HSBC Finance Corp., an HSBC Holdings Plc. (HSBC) unit, will pay $1.575B to settle a shareholder class action securities case that was brought in 2002. The case involves Household International, the consumer finance business that HSBC purchased in 2003. Household International is now HSBC Finance.
Household shareholders accused the company of inflating its share price by hiding its poor mortgage lending practices and bad quality loans. When Household consented to pay U.S. state regulators $484M to resolve predatory lending claims in 2011, its share price dropped by over 50%.
HSBC became the defendant against claims by Household shareholders when it purchased the company for $14.2B. That deal eventually led to write-downs for tens of billions of dollars for bad loans in the wake of the subprime mortgage crisis.
Shareholders won a $2.46B judgment against the British Bank in 2013. In May 2015, however, a federal appeals court tossed the award and demanded a new trial to decide whether “nonfraud factors” that were specific to the firm played a part in the Household’s share price dropping.
In other recent mortgage lending fraud news, the U.S. Securities and Exchange Commission will be allowed to resume its civil case against ex-Standard & Poor’s (SPX) executive Barbara Duka. The 2nd U.S. Circuit Court of Appeals recently vacated a preliminary injunction stopping the regulator’s case against her. Duka is accused of alleged fraud involving mortgage debt ratings.
In the preliminary injunction ruling, a district court judge had cited a decision in another case questioning the constitutionality of the use of an in-house administrative judge to preside over SEC proceedings. The 2nd Circuit, however, went on to rule in that other case that a defendant should not be able to challenge the constitutionality of an administrative proceeding prior to the rendering of a final ruling.
Duka used to head the commercial mortgage-backed securities group. The SEC claims that S & P softened its requirements for calculating certain ratings in 2011.
Last year S & P agreed to be suspended from rating commercial-mortgage-backed securities. The suspension was related to claims that Duka played a key part in changing the ratings criteria for the securities.
The SEC said that the credit rating agency misled investors about its methodology for rating eight CMBS. To settle, S & P agreed to pay the SEC approximately $58M and the attorneys general for Massachusetts and New York $19M.
Standard & Poor’s settles with the SEC in ratings fraud case, Fortune, January 21, 2015