Litigation and Regulatory Matters

The following supplements, and should be read together with, the disclosure in Note 28, "Litigation and Regulatory Matters," in our 2018 Form 10-K and in Note 20, "Litigation and Regulatory Matters," in our Form 10-Q for the three month period ended March 31, 2019 (the "2019 First Quarter Form 10-Q") and the six month period ended June 30, 2019 (the "2019 Second Quarter Form 10-Q"). Only those matters with significant updates and new matters since our disclosure in our 2018 Form 10-K, our 2019 First Quarter Form 10-Q and our 2019 Second Quarter Form 10-Q are reported herein.

In addition to the matters described below and in our 2018 Form 10-K, our 2019 First Quarter Form 10-Q and our 2019 Second Quarter Form 10-Q, in the ordinary course of business, we are routinely named as defendants in, or as parties to, various legal actions and proceedings relating to activities of our current and/or former operations. These legal actions and proceedings may include claims for substantial or indeterminate compensatory or punitive damages, or for injunctive relief. In the ordinary course of business, we also are subject to governmental and regulatory examinations, information-gathering requests, investigations and proceedings (both formal and informal), certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. In connection with formal and informal inquiries by these regulators, we receive numerous requests, subpoenas and orders seeking documents, testimony and other information in connection with various aspects of our regulated activities.

Due to the inherent unpredictability of legal matters, including litigation, governmental and regulatory matters, particularly where the damages sought are substantial or indeterminate or when the proceedings or investigations are in the early stages, we cannot determine with any degree of certainty the timing or ultimate resolution of such matters or the eventual loss, fines, penalties or business impact, if any, that may result. We establish reserves for litigation, governmental and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. Once established, reserves are adjusted from time to time, as appropriate, in light of additional information. The actual costs of resolving litigation and regulatory matters, however, may be substantially higher than the amounts reserved for those matters.

During the three and nine months ended September 30, 2019, we recorded expense related to legal matters (excluding attorney's fees) of $13 million and $16 million, respectively, compared with expense of $3 million and $513 million during the three and nine months ended September 30, 2018, respectively. The expense in the 2018 year-to-date period included expense related to a mortgage securitization matter that was settled in October 2018. See Note 28, "Litigation and Regulatory Matters," in our 2018 Form 10-K for additional discussion.

For the legal matters disclosed below, including litigation and governmental and regulatory matters, as well as for the legal matters disclosed in Note 28, "Litigation and Regulatory Matters," in our 2018 Form 10-K and in Note 20, "Litigation and Regulatory Matters," in our 2019 First Quarter Form 10-Q and our 2019 Second Quarter Form 10-Q, as to which a loss in excess of accrued liability is reasonably possible in future periods and for which there is sufficient currently available information on the basis of which management believes it can make a reliable estimate, we believe a reasonable estimate could be as much as $330 million for HUSI. The legal matters underlying this estimate of possible loss will change from time to time and actual results may differ significantly from this current estimate.

In addition, based on the facts currently known for each of the ongoing investigations disclosed in Note 28, "Litigation and Regulatory Matters," in our 2018 Form 10-K and in Note 20, "Litigation and Regulatory Matters," in our 2019 First Quarter Form 10-Q and our 2019 Second Quarter Form 10-Q, it is not practicable at this time for us to determine the terms on which these ongoing investigations will be resolved or the timing of such resolution. As matters progress, it is possible that any fines and/or penalties could be significant.

Given the substantial or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of such matters, an adverse outcome in certain of these matters could have a material adverse effect on our consolidated financial statements in any particular quarterly or annual period.

Madoff Litigation

In August 2019, the non-U.S. HSBC defendants filed a petition with the U.S. Supreme Court for review of the U.S. Court of Appeals for the Second Circuit’s decision reversing dismissal of the claims against them.

Supranational, Sovereign and Agency ("SSA") Bonds In September 2019, the parties reached a settlement of the Canadian SSA bonds litigation for CAD $1.323 million. The court granted preliminary approval, and a final approval hearing has been scheduled for February 2020. The U.S. HSBC defendants, including HSBC Bank USA, did not contribute to the settlement.

Mexican Government Bond Litigation In September 2019, the court granted defendants' motion to dismiss. Plaintiffs are seeking leave to amend the complaint.

Benchmark Rate Litigation

CDOR: Plaintiffs withdrew an appeal of the March 2019 decision dismissing the action. The matter is now concluded.

ICE Libor: Defendants filed a motion to dismiss the amended complaint in August 2019.

Anti-Terrorism Act Cases

Charlotte Freeman, et al. v. HSBC Holdings plc, et al. In September 2019, the district court granted defendants' motion to dismiss. Plaintiffs filed a motion for partial reconsideration of the court's decision as it relates to the dismissal of claims against certain non-HSBC defendants.

Jeffrey Siegel, et al. v. HSBC Holdings plc, et al. In August 2019, the U.S. Court of Appeals for the Second Circuit upheld the district court's dismissal of the action.

Mary Zapata, et al. v. HSBC Holdings plc, et al. In October 2019, the court granted the defendants' motion to dismiss. Plaintiffs have appealed the decision.

Frank Ortega v. HSBC Bank USA, National Association In October 2019, the court issued an order of voluntary dismissal of the action.

Other Regulatory and Law Enforcement Investigations

In October 2019, HSBC Bank USA resolved an investigation by the Commodity Futures Trading Commission relating to historical swaps reporting and swap-dealer risk management issues. HSBC Bank USA paid a $650,000 civil monetary penalty, an amount which was fully reserved.