Litigation and Regulatory Matters

The following supplements, and should be read together with, the disclosure in Note 28, "Litigation and Regulatory Matters," in our 2018 Form 10-K and in Note 20, "Litigation and Regulatory Matters," in our Form 10-Q for the three month period ended March 31, 2019 (the "2019 First Quarter Form 10-Q"). Only those matters with significant updates and new matters since our disclosure in our 2018 Form 10-K and our 2019 First Quarter Form 10-Q are reported herein.

In addition to the matters described below and in our 2018 Form 10-K and our 2019 First 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.

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 both the three and six months ended June 30, 2019, we recorded expense related to legal matters (excluding attorney's fees) of $3 million compared with expense of $16 million and $510 million during the three and six months ended June 30, 2018, respectively. The expense in the 2018 periods included expense related to a mortgage securitization matter that was settled in October 2018. See Note 28, "Litigation and Regulatory Matters," in our 2018 Form 10-K for additional discussion.

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 2018 Form 10-K and in Note 20, "Litigation and Regulatory Matters," in our 2019 First 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 $375 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 ongoing investigations disclosed in Note 28, "Litigation and Regulatory Matters," in our 2018 Form 10-K and in Note 20, "Litigation and Regulatory Matters," in our 2019 First Quarter Form 10-Q, 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.

DeKalb County, et al. v. HSBC North America Holdings Inc., et al. (N.D. Ga. Case No. 12-CV-03640) In May 2019, the U.S. Court of Appeals for the Eleventh Circuit ("Eleventh Circuit") issued a decision in the City of Miami v. Bank of America Corp. & Wells Fargo & Co. case upon remand from the U.S. Supreme Court. The Eleventh Circuit held that the City of Miami had plausibly alleged damages in the form of lost property tax revenue, but had not adequately pled other forms of damages (increased municipal expenditures). The City of Miami defendants have sought rehearing of that decision before the full panel of the court.

County of Cook v. HSBC North America Holdings Inc., et al. (N.D. Ill. Case No. 1:14-cv-2031) In June 2019, Cook County moved for reconsideration of the district court's May 2018 order that, among other things, significantly narrowed the categories of damages available for potential recovery, based on the Eleventh Circuit’s decision in the City of Miami v. Bank of America Corp. & Wells Fargo & Co. case.

Credit Default Swap Matters

In July 2019, the court granted the motion to dismiss the action filed by TeraExchange, LLC as to certain defendants, including the HSBC defendants.

Foreign Exchange ("FX") Matters

U.S. Litigation

FX Opt Out Litigation In June 2019, plaintiffs filed a second amended complaint. Defendants have moved to dismiss the complaint.

Contant In May 2019, the court denied HSBC Bank plc's motion to dismiss for lack of personal jurisdiction.

It is possible that additional actions will be initiated against the HSBC entities, including HSBC Bank USA, in relation to their historical foreign exchange activities.

Investigations In June 2019, the South African Competition Tribunal issued a decision requiring the Competition Commission of South Africa to revise its complaint. The South African Competition Tribunal also dismissed HSBC Bank USA from the complaint, but permitted the Competition Commission of South Africa to apply for it to be re-joined, albeit on the basis that HSBC Bank USA cannot be fined or ordered to pay damages and only a declaratory order can be issued against it. Several financial institutions named in the complaint, including HSBC Bank USA, have appealed part of the decision to the Competition Appeal Court of South Africa, and the Competition Commission of South Africa has cross-appealed.

Madoff Litigation

In April 2019, the Second Circuit granted the non-U.S. HSBC defendants' motion to stay the case pending before the U.S. Bankruptcy Court to allow for the filing of a petition to the U.S. Supreme Court to seek review of the Second Circuit's decision reversing the dismissal of claims against them.

Benchmark Rate Litigation

ICE Libor: Plaintiffs filed an amended complaint in July 2019.

Mortgage Securitization Trust Litigation In May 2019, the Virginia Supreme Court overturned the lower court's dismissal of the Fir Tree case on procedural grounds. HSBC Bank USA moved for reconsideration of the decision.

Anti-Terrorism Act Cases

Timothy O'Sullivan, et al. v. Deutsche Bank AG, et al. In April 2019, plaintiffs filed a motion for leave to amend the complaint as permitted by the court’s order to dismiss.

Ryan Bowman et al. v. HSBC Holdings plc, et al. The action has been stayed.

Rigoberto Vasquez and Eva Garcia et al v. Hong Kong and Shanghai Banking Corporation Ltd., HSBC Bank USA, N.A., et al. In May 2019, the U.S. District Court for the Southern District of New York granted HSBC Bank USA's motion and dismissed it from the case.

Telephone Consumer Protection Act Litigation In June 2019, the U.S. District Court for the Central District of California granted preliminary approval of the settlement. The final approval hearing is scheduled for December 2019.

Frank Ortega v. HSBC Bank USA, National Association In June 2019, plaintiff filed a purported class action in California Superior Court in Los Angeles County based upon an October 2018 data breach experienced by HSBC Bank USA. The purported class members are HSBC Bank USA customers from October 4, 2018 to October 14, 2018 whose personal information allegedly was compromised. Plaintiff alleges he suffered actual harm in the form of fraudulent charges on his account, as well as continuing harm resulting from the compromise of his and other purported class members' personal data. The complaint asserts claims for breach of contract, breach of the covenant of good faith and fair dealing, violation of the California Business and Professions Code 17200, negligence, and violation of the Consumers Legal Remedies Act 1750, and seeks unspecified monetary damages and injunctive relief. The case is at a very early stage.

Other Regulatory and Law Enforcement Investigations

HSBC Bank USA is being investigated by the Commodity Futures Trading Commission ("CFTC") for certain swap dealer trade reporting and other regulatory and trading issues related to prior periods. We are cooperating with the CFTC.