Litigation and Regulatory Matters

The following supplements, and should be read together with, the disclosure in Note 28, "Litigation and Regulatory Matters," in our 2014 Form 10-K and in Note 19, "Litigation and Regulatory Matters," in our Form 10-Q for the three month period ended March 31, 2015 (the "2015 First Quarter Form 10-Q") and the six month period ended June 30, 2015 (the "2015 Second Quarter Form 10-Q"). Only those matters with significant updates and new matters since our disclosure in our 2014 Form 10-K, our 2015 First Quarter Form 10-Q and our 2015 Second Quarter Form 10-Q are reported herein.

In addition to the matters described below, and in our 2014 Form 10-K, our 2015 First Quarter Form 10-Q and our 2015 Second Quarter Form 10-Q, in the ordinary course of business, we are routinely named as defendants in, or as parties to, various legal actions and proceedings relating to activities of our current and/or former operations. These legal actions and proceedings may include claims for substantial or indeterminate compensatory or punitive damages, or for injunctive relief. In the ordinary course of business, we also are subject to governmental and regulatory examinations, information-gathering requests, investigations and proceedings (both formal and informal), certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. In connection with formal and informal inquiries by these regulators, we receive numerous requests, subpoenas and orders seeking documents, testimony and other information in connection with various aspects of our regulated activities.

In view of the inherent unpredictability of legal matters, including litigation, governmental and regulatory matters, particularly where the damages sought are substantial or indeterminate or when the proceedings or investigations are in the early stages, we cannot determine with any degree of certainty the timing or ultimate resolution of such matters or the eventual loss, fines, penalties or business impact, if any, that may result. We establish reserves for litigation, governmental and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. Once established, reserves are adjusted from time to time, as appropriate, in light of additional information. The actual costs of resolving litigation and regulatory matters, however, may be substantially higher than the amounts reserved for those matters.

For the legal matters disclosed below, including litigation and governmental and regulatory matters, as well as for the legal matters disclosed in Note 28, "Litigation and Regulatory Matters," in our 2014 Form 10-K and in Note 19, "Litigation and Regulatory Matters," in our 2015 First Quarter Form 10-Q and our 2015 Second Quarter Form 10-Q as to which a loss in excess of accrued liability is reasonably possible in future periods and for which there is sufficient currently available information on the basis of which management believes it can make a reliable estimate, we believe a reasonable estimate could be as much as $100 million for HUSI. The legal matters underlying this estimate of possible loss will change from time to time and actual results may differ significantly from this current estimate.

Based on the facts currently known, in respect of each of the below investigations, it is not practicable at this time for us to determine the terms on which these ongoing investigations will be resolved or the timing of such resolution or for us to estimate reliably the amounts, or range of possible amounts, of any fines and/or penalties. As matters progress, it is possible that any fines and/or penalties could be significant.

Given the substantial or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of such matters, an adverse outcome in certain of these matters could have a material adverse effect on our consolidated financial statements in any particular quarterly or annual period.

Checking Account Overdraft Litigation In September 2015, the court in Ofra Levin et al v. HSBC Bank USA, N.A. et al. (N.Y. Sup. Ct. 650562/11) (“State Action”) denied the federal plaintiffs’ motion to intervene in the State Action. The plaintiffs have appealed that decision.

County of Cook v. HSBC North America Holdings Inc., et al. In September 2015, the court denied the HSBC defendants' motion to dismiss.

Lender-Placed Insurance Matters In October 2015, the district court in Weller, et al. v. HSBC Mortgage Services, Inc., et al. (D. Col. No. 13-CV-00185) issued an order granting final approval of the settlement reached by the parties in this putative class action concerning lender placed flood insurance. In this final settlement, HSBC agreed to pay $1.8 million inclusive of all claims, attorneys’ fees and administrative costs.

Credit Default Swap Matters In September 2015, the HSBC defendants settled the In re Credit Default Swaps Antitrust Litigation, MDL No. 2476, for a total payment of $25 million. In October 2015, the court granted preliminary approval of the settlement and scheduled a final settlement approval hearing for April 2016. HSBC Bank USA’s portion of the settlement is $12.5 million.

Foreign Exchange ("FX") Matters

The HSBC defendants settled the consolidated class action in September 2015 for a total payment of $285 million. HSBC Bank USA’s portion of the settlement is $14.25 million and was settled within reserves. The settlement is subject to court approval.

