HSBC Bank claims Troutman Sanders failed to investigate details in a loan transaction, allowing a now-imprisoned investment banker to steal $75 million from the bank, according to a malpractice suit filed against the law firm in Manhattan Supreme Court.
HSBC had hired Troutman to advise on a $100 million loan to Hassan Nemazee, a prominent fundraiser for Democrats. The bank claims that Robert Chanis, a partner at the time, learned of a discrepancy in the information provided by Nemazee when setting up the loan documents but didn’t properly investigate.
Troutman and Chanis “should have realized that their negligence provided Nemazee with the opportunity to misappropriate or steal the funds made available to him through the HSBC Loan, which was exactly what they were retained to prevent,” HSBC claims in HSBC Bank USA v. Troutman Sanders, 653139/2012.
Nemazee is now serving a 12-year sentence for defrauding three banks, including HSBC, out of $292 million in loan proceeds.
Troutman and Chanis’ attorney, Edward Friedman, a partner at Friedman Kaplan Seiler & Adelman, said that when all facts come out, “it will be clear that the HSBC allegations misrepresent what happened in the course of this loan transaction.”
Atlanta-based Troutman has about 100 attorneys in New York.
“The responsibility for this lending decision we believe rested solely with HSBC and any losses incurred by HSBC were caused by the fraud of Hassan Nemazee and/or the bank’s failure to protect its own interests,” Friedman said in a statement. “HSBC is now in our view improperly trying to cast blame onto Troutman Sanders and Mr. Chanis. Our clients will vigorously defend against these allegations and expect to prevail.”
The suit, filed on Sept. 7, claims Nemazee met HSBC bankers in February 2009 and expressed an interest in a $100 million line of credit.
As collateral for the loan, he offered Treasury bills maintained in an account at Pershing LLC, a clearing agent owned by BNY Mellon. But Nemazee did not own any of the securities he proposed to pledge as collateral nor did he maintain an account at Pershing, the suit says.
HSBC loan transactor Gosia Lewis contacted Chanis, who enlisted the help of his partner, Mitchell Portnoy. Solo practitioner Barton Blumberg represented Nemazee, according to the suit.
Because Nemazee insisted on holding the collateral at a third-party brokerage firm, HSBC required an account control agreement, which dictates the rights for the lender, borrower and third-party brokerage firm, according to the suit. Signatories to the agreement were Nemazee, HSBC and Pershing, as well as Pershing Advisory Services (PAS), an affiliate of Pershing, and Westminster Securities, which was supposedly the investment advisor on Nemazee’s Pershing accounts, HSBC says.
In the first week of August 2009, Portnoy was away on vacation and Chanis was left to finalize the control agreement and other loan documents, the suit says.
Chanis’ assistant, Linda Fischer, contacted Blumberg on Aug. 4 for addresses for Pershing, PAS, Westminster and the names of their signatories. Nemazee provided the names, titles and phone and fax numbers but did not confirm the addresses, the suit says.
Two days later, on Aug. 6, Fischer called the phone numbers Nemazee provided for Pershing and PAS. A receptionist told Fischer no one named Anita Parik, who was purportedly signing for Pershing, worked there and she hadn’t heard of PAS, which Fischer told Chanis, the suit claims. Fischer’s call was to Nemazee’s “virtual office,” the suit says.
That same day, Chanis told HSBC’s Lewis that the receptionist said Parik did not work there, but never informed Lewis that the receptionist had told Fischer she had never heard of PAS, according to the suit.
Chanis then emailed Blumberg and Nemazee, asking them to confirm whether Pershing and PAS had the same address, but did not bring up Parik’s employment with PAS or that the receptionist said she had never heard of PAS, the suit says.
“Chanis took no further steps to investigate the Fischer call and never notified anyone in HSBC’s Office of General Counsel (OGC) of this significant, unusual development. Instead, Chanis merely accepted that this crucial information, which had all come from Nemazee, was true without making any attempts to verify it,” argues HSBC, which is represented by Bijan Amini and Lita Beth Wright of Storch Amini & Munves.
“Had Troutman or Chanis done further investigation after the Fischer call, they would have discovered that Nemazee did not have a securities account at Pershing LLC and did not own any of the Treasury Bills that he had pledged as Collateral for the HSBC Loan,” the suit says.
HSBC received the completed loan document from Nemazee on Aug. 24, 2009, and established two lines of credit totaling $100 million. The same day, Nemazee drew about $75 million. He used substantially all the money to pay a loan to Citibank, the suit says. A day later, he was arrested and charged with bank fraud.
HSBC tried to recall the money wired to Nemazee. Chanis wrote to Pershing and PAS on Aug. 25, directing them not to accept directions from anyone other than HSBC for Nemazee’s securities accounts.
In response, Pershing’s managing counsel told Chanis that neither Pershing nor PAS was a party to the account control agreement drafted by Troutman and that the Pershing account Nemazee had offered as security for the loan was not valid.
After Nemazee’s arrest, the Troutman lawyers met with HSBC’s attorneys to discuss the loan. In the meeting, Chanis claimed Lewis told him in a separate Aug. 6, 2009, call that “everything was fine” after he advised Lewis there could be an issue with the loan. But HSBC claims Lewis didn’t tell him that.
“But for Troutman’s and Chanis’ negligence, HSBC would not have sustained the loss of $74.91 million,” the bank states.
Chanis is now a partner at Harris Beach.
@|Christine Simmons can be contacted at email@example.com.