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HSBC to fight £151m Keydata lawsuit

HSBC has vowed to fight a $250m (£151m) US lawsuit that alleges the bank aided fraud through its role in the collapse of Keydata.

The Financial Times reports HSBC’s US subsidiary is accused of failing to spot a series of red flags in the run-up to the liquidation of SLS Capital, a Luxembourg-domiciled vehicle that issued bonds that Keydata investors bought.

HSBC says it will respond formally to the allegations by filing a motion to dismiss the complaint, which was filed in a New York court on Friday by SLS’s liquidator. The bank declined to comment on the allegations further. 

The complaint was backed by a group of 900 Keydata investors, known as KSLIT, who lost money when the investment firm collapsed in 2009.

HSBC is accused of playing “a critical role in the eventual demise of SLS” and “failing to prevent” a fire sale of SLS’s portfolio, which specialised in dealing in life insurance policies in the secondary market.

While the bank did not sell or market the bonds, SLS’s complaint states that HSBC was the custodian of the life policies that underpinned the bonds.

The complaint alleges the bank did little to correct misleading marketing material that held out the bank as the bonds’ trustee, and that it did not properly investigate claims that Keydata was an alleged Ponzi scheme.

KSLIT spokesman Tony Lahert says: “Many pensioners who lost money in the SLS fraud have told me they only invested because they saw the ‘respected’ HSBC brand stated as US trustee on the marketing literature in 2005, hence feeling secure to invest in the SLS bond. So it is particularly satisfying to get HSBC into a court of law.”

Last month, the Financial Times reported the liquidator of SLS Capital had started legal proceedings against US brokerage CRT Capital in a $100m claim for its role in the collapse of Keydata.

And earlier this month Keydata founder Stewart Ford initiated a £371m legal claim for loss and damages against the FCA which alleges the regulator’s investigation into Keydata was an “abuse of power”.

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. I rather fail to see how the US gets into the act.

    Did any of their nationals purchase the product? Was it marketed in the US?

    Surely this interference by the USA (FACTA and fining anything that is from the UK) is getting out of hand.

    This is beginning to look like a scam. Just look at the fines levied on UK firms in the US.

    In their own vernacular – perhaps they should ‘Butt out’, or perhaps our PRA, FCA and HSE should retaliate

  2. The underlying investments were US Life Policies. Ergo the custodianship and sale of the policies were presumably in the US.

  3. Yes I realised that, but no one in the USA has been disadvantaged – so again I say it looks like a chancer’s scam.

    I guess give a lawyer an inch and he’ll (or she) try for the whole of the M1.

    For years I have suggested that 12th August be changed from Grouse to Lawyers.

  4. Time for some law. If you sue someone for something they did in a particular country using a subsidiary in that country, you normally do this in that country. Indeed, the English courts will usually decline to deal with the case under forum non conveniens rules (it’s the wrong country to hear the case) even assuming that someone in the UK could be sued for this which is doubtful. If this was an EEA/EU country, again the court where the wrong occurred would have jurisdiction to deal with the case and nobody else would here.

  5. OK Adam,

    Then why isn’t the fine remitted back to the UK. In that case I would not have an issue. It could be used to help the FSCS.

  6. These are not enforcement proceedings but a civil suit. So, what SLS’ liquidator chooses to do with any money it recovers is its problem.

    There would only be a case for remitting money to the UK if the UK authorities took action but they have not done so.

  7. Thanks. One can only wonder why the UK authorities haven’t bothered to take action. Perhaps HSF finds it easier to browbeat advisers than do the more difficult (but more remunerative) stuff.

  8. The HSBC business was not a UK firm. So, the FCA could not have acted actually.

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