The U.S. Securities and Exchange Commission announced settled enforcement proceedings against HSBC Bank USA that will see the bank pay a US$10 million civil penalty and about US$500,000 in disgorgement for allowing its name and logo to be used in connection with a Florida-based offering fraud.


The commission issued a settled cease-and-desist order finding that, from August 2003 to March 2005, HSBC served as trustee for the investment component of Pension Fund of America L.C. and its affiliated entities’ trust plans.

The SEC said that since at least 1999, Pension Fund sold retirement and college “trust plans” that purportedly provided term life insurance and the opportunity to invest in one or more pre-selected mutual funds.

Pension Fund failed to disclose, among other things, however, that it was taking up to 95% of the investors’ funds to pay commissions and fees, the SEC said. Pension Fund raised at least US$127 million from more than 3,400 investors, primarily from Central and South America, it reported.

On March 28, 2005, the SEC filed an emergency action in the U.S. District Court for the Southern District of Florida against Pension Fund and its principals to halt the offering fraud. The court appointed a receiver over Pension Fund, who then shut down its operations, marshalled its assets and developed a claims process to distribute recovered funds to victims. The SEC previously settled civil injunctive actions against Pension Fund’s principals.

Simultaneous with the issuance of the order, the SEC also filed a settled civil action in which HSBC agreed to pay a total of about US$10.5 million, which will be paid into a Fair Fund for the benefit of investors injured in the Pension Fund offering fraud.

“By approving Pension Fund’s use of its name, logo and reputation, among other things, HSBC provided false assurances to investors. This case should serve as an important reminder to banking and financial institutions to guard the credibility they may lend to other companies with which they associate,” said Linda Chatman Thomsen, director, SEC’s division of enforcement.