HSBC unit ordered to pay $2.46B, plans to appeal

NEW YORK — A division of Europe's HSBC has been ordered to pay about $2.46 billion in a class action lawsuit claiming it violated federal securities laws.

Lawyers for the plaintiffs said that the judgment, which includes $1.48 billion in damages and nearly $1 billion in prejudgment interest, was the biggest ever following a securities fraud class action trial.

HSBC Holdings PLC, Europe's biggest bank by market value, said in a statement on Friday that it will appeal, noting that it was "the next step in an 11-year-old case and we believe we have a strong argument."

James Glickenhaus of Glickenhaus & Co., one of the three lead plaintiffs appointed by the court in 2002 to represent the class, said in a statement that the judgment "shows that the fraud committed by Household International and the individual defendant officers will not go unpunished, and we look forward to having the judgment affirmed on appeal."

The lawsuit named Household International Inc., which is now HSBC Finance Corp., and former executives William Aldinger, David Schoenholz and Gary Gilmer. It claimed that the company fraudulently misled investors about its predatory lending practices, the quality of its loans and its financial accounting from March 23, 2001 through Oct. 11, 2002.

HSBC acquired consumer lender Household International in 2003. The acquisition made HSBC the biggest subprime lender in the U.S. at the time, which resulted in billions of losses to HSBC leading up to the financial crisis of 2008.

A jury in Chicago found in favor of the plaintiffs in May 2009. In the final judgment entered in the U.S. District Court Northern District of Illinois Eastern Division on Thursday, Household International, Aldinger, and Schoenholz are held jointly and severally liable for the judgment. Gilmer is held severally liable for 10 percent of the judgment.

HSBC's U.S. shares shed 8 cents to $55.08 in premarket trading. They are up less than 2 percent for the year.

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Federal workers return, but 16-day furlough leaves scars

About 15,000 federal workers in Massachusetts were back on the job yesterday and the state's national parks reopened after the 16-day partial government shutdown came to an end — at least for now.

"Hopefully, we won't be doing this again in January," said John Buckley, regional vice president of Boston-based Local 2264 of the American Federation of Government Employees.

The state's federal employees were notified electronically and by phone to return to their posts and many were relieved to be back on the job. Around the state, national parks began reopening as staff returned.

Sean Hennessey, spokesman for Boston National Historic Park, whose destinations include the Bunker Hill Monument and the USS Constitution, both in Charlestown, and the Great Hall at Faneuil Hall, said they turned away 55,000 people in the first 10 days of the shutdown alone, while 85 of 100 employees were furloughed.

"There were ancillary effects as well," Hennessey said of the lost business. "It was very hard on our gateway communities: car rentals, hotels, trolley tours, retirees who made long-range plans ... Those visits were all impacted because they'd show up and find we were closed."

Furloughed workers will be compensated for the time they were away from their offices, but two weeks without a job or a paycheck left real scars.

"It's devastating, especially for the people who are working check to check," Buckley said. "No one's prepared for this type of thing. By no means was it a vacation. It was uneasy all the time. It was really disturbing."

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Shutdown fix makes companies defensive

The short-term fix that ended the government shutdown will have significant effects on the state and national economy as companies may put off hiring and spending for new projects while uncertainty over a permanent budget solution lingers, experts said.

One of the most direct impacts will be on the defense industry, including Waltham-based Raytheon.

Just awarded a $385 million Navy contract to develop an air and missile defense radar system, Raytheon could push back the additional hiring necessary to fill the contract because of uncertainty in the government and the potential for another shutdown in a few months, said defense analyst Loren Thompson, COO of the Lexington Institute in Virginia.

"It's quite possible that a hundred or more engineers who might have been hired on this program will be hired later or not hired at all," Thompson said. "They have to behave more cautiously."

Raytheon did not respond to requests for comment.

Virginia-based General Dynamics, which has an engineering and manufacturing facility in Taunton that employs about 100 people, also could be cautious with its investments and hiring over the next few months, Thompson said. A General Dynamics spokesman declined to comment on the company's plans.

Elliot Winer, chief economist for the Northeast Economic Analysis Group and former chief economist for the state, said businesses in general will likely be hesitant to make investments or new hires.

President Obama yesterday addressed the economic impacts of the shutdown.

"These last few weeks have inflicted completely unnecessary damage on our economy. We don't know yet the full scope of the damage, but every analyst out there believes it slowed our growth," Obama said.

