Litigation and Regulatory Matters

The following supplements, and should be read together with, the disclosure in Note 27, "Litigation and Regulatory Matters," in our 2017 Form 10-K. Only those matters with significant updates and new matters since our disclosure in our 2017 Form 10-K are reported herein.

In addition to the matters described below and in our 2017 Form 10-K, 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.

Due to 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. During the first quarter of 2018, we recorded an expense of $494 million related to various legal matters.

For the legal matters disclosed below, including litigation and governmental and regulatory matters, as well as for the legal matters disclosed in Note 27, "Litigation and Regulatory Matters," in our 2017 Form 10-K, 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 $325 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.

In addition, based on the facts currently known for each of the below investigations, as well as for the investigations disclosed in Note 27, "Litigation and Regulatory Matters," in our 2017 Form 10-K, 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. 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.

Foreign Exchange ("FX") Matters

In addition to the Consolidated Action that has been settled subject to final court approval (In re Foreign Exchange Benchmark Rates Antitrust Litigation; No. 13-CV-7789(LGS)), putative class actions making similar allegations are pending against HSBC defendants, as well as other defendants, in the United States District Court for the Southern District of New York on behalf of: (1) ERISA plan participants (Allen v. Bank of America Corporation, et al.; No. 1:15-CV-4285); (2) retail customers (Nypl v. JPMorgan Chase, et al.; No. 1:15-CV-9300); and (3) “indirect purchasers” of FX (Contant v. Bank of America Corporation, et al.; No. 1:17-CV-03139). In the retail customer action, the court denied defendants’ motion to dismiss the second amended complaint in March 2018 but granted HSBC’s motion to dismiss based on lack of personal jurisdiction. In March 2018, the court granted defendants’ motion to dismiss the “indirect purchaser” action.

Madoff Litigation

In 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 ("Trustee"), as described below) have commenced Madoff-related proceedings against numerous defendants arising out of Madoff Securities' fraud.

The SPV OSUS Ltd. v. HSBC Bank plc, et al. case is no longer stayed, and plaintiff filed an amended complaint in March 2018.

Mexican Government Bond Litigation

HSBC, HSBC Bank plc, HSBC North America, HSBC Bank USA, HSI, HMUS, as well as non-US HSBC affiliates, have been named as defendants, among others, in a putative class action brought in the U.S. District Court for the Southern District of New York in March 2018 relating to the Mexican government bond (“MGB”) market (Oklahoma Firefighters Pension & Retirement System, et al. v. Banco Santander S.A., et al.). The action alleges that defendants conspired to fix MGB prices between January 2006 and April 2017 in violation of federal antitrust laws. This action is at a very early stage.

Benchmark Rate Litigation

HSBC Bank USA, HSBC, HSBC USA, HSBC Bank plc, HSBC North America, HSI and HSBC Canada have been named as defendants, among others, in a putative class action brought in the U.S. District Court for the Southern District of New York on behalf of persons who transacted in products tied to the Canadian Dealer Offered Rate (“CDOR”) between August 2007 and December 2014. The complaint, encaptioned Fire & Police Pension Association of Colorado, et al. v Bank of Montreal, et al. (Case No. 18-cv-00342), alleges that the defendant banks conspired to suppress CDOR by making artificially lower submissions and entering into collusive transactions in the swaps market, thereby fixing the prices of CDOR-based derivatives for their collective financial benefit. The defendants are accused of illegal restraint of trade in violation of the Sherman Anti-Trust Act, violation of the Racketeer Influenced Corrupt Organization Act and Commodity Exchange Act. This matter is at an early stage.

Mortgage Securitization Matters

As previously disclosed, we are engaged in active discussions with the U.S. Department of Justice ("DOJ") with a view toward potential resolution of civil claims based on the DOJ’s investigation of HSBC’s legacy residential mortgage-backed securities ("RMBS") origination and securitization activities. As discussions developed this quarter, we have recorded a provision with respect to this matter representing the portion of the HSBC North America provision that we believe to be allocable to us. There can be no assurances, however, as to how or when this matter will be resolved, or whether this matter will be resolved prior to the commencement of formal legal proceedings by the DOJ or whether the ultimate loss will exceed this provision.

Residential Funding Litigation

We have reached an agreement in principle to settle for an amount within reserves.

Mortgage Securitization Trust Litigation

Since 2014, Plaintiff-Investors in 280 RMBS trusts (the "Trusts") have sued HSBC Bank USA, as mortgage securitization trustee, in a number of cases: BlackRock et al., Royal Park Investments SA/NV ("RPI"), Phoenix Light SF Limited ("Phoenix Light"), the National Credit Union Administration Board, as Liquidating Agent ("NCUA"), Commerzbank AG, and Triaxx, IKB Bank AG ("IKB"), RMBS Recovery Holdings I, LLC, et al. (“Fir Tree”), VRS Holdings 2 LLC (“VRS”) and Reliance Standard Life Insurance Company (“Reliance”). In February 2018, the court dismissed the Fir Tree case on procedural grounds. Fir Tree has appealed the decision.

Anti-Money Laundering, Bank Secrecy Act and Office of Foreign Assets Control Matters

Jeffrey Siegel, et al. v. HSBC Holdings plc, et al. Plaintiffs filed an amended complaint in March 2018, which defendants moved to dismiss in April 2018.

Timothy O’Sullivan, et al. v. Deutsche Bank AG, et al. The defendants moved to dismiss the complaint in March 2018.