SAN DIEGO--(BUSINESS WIRE)--United States District Judge Ronald A. Guzman today entered a judgment of $2.46 billion – the largest judgment following a securities fraud class action trial in history – against Household International (now HSBC Finance Corporation) and three of its former top executives, William Aldinger, David Schoenholz and Gary Gilmer.
After a six-week trial, a Chicago jury rendered a verdict in favor of plaintiffs in May 2009, finding that Household International had violated federal securities laws by fraudulently misleading investors about its predatory lending practices, the quality of its loans and its financial accounting from March 23, 2001 through October 11, 2002. Plaintiffs’ counsel, Robbins Geller Rudman & Dowd LLP (“Robbins Geller”), fought the defendants’ repeated attempts to derail the litigation after the verdict, which included several post-trial motions to invalidate the verdict and objections to tens of thousands of claims by injured class members. After the verdict, the Court also considered and ruled on issues concerning the reliance of absent class members on defendants’ fraudulent statements. The judgment follows an October 4, 2013 order from the district judge denying all of the defendants’ post-trial motions.
“We are very pleased that we went the distance in this case, all the way through a jury trial, and that we were able to obtain such a tremendous recovery for shareholders. The judgment shows that the fraud committed by Household International and the individual defendant officers will not go unpunished, and we look forward to having the judgment affirmed on appeal,” said James Glickenhaus of Glickenhaus & Co., one of the three lead plaintiffs appointed by the Court in 2002 to represent the class.
The judgment consists of approximately $1.5 billion in damages and almost $1 billion of prejudgment interest. Judge Guzman also ordered the defendants to pay postjudgment interest, which will accrue during the defendants’ expected appeal, and certain costs incurred by plaintiffs after more than 10 years of litigating the case. Robbins Geller is continuing to litigate defendants’ objections to over 25,000 additional claims with losses in excess of $650 million. If the defendants’ objections to certain of these claims are denied, Robbins Geller will seek entry of judgment in favor of these claimants as well.
At trial, the plaintiffs presented evidence to the jury that Household International’s growth and revenues were driven by systemic and company-wide predatory lending practices. Household International’s fraud included misrepresenting interest rates, charging prepayment penalties in violation of state law and hiding prepayment penalties in the loan terms, packing the loans with insurance that the borrowers did not need or want, charging the borrowers excessive fees or points, and “loan splitting” – unnecessarily splitting one loan into two so the borrower was forced to pay a higher, noncompetitive rate on the first loan. After reviewing evidence of the defendants’ predatory lending practices, attorneys general from 19 states jointly concluded that the defendants engaged in widespread “insidiously deceptive sales practices.”
The plaintiffs also presented evidence that the defendants manipulated the credit quality of Household International’s loan portfolio to conceal the true level of delinquencies and mask the poor quality of its loans. At trial, Household International’s former CEO, William Aldinger, admitted under oath that the disclosures in its 2001 Form 10-K were materially false and misleading.
In support of their case, the plaintiffs showed that defendants had a motive to commit fraud, including evidence that defendants Aldinger and Gilmer sold their Household International stock while the price was artificially inflated, netting $19 million and $3 million, respectively. The plaintiffs also presented evidence that defendants destroyed documents to cover up their fraud.
“The fact that, after 11 years of hard-fought litigation, we obtained the largest judgment ever in a securities fraud trial demonstrates our firm’s resolve to vindicate the rights of defrauded investors,” said the plaintiffs’ lead trial attorney, Mike Dowd. “With my partners Spence Burkholz, Dan Drosman and Luke Brooks, we were able to show the jury overwhelming evidence of the defendants’ fraud and demonstrate how investors suffered as a result. We moved about 20 attorneys and support staff to Chicago for over two months in 2009, and I’m glad their hard work paid off for the class.”
The case, Lawrence E. Jaffe Pension Plan v. Household International, Inc., et al., Case No. 02-C-5893, is pending in the United States District Court for the Northern District of Illinois. The lead plaintiffs are Glickenhaus & Co., PACE Industry Union-Management Pension Fund, and International Union of Operating Engineers Local No. 132 Pension Plan. Robbins Geller, lead counsel in this record-breaking recovery, represents U.S. and international institutional investors in contingency-based securities and corporate litigation. With nearly 200 lawyers in nine offices, the firm represents hundreds of public and multi-employer pension funds with combined assets under management in excess of $2 trillion. The firm has obtained many of the largest recoveries in history and has been ranked number one in the number of shareholder class action recoveries in MSCI’s Top SCAS 50 every year since 2003. Please visit http://www.rgrdlaw.com for more information.