Litigation and Regulatory Matters

6 Months Ended

Jun. 30, 2023

Commitments and Contingencies Disclosure [Abstract]

Litigation and Regulatory Matters

Litigation and Regulatory Matters

The following supplements, and should be read together with, the disclosure in Note 30, "Litigation and Regulatory Matters," in our 2022 Form 10-K and in Note 20, "Litigation and Regulatory Matters," in our Form 10-Q for the three-month period ended March 31, 2023 (the "2023 First Quarter Form 10-Q"). Only those matters with significant updates and new matters since our disclosure in our 2022 Form 10-K and our 2023 First Quarter Form 10-Q are reported herein.

In addition to the matters described below and in our 2022 Form 10-K and our 2023 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. Some of our exposure may be offset by applicable insurance coverage. We do not consider the possible availability of insurance coverage in determining the amounts of any accruals (although we record the amount of related insurance recoveries that are deemed probable up to the amount of the accrual).

For the legal matters disclosed below, including litigation and governmental and regulatory matters, as well as for the legal matters disclosed in Note 30, "Litigation and Regulatory Matters," in our 2022 Form 10-K and in Note 20, "Litigation and Regulatory Matters," in our 2023 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 $125 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. As it concerns the disclosed investigations, based on the facts currently known for each of them, 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 a 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.

Interest Rate Swap Investigation

In May 2023, HSBC Bank USA resolved an investigation by the U.S. Commodity Futures Trading Commission ("CFTC") regarding interest rate swap transactions related to bond issuances, among other issues. HSBC Bank USA paid a $45 million civil monetary penalty, an amount which was fully reserved in the third quarter of 2020. The CFTC's civil enforcement action filed in December 2019 against a now-former HSBC employee charging him with violating the Commodity Exchange Act's anti-fraud provisions in relation to a 2012 interest rate swap transaction remains ongoing.

Investigation Concerning Use of Unapproved Electronic Messaging Platforms

In May 2023, HSBC Bank USA and other HSBC entities resolved an investigation by the CFTC concerning compliance with records preservation requirements relating to the use of unapproved electronic messaging platforms for business communications. The HSBC entities paid a $30 million civil monetary penalty, an amount which was fully reserved in the fourth quarter of 2022.

Foreign Exchange ("FX") Matters

In Nypl v. JPMorgan Chase, et al.; (Case No. 1:15-CV-9300), the plaintiff has appealed the dismissal of the complaint.

Precious Metals Fix Matters

In re London Silver Fixing, Ltd. Antitrust Litigation (Silver Fix Litigation) In May 2023 the court granted HSBC's motion for judgment on the pleadings and dismissed the case. Plaintiffs have appealed.

Platinum and Palladium Fix Litigation In July 2023, the defendants filed a joint motion to dismiss the complaint.

Mortgage Securitization Trust Litigation In May 2023, Phoenix Light SF Limited withdrew its appeal and the court dismissed the case with prejudice. In the Freedom Trust case, HSBC Bank USA's motion seeking leave to appeal to the New York State Court of Appeals was denied. That action will now proceed.

Anti-Terrorism Act Cases

Charlotte Freeman, et al. v. HSBC Holdings plc, et al. In May 2023, plaintiffs filed a petition with the U.S. Supreme Court for review of the decision by the U.S. Court of Appeals for the Second Circuit affirming dismissal of the action.

Dana Bernhardt et al. v. HSBC Holdings plc, et al. In July 2023, plaintiffs filed a petition with the U.S. Supreme Court for review of the decision by the U.S. Court of Appeals for the D.C. Circuit affirming dismissal of the action.

First Citizens Litigation In May 2023, First-Citizens Bank & Trust Company ("First Citizens") brought a lawsuit against HSBC Bank USA, certain other HSBC entities, and seven HSBC Bank USA employees who had previously worked for Silicon Valley Bank ("SVB"). Among other claims, First Citizens, which purchased parts of SVB after its collapse in March 2023, alleges that the HSBC entities conspired with the individual defendants to solicit employees of First Citizens and that the individual defendants took confidential information belonging to SVB and/or First Citizens.

National Community Reinvestment Coalition Prompted by a complaint filed by the National Community Reinvestment Coalition, a non-profit organization, the U.S. Department of Housing and Urban Development ("HUD") has been investigating whether HSBC Bank USA violated the US Fair Lending Act by engaging in discriminatory lending practices in majority Black and Hispanic neighborhoods in six U.S. metropolitan areas from 2018 through 2021.