HSBC faces 1.3b lawsuit for film investment flop

HSBC (0005) was sued by hundreds of investors in a 1.3 billion (HK$12.54 billion) lawsuit over tax breaks linked to Walt Disney film financing.

The investors say in a London lawsuit that the bank is liable for false promises made by a client, Eclipse Partnerships, which touted opportunities to back films like Pirates of the Caribbean 2 and Confessions of a Shopaholic.

HSBC helped promote the scheme and may have received more than 25 million in fees for its role, lawyers for the plaintiffs at Edwin Coe, a UK law firm, said in a statement.

According to the Financial Times, Eclipse was open to investors during 2006 and 2008 and was marketed as a legitimate tax efficient investment. About 750 people, including footballers and accountants, invested around 2.3 billion (HK$22 billion) in capital in Eclipse and obtained loans to supplement their investment. The interest on the loans was planned to have been covered by their eventual return on their film exploitation rights investment.

However, the plaintiffs claimed none of the rights to any of these films were ever actively traded, which resulted in losses and potential tax liabilities for investing in the partnerships.

The lawsuit is the latest fallout from the decade-old British film partnerships tax scandal. Investment in the film industry ballooned after the government boosted tax credits in the late 1990s.

The change allowed people to cut their personal tax bills, but UK authorities tightened the rules in 2007 after questions over the legitimacy of some of the productions.

In the most recent case, many of the investors have entered bankruptcy and are facing demands for millions in back taxes from UK authorities as a result of the changes.

"It was a risk-free income stream for Disney, HSBC and the lending banks - but financially catastrophic for its unwitting investors," said David Greene, a senior partner at Edwin Coe, which is representing the investors.

HSBC declined to comment on the lawsuit. The investors are not suing either Disney or Eclipse.