Updated: 09/20/07 6:56 AM – HSBC Bank USA will pay $10.5 million in fines and penalties to the Securities and Exchange Commission for negligently allowing its name and logo to be used in connection with an alleged Miami-based investment fraud targeted at Central and South American investors.
Under the settlement agreement announced Wednesday, the U.S. banking unit of London-based HSBC Holdings Plc, one of the world’s largest banks, will pay a civil fine of $10 million and give up $500,000 in fees that it earned for its work with Pension Fund of America.
The bank had served as a trustee for the investment portion of the business from August 2003 to March 2005, when a federal court shut down Pension Fund at SEC’s behest. HSBC’s name and logo appeared throughout the firm’s marketing materials, which were not properly reviewed, the SEC said.
In a press release announcing the settlement, SEC officials criticized the bank for letting the investment fund use its reputation, giving “false assurances” to investors that a legitimate bank was involved and “co-developed” the plan.
“This case should serve as an important reminder to banking and financial institutions to guard the credibility they may lend to other companies with which they associate,” enforcement director Linda Chatman Thomsen said in the release.
They said HSBC was essentially negligent in not taking proper precautions to prevent the abuse. “It was a breakdown in the internal processes in the bank,” David Nelson, regional director of the SEC’s Miami regional office, said in a telephone interview. “They had some procedures, but failed to follow their own procedures.”
For its part, HSBC noted that it “immediately took steps to preserve the assets it held on behalf of [Pension Fund] investors,” and did not admit to or deny wrongdoing as part of the settlement. “HSBC is pleased this matter is concluded,” spokeswoman Francine Minadeo said in an e-mailed statement. She declined to comment on the specific allegations or on whether any HSBC employees were fired or disciplined.
In its cease-and-desist order, the SEC said that since at least 1999, Pension Fund sold retirement and college “trust plans” that claimed to provide term life insurance to investors and the chance to invest in mutual funds. The company, through 500 independent agents, raised at least $127 million in that time from 3,400 investors.
HSBC bought predatory lender Household International, which also received a cease-and-desist order from the SEC for rolling over bad loans, packing fees on to the back end of such loans, and hiding the number and nature of bad loans from investors.
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