HSBC 2001 Annual Report Download - page 239

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December 1999.
As part of the resolution, RNYSC, now a dormant subsidiary, pleaded guilty in federal court in Manhattan to two
federal criminal charges arising from the misconduct of certain of its former executives in assisting Martin
Armstrong’ s scheme to defraud numerous purchasers of Princeton Notes, which Armstrong offered for sale in Japan.
Following the acquisition by HSBC, RNYSC ceased active business during the year 2000, and the employment of all
the RNYSC executives associated with RNYSC’ s misconduct was terminated.
The United States Attorney’ s Office in its public filing acknowledged HSBC’ s ‘exemplary cooperation’ and
recommended to the Court that no criminal fine be imposed on RNYSC. Instead, RNYSC agreed to the imposition
of a restitution order requiring it to make payments totalling approximately US$569 million to Princeton
noteholders, as compensation for their out-of-pocket losses. Since RNYSC’ s capital was about US$81 million,
HSBC USA Inc. agreed to pay the remaining amount of compensation due to the noteholders in exchange for their
termination of the pending civil litigation against HSBC USA Inc. and RNYSC, and in connection with the United
States Attorney’ s Office commitment not to pursue any claims against RNYSC’ s parent company or its banking
affiliate. In addition, the settling Princeton noteholders can expect to receive payments totalling approximately
US$72 million from assets held by Princeton’ s court-appointed receiver.
At hearings held on 7 and 9 January 2002 the court entered the restitution order agreed to by RNYSC and the US
Attorney’ s Office and also approved the related settlement between HSBC and the Princeton Receiver. Promptly
thereafter 17 lawsuits filed in the federal court in Manhattan by 51 Princeton noteholders against HSBC USA Inc.,
RNYSC and others were dismissed pursuant to the previously-announced settlements, terminating the plaintiffs’
claims for damages arising from unpaid Princeton Notes with face amounts totalling approximately US$1 billion.
RNYSC has also reached settlements with seven additional Princeton noteholders who did not file suit.
The after tax cost to date of the settlement is within the range of the price reduction taken by Republic’ s largest
stockholders, companies controlled by the late Mr. Edmond Safra, at the time of HSBC’ s acquisition of Republic.
Two of the noteholders, whose civil suits seek damages arising from unpaid Princeton Notes with face amounts
totalling approximately US$125 million, are not included in the settlement and their civil suits will continue. The US
Government excluded one of them from the restitution order because that noteholder is being criminally prosecuted
in Japan for its conduct relating to its Princeton Notes, and excluded the other because the sum it is likely to recover
from the Princeton Receiver exceeds its losses attributable to its funds transfers with RNYSC as calculated by the
US Government.
Under the regulatory settlements RNYSC agreed with the Securities and Exchange Commission to the revocation of
its broker-dealer registration and with the Commodity Futures Trading Commission to the revocation of various
commodities-related licenses and the payment of a US$5 million civil monetary penalty. It is also expected that
RNYSC will shortly reach an agreement with The New York Mercantile Exchange resolving Princeton-related
matters.
45 Capital commitments
2001 2000
US$m US$m
Expenditure contracted for......................................................................................... 592 412
Expenditure authorised by Directors but not contracted for ...................................... 265 110
857 522
In addition, HSBC has committed to provide a further US$403 million (2000: US$523 million) of capital to its joint
venture Merrill Lynch HSBC Limited.