Household, company officials misled investors, jury finds

 
Bloomberg News
Published5/8/2009 11:51 AM

Household International Inc. and three executives misled investors about the company's business practices, a Chicago federal court jury found after a monthlong trial.

The jury of three women and seven men returned the verdict yesterday after 3½ days of deliberation. Jurors concluded the company and three executives including William Aldinger, Household's chief executive officer from 1994 to 2005, made the remarks recklessly and, in one instance, knowingly.

 

"The jury's verdict is a victory for the millions of Americans suffering as a result of deceptive predatory lending practices," said Patrick Coughlin, whose San Diego-based law firm, Coughlin Stoia Geller Rudman & Robbins brought the suit.

Household was acquired by London-based HSBC Holdings Plc for $15.5 billion in March 2003. Five months earlier, the company, now known as HSBC Finance Corp., paid $484 million in fines to settle claims by more than a dozen states that it deceived borrowers about their mortgages.

Jurors didn't award a lump sum to shareholders. U.S. District Judge Ronald A. Guzman, who presided over the trial, admonished them not to discuss the case publicly and told trial lawyers not to talk to the jurors because the case isn't over.

Having found Household and the executives liable for making misleading statements, the jury calculated the amount of shareholders' daily losses at as much as $23.94 a share from March 23, 2001, to Oct. 11, 2002.

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Potential Loss

The company said in corporate filings that it had an average of 455.4 million shares outstanding for the three months ended Sept. 30, 2002, meaning the panel's findings could indicate a loss of billions of dollars.

After the verdict was read and jurors had left, defense attorney Thomas Kavaler told Guzman their decision was "fatally flawed and inconsistent."

Kavaler, a partner in New York's Cahill Gordon & Reindel LLP, said the plaintiffs' damages theory was "not legally permissible."

HSBC Finance, based in Mettawa, will ask the court to overturn the verdict, the company said in a statement.

"They made false statements that drove the price of Household up," Michael Dowd, the shareholders' attorney, said during his opening statement to the jury on March 31 as he described what he called a three-year plan to expand the company using predatory-lending practices.

Inflated Prices

The lender's statements in U.S. regulatory filings and press releases led investors to pay inflated prices for shares, Dowd said then.

"Household had no intent to deceive investors," Kavaler told the jury that same day.

                                                                                                                                                                                                                       
 

Aldinger and co-defendants David Schoenholz, who was chief financial officer, and Gary Gilmer, who led the consumer-lending division, had no intent to deceive anyone, the lawyer said.

Presented with 40 alleged instances in which misleading public statements were made, the jury found the company and at times some or all three of the executives made actionable comments concerning Household's business practices 17 times.

The case is Lawrence E. Jaffe Pension Plan v. Household International Inc., 1:02-cv-05893, U.S. District Court, Northern District of Illinois (Chicago).

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