Litigation and Regulatory Matters

The following supplements, and should be read together with, the disclosure in Note 29, "Litigation and Regulatory Matters," in our 2019 Form 10-K and in Note 20, "Litigation and Regulatory Matters," in our Form 10-Q for the three month period ended March 31, 2020 (the "2020 First Quarter Form 10-Q"). Only those matters with significant updates and new matters since our disclosure in our 2019 Form 10-K and our 2020 First Quarter Form 10-Q are reported herein.

In addition to the matters described below and in our 2019 Form 10-K and our 2020 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.

For the legal matters disclosed below, including litigation and governmental and regulatory matters, as well as for the legal matters disclosed in Note 29, "Litigation and Regulatory Matters," in our 2019 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 $175 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 29, "Litigation and Regulatory Matters," in our 2019 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) The court dismissed the case with prejudice in July 2020 following finalization of the settlement. This matter will no longer be reported.

County of Cook v. HSBC North America Holdings Inc., et al. (N.D. Ill. Case No. 1:14-cv-2031) The court dismissed the case with prejudice in July 2020 following finalization of the settlement. This matter will no longer be reported.

Foreign Exchange ("FX") Matters

HSBC Bank USA has reached an agreement in principle to resolve the ongoing investigation by the California Attorney General's Office, subject to final documentation and court approval. The full amount of the settlement was reserved in the fourth quarter of 2019.

In June 2020, the Competition Commission of South African, having initially referred a complaint for proceedings before the South African Competition Tribunal in February 2017, filed a revised complaint against a total of 28 financial institutions, including HSBC Bank USA, for alleged anti-competitive behavior in the South African foreign exchange market.

Precious Metals Fix Matters

Platinum and Palladium Fix Litigation Plaintiffs appealed the court's March 2020 order granting the defendants' joint motion to dismiss the third amended complaint.

Madoff Litigation

In the Picard v. HSBC et al action, the US Supreme Court denied the petition for a writ of certiorari filed by certain parties, including a number of foreign affiliates of HSBC Bank USA, seeking review of the Second Circuit Court of Appeals' reversal of the U.S. Bankruptcy Court decision dismissing claims against those entities. The matter is now pending in the US Bankruptcy Court.

The appeal is fully briefed in the action brought by the liquidators of Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda Limited (together "Fairfield"), which relates to the US Bankruptcy Court's December 2018 decision that partially granted defendants' motion to dismiss claims by the Fairfield liquidators and granted a motion by the liquidators to file amended complaints. We await a decision from the US District Court for the Southern District of New York, where the appeal is pending. The HSBC defendants also filed motions to dismiss the remaining claims in the US Bankruptcy Court in March 2020.

Benchmark Rate Litigation

Intercontinental Exchange ("ICE") LIBOR: Plaintiffs appealed the court’s March 2020 order granting the defendants' joint motion to dismiss the complaint.

Shareholder Derivative Action In May 2014, a shareholder derivative action was filed by a shareholder of HSBC purportedly on behalf of HSBC, HSBC Bank USA, HSBC North America and HSBC USA (the "Nominal Corporate Defendants") in New York state court against certain current and former directors and officers of the Nominal Corporate Defendants (the "Individual Defendants"), alleging that the Individual Defendants breached their fiduciary duties to the Nominal Corporate Defendants and caused a waste of corporate assets by allegedly permitting and/or causing the conduct underlying the five-year deferred prosecution agreement with the US Department of Justice entered into in December 2012. In January 2020, the parties reached a resolution in principle of the matter. Thereafter, in June 2020, plaintiffs filed a motion seeking court approval of the settlement reached among the parties and HSBC's directors and officers liability insurance carriers ("D&O carriers") to resolve the action. The settlement terms provide for a payment of $72.5 million by the D&O carriers, which will be paid to HSBC upon final court approval of the settlement and from which HSBC will be required to pay any settlement expenses and plaintiffs' attorneys' fees in an amount as ultimately approved by the court. HSBC also agreed as part of the settlement to continue for a period of time certain corporate governance practices. The court granted preliminary approval of the settlement in July 2020 and scheduled a final settlement approval hearing for October 2020.

Anti-Terrorism Act Cases

Charlotte Freeman, et al. v. HSBC Holdings plc, et al. In June 2020, the court granted defendants' motion to dismiss the Freeman II action that was filed in December 2018. Plaintiffs may appeal the decision.

Ryan Bowman et al. v. HSBC Holdings plc, et al. In June 2020, the court granted defendants' motion to dismiss. Plaintiffs may appeal the decision.

Based on the facts currently known, in respect of each of the above 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.