HSBC faces securities fraud trial over predecessor's lending

HSBC Finance Corp., the U.S. home-lending unit for Europe's biggest bank, goes to trial this week on claims that a corporate predecessor hid predatory lending from shareholders, Bloomberg News' Andrew Harris reports.

Jury selection is set for today in federal court in Chicago, a city where a record 19,943 home foreclosures were filed last year. Plaintiffs claim the suit may be worth $1 billion.

"It's a real gamble" for the company to go to trial rather than settle out of court, said Robert Zito, a securities attorney at New York's Carter Ledyard & Milburn LLP who isn't involved in the case. "It's a difficult case to try in this financial climate."

Almost twice as many Chicago homes were foreclosed on last year as in 2006, the National Training and Information Center said March 23 in a report. The Chicago-based advocacy group aims to reform mortgage lending.

HSBC Holdings Plc, parent company of the Prospect Heights, Illinois-based lender, said March 2 it's abandoning U.S. subprime lending. Diane Bergan, a spokeswoman for London-based HSBC's North American operations, declined to comment on the stockholders' allegations.

The billion-dollar price tag was put on the case in a March 2 e-mail message by Dan Newman, a spokesman for the lead plaintiffs' law firm in the case, Coughlin Stoia Geller Rudman & Robbins LLP in San Diego. Michael Dowd, the firm's attorney leading the case, declined to comment for this story.

The shareholders' suit was filed in August 2002, seven months before HSBC Holdings acquired what was then known as Household International Inc. and its mortgage unit, Household Finance Corp., or HFC, for $15.5 billion.

The case is Lawrence E. Jaffe Pension Plan v. Household International Inc., 02-cv-05893, U.S. District Court, Northern District of Illinois (Chicago).