Hong Kong investors sue Lehman over 'minibonds'

HONG KONG - A group of Hong Kong investors sued Lehman Brothers and HSBC in the U.S. in their fight to recoup more than $1.5 billion after the Wall Street's firm collapse left their bond holdings possibly worthless.

The class-action lawsuit filed in New York on Thursday night marked a new, more contentious phase in Hong Kong's dispute over products tied to Lehman Brothers Holdings Inc., a storied American investment bank that filed for bankruptcy protection in September.

Thousands of local investors — among them retirees and pensioners who sunk their life savings in the products — have faced massive losses, provoking widespread anger, street protests, government probes and a push for tougher regulations in the Asian financial center.

"The Hong Kong legal system cannot help us get back our money, so we have to bring our case to the U.S.," said Peter Chan, head of a group of Lehman investors linked to the lawsuit.

The suit was brought by seven plaintiffs in Hong Kong and the U.S. and seeks class-action status for some 33,000 mini-bond investors in the Chinese territory.

It says the investments — marketed as safe, low risk "minibonds" at banks and financial firms across Hong Kong — were actually complex derivative products more often used by sophisticated investors like hedge funds.

The products originated with Lehman. Meanwhile, London-headquartered HSBC supplied the directors for the special investment company set up to issue the minibonds and served as a trustee that was supposed to hold the collateral backing the investment products. Other Hong Kong banks, not HSBC, sold the mini-bonds to retail investors.

The lawsuit argues HSBC failed to protect the collateral — securities now being held by divisions of both HSBC and Bank of New York Mellon Corp., also named in the suit — as well as the interests of investors. A Lehman financing unit involved in the transactions is now attempting to claim the collateral in Lehman's bankruptcy case.

The investors seek the return of collateral with a face value of more than $1.5 billion and unspecified damages. They also want to prevent Lehman's unit from seizing any holdings.

HSBC is accused, among other things, of negligence, breach of contract and fiduciary duties, and unjust enrichment.

In a statement, the bank said it performed "a number of service provider roles" in the transaction, but it did not address the suit's main accusations.

More than 40,000 Hong Kongers bought Lehman-backed investment products through banks and brokerages, with the total outstanding value of the products estimated at HK$20.2 billion ($2.6 billion), according to government estimates. Singaporean retail investors have also been burned on similar products.

Since filing for bankruptcy protection on Sept. 15., Lehman has sold off its most valuable units. The remaining Lehman assets are tied up as lawyers and advisers wind down derivative contracts to pay off creditors.

Structured products were sold to investors around the world. Lehman's failure rendered many of them worthless, and sparked protests by investors in Asia and Europe.

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