Plaintiff’s Counsel: $2.46 Billion Judgment in Fraud Suit Is Record

CHICAGO — (Mealey’s) A federal judge in Illinois on Oct. 17 entered a $2.46 billion judgment — the largest judgment following a securities class action trial, according to the lead plaintiff’s counsel — against Household International Inc. (now HSBC Finance Corp.) and three of its former executives over allegedly fraudulent lending practices and financial reporting (Lawrence E. Jaffe Pension Plan v. Household International, Inc., et al., No. 02-5893, N.D. Ill.; See December 2010, Page 5).

U.S. Judge Ronald A. Guzman of the Northern District of Illinois made the ruling in the suit filed by Household International shareholder Lawrence E. Jaffe Pension Plan, individually and on behalf of all others similarly situated, ordering the company and former CEO William F. Aldinger, former Chief Operating Officer David A. Schoenholz and former Vice Chairman of Consumer Lending and Group Executive of U.S. Consumer Finance Gary Gilmer to pay $2.46 billion.

In a press release, lead plaintiffs’ law firm Robbins Geller Rudman & Dowd called the judgment “the largest judgment ever in a securities fraud trial.”

Motions Denied

Judge Guzman found that the claimants are entitled to recover $1,476,490,844.21 in principal damages and $986,408,772 in prejudgment interest.

Judge Guzman found that the company, Aldinger and Schoenholz will be jointly and severally liable for the judgment and that Gilmer will be severally liable for 10 percent of the judgment.

Jaffe alleged that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Securities and Exchange Commission Rule 10b-5 by misrepresenting the company’s involvement in the predatory lending scheme.

Jury Trial

Following a trial, a jury reached a verdict for the plaintiffs on May 7, 2009. The jury found that the defendants violated the federal securities laws by fraudulently misleading investors about the company’s predatory lending practices, the quality of its loans and its financial accounting from March 23, 2011, through Oct. 11, 2002.

The judge subsequently denied the defendants’ post-trial motions on Oct. 4, and in yesterday’s judgment said “he expressly finds, pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, that there is no just reason for delay, and therefore expressly directs entry of this final judgment.”

Jaffe is represented by Gary L. Specks of Kaplan Fox & Kilsheimer in Highland Park, Ill., Frederic S. Fox of Kaplan Fox in New York and Joy Ann Bull of Robbins Geller Rudman & Dowd in San Diego. The defendants are represented by Paul D. Clement of Bancroft in Washington, D.C., R. Ryan Stoll and Mark E. Rakoczy of Skadden, Arps, Slate, Meagher & Flom in Chicago and Thomas J. Kavaler, Patricia Farren and Jason M. Mall of Cahill Gordon & Reindel in New York.

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