‘About That $500 Million …’

LOS ANGELES (CN) - Six Taiwanese banks claim that HSBC Bank and the Daily & Knudson Law Group helped the late Danny Pang bilk them of more than $500 million by vouching for investments that were part of Pang's Ponzi scheme. Pang died a year ago while awaiting trial.

The SEC accused Pang and his Private Equity Management Group in 2009 of defrauding investors of hundreds of millions of dollars.

Pang persuaded clients to invest heavily in the life settlement industry and time-share properties, but spent a lot of their money on his "lavish lifestyle and the PEM Group's exorbitant operating expenses - including the purchase of private jets and taking the entire company on a Disney cruise," according to the banks' complaint in Superior Court.

Lead plaintiff Hua Nan Commercial Bank claims that Pang's scheme wouldn't have been possible without HSBC and Daily & Knudson. The banks also sued attorneys James Daily and William Knudson, and Anthony Bufinsky, who runs a financial services business in Orange County, Calif.

"HSBC played a critical role in the fraudulent scheme," the complaint states. "HSBC eventually served as cash custodian for nearly every PEM Group offering. Recognizing that the more money it was holding as custodian, the more fees it would receive, HSBC actively helped recruit additional investors for PEM Group. HSBC even provided PEM Group with solicitation letters addressed 'To Whom It May Concern,' stating that various PEM Group offerings functioned in conformity with representations made by PEM Group. These representations were false, and HSBC knew them to be false."

The banks say that HSBC also "grossly overstated" the value of PEM's assets and the investors' accrued interest, "because, for one thing, PEM Group never acquired the promised assets."

Daily & Knudson, as trustee for the PEM Group's investment offerings, was also "vital" to the scheme, the lawsuit claims.

"The D&K defendants repeatedly approved transactions in violation of the applicable offering memoranda," according to the complaint.

"For example, they approved, and HSBC executed, transfers in excess of $39 million to various entities - including entities they knew were controlled by Mr. Pang - the PEM Group used to misappropriate funds or acquire interests in high-risk, undisclosed investments."

The plaintiffs are Hua Nan Commercial Bank, Hua Nan Investment Trust Corporation, Cosmos Bank, Entie Commercial Bank, Bank SinoPac and Taichung Commercial Bank.

They allege breach of contract, fraud, negligent misrepresentation, breach of fiduciary duty, aiding and abetting and conspiracy. They want to "recover the amount of their lost principal, plus the promised interest rate from the date of their investment" - more than $500 million - plus punitive damages.

Pang died in September 2009 while under house arrest, awaiting trial.

The Taiwanese banks are represented by R. Alexander Pilmer with Kirkland & Ellis.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit