01 Apr 2009, David Benyon, Operational Risk & Regulation
HONG KONG & NEW YORK - A group of Hong Kong investors that bought 'minibonds' linked to Lehman Brothers has filed a class-action lawsuit against Bank of New York Mellon, HSBC and bankruptcy-filed Lehman Brothers. Investors allege the minibonds were sold as safe bonds but were in fact backed by now largely worthless collateralised debt obligations and credit default swaps. They allege Bank of New York Mellon and HSBC failed to protect the 34,000 Hong Kong buyers of the complex derivative instruments linked to the failed US investment bank.
The lawsuit is trying to claw back the $1.6 billion held in collateral by HSBC and BNY Mellon to be released to investors. The investors claim HSBC is the issuer, trustee and custodian of the minibonds and BNY Mellon is custodian of some assets held within the structured products whose value has been slashed since Lehman's collapse. HSBC says it was trustee but not issuer of the minibonds and did not know whether it was custodian.
It is understood that 34,000 Hong Kong investors bought $1.79 billion of minibonds from 23 local banks and brokers. A special committee of Hong Kong's legislative council and the jurisdiction's Securities and Futures Commission are investigating allegations of mis-selling.
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