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BlackRock Seeks $3B in Damages from HSBC

BlackRock Inc., along with other investors of residential mortgage-backed securities, recently petitioned New York federal Judge Lorna G. Schofield to hear oral arguments to advance their case (BlackRock Balanced Capital Portfolio (FI) et al, v HSBC Bank USA NA, Case number 1:14-cv-09366) to class status as they seek to collect over $3 billion in lost assets from HSBC.

The initial suit claims that HSBC did not do its due diligence in protecting certificate holders, and that they failed to ensure the home loans being sold from mortgage originators and sponsors to the trust were only selling debt from credit-worthy borrowers. The suit further says that HSBC should’ve filtered out the bad mortgages and demanded sellers buy them back. The plaintiff’s claim that HSBC’s direct neglect was the cause of loses when default rates hit their peak during the housing crisis.

Lawyers for BlackRock Inc., Pimco, Prudential, Charles Schwab, TIAA, and others argue that a class action suit would cover an estimated hundreds of other entities that had residential mortgage backed securities (RMBS) holdings with HSBC ranging anywhere from $100,000 to $100 million. Records and dispositions obtained from preliminary proceedings have turned up over 7.9 million documents thus far.

Despite HSBC’s repeated attempts to get this case and others like it thrown out, the court has agreed that the plaintiff has met the burden of proof and will now hear their motion to consider class status. In response, HSBC has filed a request for oral arguments on the matter and will attempt to block any class categorization moving forward.

HSBC is also under scrutiny from a European group of certificate holders, Royal Park Investments SA/NV, who will be representing investors in three of the trusts in a separate, yet related lawsuit. No date has currently been set for oral arguments.

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