Standard & Poor's Ratings Services said the shutdown cost the economy $24 billion, and research firm IHS Global Insight reduced its fourth-quarter forecast for U.S. economic growth to 1.6 percent from 2.2 percent. Spending at chain retail stores fell 0.7 percent last week, mortgage applications dropped 5 percent, and auto sales slumped about 2 percent.

Chris Geehern, executive vice-president of Associated Industries of Massachusetts, said the potential for another budget fight "will dampen the creation of new jobs and opportunities."

"Employers remain concerned that a lack of a solution to the underlying issues may well bring us back to the brink again," Geehern said.

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Boston hospitals get $12M NIH grant

Two local hospitals are using a federal grant to form the Boston Biomedical Innovation Center, the latest effort by nonprofit hospitals to play a role in transforming medical research into commercially viable products.

The seven-year, $12 million grant — one of three nationwide from the National Institutes of Health — will ensure that scientific advances at Brigham and Women's Hospital and Massachusetts General Hospital will "rapidly lead to new drugs, medical devices and diagnostic tools that can help improve — and even save — the lives of patients everywhere," said Dr. Anne Klibanski, chief academic officer at Partners HealthCare.

"The purpose is to help bridge the chasm in realizing the benefits of many discoveries," said Dr. Joseph Loscalzo, chairman of the department of medicine at Brigham and Women's and a Harvard Medical School professor.

As government funding grows more difficult to secure, hospitals are turning to industry to establish joint projects, said Michael Pistone of the Center for Technology Commercialization at Cincinnati Children's Hospital, which spends $1 million annually to advance research to the point of commercial viability.

Boston Children's Hospital has joined with a California diagnostics equipment maker to form a company to develop tests for pediatric diseases. And, Mass. General is teaming with AstraZeneca to find the best matches between patients and treatments.

"It's obvious you need to have partnerships in order to make medical progress," said Edward Abrahams, president of the Personalized Medicine Coalition, an education and advocacy group. "We need to break down the barriers."

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Downtown evolves as a neighborhood

No longer do the sidewalks roll up after 6 p.m. in the Financial District.

The Hub will see twice the number of new housing units during this cycle than it did last cycle. And it is well-positioned to absorb the housing spurt, as there is a shift toward more urban living.

Accompanying the new housing are more amenity retail options and a different vibe in office tenancy in Downtown Crossing and the Financial District — an area we now just call downtown.

Greg Vasil, CEO of the Greater Boston Real Estate Board, said the lines for the two districts were artificially drawn — one a retail area and the other an office area — but now it is all one.

"The Downtown Crossing area was always the place to shop, and as a natural progression over time, the area is going from a retail district to a mixed-use district," Vasil said. "Downtown Crossing is on its way to becoming another 'living district,' where you have the amenity retail, such as the Walgreens superstore, Roche Brothers grocery store, as well as more fitness centers, retail and restaurants."

David Begelfer, CEO of NAIOP-Massachusetts, a commercial real estate association, said Boston has evolved, both commercially and residentially.

"It is no longer the sense if you are looking for residential you look only to the Back Bay or the South End, you are looking at options that go across the city," Begelfer said. "Same thing goes for office, it is no longer just the Financial District; it is Back Bay, the Seaport, Allston, Brighton and Fenway that are showing very strong life for office development, not a usual situation."

Over the past 13 years, the topography of Greater Boston's commercial tenant landscape has shifted significantly.

To keep talent, companies are moving into the city. Many of these non-financial companies want to be in an urban location with some street vibe to it, said Peter Farnum, senior managing director and principal at Cassidy Turley.

"PayPal, with its move into the fifth and sixth floors of One International Place, and Technip, with its relocation from East Cambridge to One Financial Center, are just two of the recent technology and innovation firms to move into the downtown market," Farnum said.

A significant step forward in changing the face of downtown is Millennium Partners' $630 million complex of new offices, stores and 450 luxury residences on the former Filene's site at the corner of Washington and Summer streets.

Advertising giant Arnold Worldwide and its sister agency, Havas Media, will occupy about 125,000 square feet in the project.

Several other housing developments already are underway in the downtown, including the recently opened 256-unit condo building at Millennium Place and a 381-unit apartment tower by Kensington Investment on Washington Street.

