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Hong Kong investors sue US banks over Lehman losses

  Hong Kong investors in mini-bonds backed by failed financial services firm Lehman Brothers have filed a class-action suit against HSBC and Bank of New York Mellon, in a bid to recover at least some of their losses, their spokesman said Saturday.

The action filed in a New York court Thursday has identified HSBC as the issuer, trustee and custodian of the mini-bonds and BNY Mellon as custodian of some of the assets, said Peter Chan, chairman of the Allied Victims of Lehman Products in Hong Kong.

Chan said investors were seeking an order to release $1.6 billion worth of collateral held by the banks to more than 30,000 Hong Kong investors, and that it should not to be treated as part of Lehman’s bankrupt estate.

“We have to turn to the US legal system for justice because the Hong Kong system gives no room for class actions,” Chan told AFP. He said the case involved 28 series of Lehman-backed mini-bonds. “Without any exception, the trustee of all the mini-bonds in this case is HSBC USA.”

A statement from Coughlin Stoia, the US law firm representing the investors, said that HSBC, as a trustee, had failed to “protect the collateral backing the minibonds... and also failed to give notice of negative information about the derivatives underlying the minibonds.”

A spokesman for HSBC told the Financial Times in a report Saturday that it was only the trustee but not the issuer of the mini-bonds. “Any suggestion that we were involved with the design or selling of the mini-bonds is wrong,” the spokesman told the newspaper.

More than 40,000 Hong Kong investors, including many retirees, put HK$15.7 billion ($2.01 billion) into mini-bonds and other complex derivative instruments backed by Lehman Brothers.

The Wall Street banking giant filed for bankruptcy in September as it buckled under the weight of the collapse in US subprime, or high risk, mortgages.

The Hong Kong investors mounted protests against the banks, the city’s government and financial regulators, demanding a full refund. The city’s securities watchdog, the Securities and Futures Commission, is currently investigating some alleged cases of mis-selling of Lehman mini-bonds. (The Economic Times)