HSBC is sued in U.S. for $250 million over alleged role in 'death bonds'

Fri Aug 22, 2014 6:48pm EDT
 
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By Jonathan Stempel

NEW YORK (Reuters) - HSBC Holdings Plc was sued for $250 million on Friday for allegedly ignoring red flags that a colorful British entrepreneur, the late David Elias, was committing fraud through an investment vehicle he controlled.

The complaint was filed in the U.S. District Court in Manhattan by the liquidator of Luxembourg-based SLS Capital SA, which failed in 2009, the same year Elias died.

According to the complaint, HSBC had been a custodian of life insurance policies used as collateral for bonds that SLS sold to investors, and which were falsely marketed as safe.

An HSBC spokeswoman declined to comment.

Companies in the so-called life settlement business buy life insurance policies on older individuals, and can collect death benefits when the insureds die. Securities backed by such policies are sometimes known as "death bonds."

One prominent seller of these bonds was Keydata Investment Services, which had business dealings with SLS, and whose sale of the bonds caused big losses for thousands of UK pensioners.

Keydata also failed in 2009. Britain's Serious Fraud Office dropped a probe into that company in May 2011, saying it lacked enough evidence to prosecute.

According to Friday's lawsuit, SLS began selling bonds in 2005, with investors buying them directly from the company, or buying bonds issued by Keydata and securitized by SLS.   Continued...

 
A sign is seen above the entrance to an HSBC bank branch in midtown Manhattan in New York City, December 11, 2012. HSBC has agreed to pay a record $1.92 billion fine to settle a multi-year probe by U.S. REUTERS/Mike Segar