of the settlement.
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New York securities attorneys have seen a slew of cases alleging investment fraud since the beginning of the economic downturn. Of course, the Madoff scandal has made international news. But there have been hundreds of others involving securities, real estate investments and other investment vehicles. In many cases, people simply made bad investments or were caught holding an investment when the bottom fell out of the market.

In other cases, mid-level executives are facing allegations of failure to supervise, failure to execute or breach of fiduciary duty. In all cases, the best defense is to bring in a New York securities law firm as early as possible once allegations have been made or an investigation has been initiated.

HSBC is also facing Madoff-related lawsuits in Germany, Luxembourg and other countries. The London-based financial institution says it has good defenses against those allegations. In this case, the lawsuit alleged HSBC acted as a custodian for Therma and other funds and that the bank funneled money to Madoff.

The trustee liquidating the Madoff estate sued HSBC and a dozen feeder funds for $9 billion in U.S. Bankruptcy Court in Manhattan — claiming the bank should have known of the fraud. In seeking dismissal of the lawsuit, the bank said it lost $1 billion of its own money and had no knowledge of the fraud. However, the bank was twice warned by auditors that entrusting $8 billion in client funds to Madoff was leaving the bank exposed to “fraud and operational risks.”

The lawsuit by investors claimed the bank failed to act on those warnings.

Two other funds sued by the Madoff estate trustee have since countersued HSBC, claiming hundreds of millions of dollars of losses associated with the fraud. A group of 650 German investors has also sued the bank, claiming $36.6 million in damages.

In other fallout from the scandal, Madoff’s former payroll manager pleaded guilty this month to assisting the ponzi scam by working to conceal it from regulators, according to UPI’s “Madoff’s payroll manager pleads guilty‎.” According to the New York Daily News, the 37-year-old paid no-show employees and invented a fraudulent account so he could qualify for a construction loan. He faces 70 years in prison on a host of charges.

Madoff is serving a 150-year prison sentence for operating the scam, which lost $65 billion.

If you believe you are a victim of investment or securities fraud, or other actions involving illegal activity, contact Malecki Law for a free consultation nationwide. Call 212-943-1233.