HSBC 2015 Annual Report Download - page 449

HSBC HOLDINGS PLC
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share based on fictitious profits, and were paid to shareholders prior to the collapse of Madoff Securities. Separately, a motion
was brought by defendants before the BVI court challenging the authorisation of the Fairfield liquidator (appointed in July
2009) to pursue its claims in the US. That motion was heard in March 2015 and a decision is pending.
Bermuda litigation: In January 2009, Kingate Global Fund Limited and Kingate Euro Fund Limited (together, ‘Kingate’), funds
whose assets were invested with Madoff Securities, commenced an action in Bermuda against HSBC Bank Bermuda Limited for
recovery of funds held in Kingate’s accounts, fees and dividends. This action is currently pending, but is not expected to move
forward until there is a resolution as to the Trustee’s separate US actions against Kingate and HSBC Bank Bermuda Limited.
Thema Fund Limited (‘Thema’) and Hermes, funds whose assets were invested with Madoff Securities, each also brought three
actions in Bermuda in 2009. The first set of actions was brought against HSBC Institutional Trust Services (Bermuda) Limited
and seeks recovery of funds in frozen accounts held at HSBC. The second set of actions asserts liability against HSBC
Institutional Trust Services (Bermuda) Limited in relation to claims for mistake, recovery of fees and damages for breach of
contract. The third set of actions seeks return of fees from HSBC Bank Bermuda Limited and HSBC Securities Services
(Bermuda). There has been little progress in these actions for several years, although in January 2015, Thema and Hermes
served notice of intent to proceed in respect of the second set of actions referred to above.
Cayman Islands litigation: In February 2013, Primeo Fund (in official liquidation since April 2009), a Cayman Islands-based fund
whose assets were invested with Madoff Securities, brought an action against the fund administrator, Bank of Bermuda
(Cayman), and the fund custodian, HSBC Securities Services (Luxembourg) (‘HSSL’), alleging breach of contract by the
defendants and breach of fiduciary duty by HSSL. Primeo Fund claims damages from defendants (and equitable compensation
from HSSL) to compensate it for alleged losses, including loss of profit. Trial is scheduled to begin in November 2016.
Luxembourg litigation: In April 2009, Herald Fund SPC (‘Herald’) (in official liquidation since July 2013) commenced action
against HSSL before the Luxembourg District Court seeking restitution of all cash and securities Herald purportedly lost
because of Madoff Securities’ fraud, or in the alternative, money damages in the same amount. In March 2013, the
Luxembourg District Court dismissed Herald’s restitution claim for the return of the securities, although Herald’s restitution
claim for return of the cash and its claim for money damages were reserved. Herald appealed this judgement in May 2013.
Written submissions on the merits are due to be filed by the parties in March 2016.
In October 2009, Alpha Prime commenced an action against HSSL before the Luxembourg District Court, alleging breach of
contract and negligence in the appointment of Madoff Securities as a sub-custodian of Alpha Prime’s assets. Alpha Prime
requested a stay of these proceedings pending its negotiations with the Trustee in the US proceedings. The matter has been
temporarily suspended at Alpha Prime’s request.
In March 2010, Herald (Lux) SICAV (‘Herald (Lux)’) (in official liquidation since April 2009) commenced an action against HSSL
before the Luxembourg District Court seeking restitution of securities, or the cash equivalent, or money damages in the
alternative. Herald (Lux) has also requested the restitution of fees paid to HSSL as custodian and service agent of the fund.
Written submissions on the merits are due to be filed by Herald (Lux) in March 2016.
In December 2014, Senator commenced a separate action against HSSL before the Luxembourg District Court, seeking the
restitution of securities held as of the latest net asset value statement from November 2008, or in the alternative, money
damages. The matter has been temporarily suspended at Senator’s request.
In April 2015, Senator commenced a separate action against the Luxembourg branch of HSBC Bank plc before the Luxembourg
District Court asserting identical claims to those asserted in Senator’s action against HSSL. This action remains ongoing.
HSSL has been sued in various actions by shareholders in the Primeo Select Fund, Herald, Herald (Lux), and Hermes. These
actions are in different stages, most of which have been dismissed, suspended or postponed.
Ireland litigation: In November 2013, Defender Limited, a fund whose assets were invested with Madoff Securities,
commenced an action against HSBC Institutional Trust Services (Ireland) Limited (‘HTIE’) and others, alleging breach of the
custodian agreement and claiming damages and indemnification for fund losses. A trial date has not yet been scheduled.
In May 2013 and November 2013, settlements were reached in respect of claims filed against HTIE in the Irish High Court by
Thema International Fund plc (‘Thema International’) and Alternative Advantage Plc (‘AA’), respectively. Only two actions by
individual Thema International shareholders against HTIE and Thema International remain active. An application to dismiss the
two remaining shareholder claims was heard in December 2015 and a decision is pending.
In December 2014, a new proceeding against HTIE and HSBC Securities Services (Ireland) Limited was brought by SPV OSUS,
alleging breach of the custodian agreement and claiming damages and indemnification for fund losses. In July 2015, HTIE
brought a preliminary application to challenge the standing of SPV OSUS to bring proceedings against its service providers.
Judgement was rendered in favour of HTIE in October 2015, resulting in the dismissal of the action. SPV OSUS filed an appeal,
which is scheduled for hearing in January 2017.
There are many factors that may affect the range of possible outcomes, and the resulting financial impact, of the various
Madoff-related proceedings described above, including but not limited to the multiple jurisdictions in which the proceedings
have been brought and the number of different plaintiffs and defendants in such proceedings. Based upon the information
currently available, management’s estimate of possible aggregate damages that might arise as a result of all claims in the