With its AAA bond rating, Boston is on its way to becoming a world class city.

Jennifer Athas is a licensed real estate broker. Follow her on Twitter @Jenathas.

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SF Bay Area trains run as strike talks drag on

OAKLAND, Calif. — The contentious talks between the San Francisco Bay Area Rapid Transit agency and its two largest unions have dragged on for six months — a period that has seen a chaotic dayslong strike, a cooling-off period and frazzled commuters wondering if they'll wake up to find the trains aren't running.

"We're going to do everything we can to avert a strike," Josie Mooney, a chief negotiator for Service Employees International Union Local 1021, said before entering talks Wednesday. "That doesn't mean we're not ready for a strike. That doesn't mean we're not able to pull off a work action. We don't want to."

Hundreds of thousands of commuters have endured seven strike deadlines, sometimes staying up past midnight waiting to hear if the trains will run in the morning.

On Wednesday, they waited until about 10:30 p.m. to receive word from a federal mediator that the transit system will continue to run Thursday as unions and management agree to keep talking.

The possibility of a strike appeared to dim earlier in the day when Local 1021 President Roxanne Sanchez said she was hopeful that her union and the Amalgamated Transit Union Local 1555 will come up with a deal by late Wednesday.

"We're asking that this process conclude tonight," Sanchez said. "We can do this. We should do this. It is within our grasp."

BART spokeswoman Alicia Trost said the agency has been flooded with calls and emails this week from commuters frustrated that they haven't been given earlier notices.

Neither side would say where negotiations stand.

But at least one person seems comfortable betting that a strike won't happen.

A spokeswoman for San Francisco Mayor Ed Lee announced Wednesday afternoon that he had left on a trip to Asia. After delaying his flight for two days to ready the city for a possible strike, Lee concluded that a walkout seemed unlikely and went ahead with the planned trip.

Federal mediator George Cohen said progress has been made but he has imposed a gag order on the parties.

The key issues have been salaries and worker contributions to their health and pension plans.

Talks began in April, three months before the June 30 contract expirations, but both sides were far apart. The unions initially asked for 23.2 percent in raises over three years. BART countered with a four-year contract with 1 percent raises contingent on the agency meeting economic goals.

The unions contended that members made $100 million in concessions when they agreed to a deal in 2009 as BART faced a $310 million deficit. And they said they wanted their members to get their share of a $125 million operating surplus produced through increased ridership.

But the transit agency countered that it needed to control costs to help pay for new rail cars and other improvements.

On Sunday, BART General Manager Grace Crunican presented a "last, best and final offer" that includes an annual 3 percent raise over four years and requires workers to contribute 4 percent toward their pension and 9.5 percent toward medical benefits.

The value of BART's proposal is $57 million, BART spokeswoman Alicia Trost said, adding that the agency is looking at ways to incorporate the unions' counterproposals into that cost.

SEIU Local 1021 executive director Pete Castelli said Monday the parties were between $6 million to $10 million apart.

Workers represented by the two unions, including more than 2,300 mechanics, custodians, station agents, train operators and clerical staff, now average about $71,000 in base salary and $11,000 in overtime annually, the transit agency said. BART workers currently pay $92 a month for health care and contribute nothing toward their pensions.

Meanwhile, Gov. Jerry Brown has stepped in to at least delay a strike by workers for regional bus system Alameda-Contra Costa Transit. Such a strike would leave commuters stranded without a mass transit alternative if a BART strike is underway at the same time.

Brown appointed a three-member panel to investigate a strike notice by union workers. The move effectively prevents a strike, which had been threatened for Thursday, for a week. A 60-day cooling-off period in the contract dispute could then be imposed.

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White House: Furloughed workers can return to work

WASHINGTON — The federal government is back open for business.

The Obama administration changed the government's status to "open" early Thursday, more than two weeks after a partial shutdown took hold when funding from Congress ran out.

Minutes after President Barack Obama signed a hard-fought deal struck in Congress, the White House directed all agencies to reopen promptly and in an orderly fashion. Furloughed federal employees across the country are expected to return to work Thursday.

"In the days ahead, we will work closely with departments and agencies to make the transition back to full operating status as smooth as possible," said Sylvia Mathews Burwell, director of the Office of Management and Budget.

Unless they are told otherwise, all employees should return to work on their next regularly scheduled work day, the Office of Personnel Management said. For most workers, that means they'll be expected to clock in Thursday morning.

