US real estate fund sues HSBC over bond deal
Sunday, 21 October 2007
NEW YORK, Oct 20 (Reuters): A US real estate investment trust sued HSBC Holdings' broker-dealer unit, alleging it took advantage of the credit crisis to profit at the expense of the fund.
Luminent Mortgage Capital, a San Francisco firm, alleged that HSBC Securities (USA) Inc. wrongfully confiscated certain bonds its subsidiaries had put up as collateral for loans, according to a complaint filed in US District Court in Manhattan Thursday.
"HSBC was simply trying to confiscate the bonds for itself at an artificially steep discount by exploiting an aberrational market," the complaint alleges.
The total face value of the nine bonds in question was about US$24 million. Luminent's problems with HSBC stem from transactions made in late July and early August.
After the credit crisis hit the markets in August, HSBC demanded an "unreasonable" $5.75 million in margin payments to cover a shortfall in the value of the bonds, the lawsuit alleges.
Luminent disagreed with HSBC's valuation, following which HSBC bought the bonds in a "farcical, wholly inadequate bidding process," the complaint alleges.
"HSBC's putative 'winning bids' for certain of the bonds were of little more than half of the bonds' true market value," the complaint alleges.
In one case, Luminent alleges that HSBC used an auction that included only one other bidder.
HSBC declined to comment.
Luminent Mortgage Capital, a San Francisco firm, alleged that HSBC Securities (USA) Inc. wrongfully confiscated certain bonds its subsidiaries had put up as collateral for loans, according to a complaint filed in US District Court in Manhattan Thursday.
"HSBC was simply trying to confiscate the bonds for itself at an artificially steep discount by exploiting an aberrational market," the complaint alleges.
The total face value of the nine bonds in question was about US$24 million. Luminent's problems with HSBC stem from transactions made in late July and early August.
After the credit crisis hit the markets in August, HSBC demanded an "unreasonable" $5.75 million in margin payments to cover a shortfall in the value of the bonds, the lawsuit alleges.
Luminent disagreed with HSBC's valuation, following which HSBC bought the bonds in a "farcical, wholly inadequate bidding process," the complaint alleges.
"HSBC's putative 'winning bids' for certain of the bonds were of little more than half of the bonds' true market value," the complaint alleges.
In one case, Luminent alleges that HSBC used an auction that included only one other bidder.
HSBC declined to comment.