In September 2015, two putative class action complaints were filed in the provinces of Ontario and Quebec, Canada, against, among others, HSBC, HSBC Bank plc, HSBC North America, HSBC Bank USA and HSBC Bank Canada. The complaints allege, among other things, that defendants conspired to fix the supply and rates of currency in the foreign currency market by sharing confidential customer information and coordinating trading to control or manipulate key rates. These actions are in early stages.

Precious Metals Fix Matters

In re Commodity Exchange Inc., Gold Futures and Options Trading Litigation Defendants' consolidated motion to dismiss the second amended consolidated complaint is fully briefed.

In re London Silver Fixing, Ltd. Antitrust Litigation (Silver Fix Litigation) Defendants’ consolidated motion to dismiss the second amended consolidated complaint is fully briefed.

Platinum and Palladium Fix Litigation Plaintiff's filed a second amended consolidated complaint in July 2015. Defendants filed a consolidated response thereto in September 2015.

Madoff Litigation

In December 2008, Bernard L. Madoff ("Madoff") was arrested and ultimately pleaded guilty to running a Ponzi scheme and a trustee was appointed for the liquidation of his firm, Bernard L. Madoff Investment Securities LLC ("Madoff Securities"), an SEC-registered broker-dealer and investment adviser. Various non-U.S. HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the United States whose assets were invested with Madoff Securities. Plaintiffs (including funds, funds investors and the Madoff Securities trustee, as described below) have commenced Madoff-related proceedings against numerous defendants in a multitude of jurisdictions. Various HSBC companies have been named as defendants in suits in the United States, Ireland, Luxembourg and other jurisdictions. Certain suits (which include U.S. putative class actions) allege that the HSBC defendants knew or should have known of Madoff's fraud and breached various duties to the funds and fund investors.

In October 2015, the court lifted the stay in Stephen and Leyla Hill, et al. v. HSBC Bank plc, et al. (Case No. 14-CV-9745(LTS), a purported class action filed in the U.S. District Court for the Southern District of New York against various HSBC defendants, including HSBC Bank USA, by direct investors in Madoff Securities who were holding their investments as of December 12, 2008. The case seeks to recover damages lost to Madoff Securities’ fraud on account of HSBC’s purported knowledge and furtherance of the fraud. The HSBC defendants' response to the complaint is due in November 2015.

There are many factors that may affect the range of possible outcomes, and the resulting financial impact, of the various Madoff-related proceedings including, but not limited to, the circumstances of the fraud, the multiple jurisdictions in which proceedings have been brought and the number of different plaintiffs and defendants in such proceedings. For these reasons, among others, we are unable to reasonably estimate the aggregate liability or ranges of liability that might arise as a result of these claims but they could be significant. In any event, we consider that we have good defenses to these claims and will continue to defend them vigorously.

Mortgage Securitization Matters In August 2015, Commerzbank AG withdrew its appeal of the June 2015 decision of the New York County Supreme Court dismissing the complaint against HSBC in its entirety.

Mortgage Securitization Pool Trust Litigation HSBC’s motion to dismiss the National Credit Union Administration Board case was denied. This matter is now proceeding along with the BlackRock, RPI and Phoenix Light matters.

Anti-Money Laundering, Bank Secrecy Act and Office of Foreign Assets Controls Matters Plaintiffs' appeal of the district court's decision in the Alfredo Villoldo, et al. v. HSBC Bank USA, N.A., et al. matter granting the HSBC defendants' motion to dismiss was consolidated with related matters, and plaintiffs filed their appeal brief in September 2015. Our appeal brief is due in November 2015.

Telephone Consumer Protection Act Litigation In October 2015, a putative class action entitled Saber Ahmed v. HSBC Bank USA, National Association (Case 5:15-cv-02057) was filed in the United States District Court for the Central District of California against HSBC Bank USA. The action alleges that HSBC Bank USA contacted plaintiff, or the members of the class he seeks to represent, on their cellular telephones using an automatic telephone dialing system or an artificial or prerecorded voice, without prior express consent, in violation of the Telephone Consumer Protection Act, 47 U.S.C. §227 et seq. (“TCPA”). Plaintiff seeks statutory damages of up to $1,500 for each violation. This action is at a very early stage.