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(Reuters) — A U.S. appeals court on Thursday reversed a $2.46 billion judgment against HSBC Holdings P.L.C. in a long-running securities fraud class action stemming from a consumer finance business it bought more than a decade ago.
The 7th U.S. Circuit Court of Appeals in Chicago said HSBC and three former Household International Inc. executives were entitled to a new trial over whether “firm-specific, nonfraud factors” contributed to a plunge in Household's share price that was the basis for the shareholder lawsuit, which began in August 2002.
“As things stand, the record reflects only the expert's general statement that any such information was insignificant,” Circuit Judge Diane Sykes wrote for a three-judge panel, referring to a witness for the plaintiffs, law professor Daniel Fischel. “That's not enough.”
The panel also said the former Household officials — CEO William Aldinger, Chief Financial Officer David Schoenholz and consumer lending president Gary Gilmer — deserve a new trial over their alleged liability for making false statements.
HSBC spokesman Rob Sherman said the British bank has long argued that “the verdict was defective and needed to be reversed, and the court of appeals has now agreed.”
Michael Dowd, a Robbins Geller Rudman & Dowd partner representing the plaintiffs, said that absent further appeals, his clients will present the “very limited” remaining issues to a jury. “We believe that we will prevail and that class members will finally get the justice they deserve,” he said.
The $2.46 billion judgment included nearly $1.48 billion of damages and $986 million of interest. It was imposed in October 2013 by U.S. District Judge Ronald Guzman in Chicago.
Robbins Geller called it the largest judgment in a U.S. securities class action that went to trial.
In their lawsuit, former Household shareholders accused the Prospect Heights, Illinois-based company of inflating its share price by misleading them about its predatory lending practices and the quality of its loans.
The share price fell more than 50% from mid-2001 to October 2002, when Household agreed to pay $484 million to settle predatory lending allegations by state regulators.
HSBC agreed the next month to buy Household for $14.2 billion. But the purchase soured, leading HSBC to write down tens of billions of dollars of bad loans and in March 2009 shut much of its U.S. consumer finance business.
“With the benefit of hindsight, this is an acquisition we wish we had not undertaken,” Stephen Green, then the bank's chairman, said at the time. Household is now part of HSBC Finance Corp.
Securities class action filings involving allegations of accounting issues increased by 47% in 2014 compared with 2013, despite there being little change in the overall level of securities class action filings, according to a Cornerstone Research report.