But the administration also said agencies are strongly encouraged to be flexible where they can, including by allowing telework, flexible scheduling and excused absences in cases of hardship. Many federal workers may be unable to return to work on such short notice.

The White House encouraged federal workers to check OPM's website for additional instructions about returning to work.

Hundreds of thousands of workers have been furloughed since the shutdown started Oct. 1. The measure Obama signed Thursday restores government funding through Jan. 15. It also extends the nation's borrowing authority through Feb. 7, averting a potential default.

___

Online:

Office of Personnel Management: http://www.opm.gov

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Mobile co. touts Wi-Fi phone

Consumers are paying for the wrong part of owning a smartphone, according to a Cambridge company that has launched a mobile service that lets users call, text and surf the web at no cost via Wi-Fi.

Scratch Wireless customers pay for a smartphone and only a smartphone, co-founder Alan Berrey said.

"There's this mobile industry which has us all in large contracts" that charge for the service more than the phone, Berrey said. "The model is upside down."

There is no voice or data service — although texts can still be sent —included when not connected to Wi-Fi, but users can pay $2 for 24 hours of mobile data or voice, or buy a monthly pass through its partnership with Sprint.

The phone — which has been optimized to make calls and send text messages over Wi-Fi — is a Motorola Photon Q, a phone released a year ago to generally positive reviews.

The target audience, Berrey said, is young people who text far more often than they call, and are often in range of wireless Internet.

Between 60 and 65 percent of all mobile data, according to Berrey, is used at home.

What makes Scratch different than other low-cost services such as TracFone and Cricket, is that once the phone 
is bought, the service can be free.

"We expect a pretty large part of our customers to not pay a dime" after buying the phone, he said.

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Budget battles bad for business

Even though there's a short-term deal to reopen the government and raise the debt ceiling, the never-ending cycle of budget fights are hurting consumer confidence and creating uncertainty about the economy, business leaders and an economist said.

"All of the surveys show that consumers are cautious," said Jon Hurst, president of the Retailers Association of Massachusetts. "It couldn't have come at a worse time," Hurst said of the 16-day showdown.

With just over a month before the holiday shopping season gets going, lower confidence could lead to lower spending at a key time, he said.

The bipartisan legislation put together by the Senate lets the Treasury borrow through Feb. 7, and funds the government through Jan. 15. The Senate and later the House both passed it last night. The White House said President Obama signed the bill early today, hours after the House gave final approval.

"We fought the good fight. We just didn't win," House Speaker John Boehner said.

The White House budget office has already instructed federal workers to plan to return to work this morning.

"We'll begin reopening our government immediately and we can begin to lift this cloud of uncertainty from our businesses and the American people," the president said.

The bill, however, only delays the same debate, said Jim Klocke, executive vice president of the Greater Boston Chamber of Commerce.

"The fact that the deal that has been struck is only a three-month fix is in many ways only going to prolong the uncertainty," Klocke said. "All we've done is deferred the arrival of the bullet for a few months."

Nigel Gault, co-chief economist for the Parthenon Group, said the nation's global credibility will take a hit.

"We've gone to the brink once again, damaged the international reputation of the U.S.," Gault said.

The bill contained almost nothing substantial for Republicans demanding changes to Obamacare. The only provision is a requirement for Health and Human Services Secretary Kathleen Sebelius to produce a report stating her agency can verify the incomes of individuals who apply for federal subsidies.

Republican Sen. Rand Paul of Kentucky, a potential 2016 presidential candidate, told Boston Herald Radio yesterday he was never in favor of shutting down the government as a way to fight Obamacare. "I've always thought really if you want to talk about Obamacare, talk about how bad it is, and how awful it's going to be ... that's all good. But attaching it to shutting down the government, I didn't think was a good idea," he said.

The Associated Press contributed to this report.

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US unemployment aid applications drop to 358,000

WASHINGTON — Applications for US unemployment benefits dropped 15,000 to a seasonally adjusted 358,000 last week, though the figure was distorted for the second straight week by California's efforts to clear backlogged claims.

The partial government shutdown also likely boosted the total, as government contractors and other businesses furloughed employees. The Labor Department says the less volatile four-week average rose 11,750 to 336,500.

Applications have jumped in the past two weeks, distorted by computer upgrades in two states and the 16-day shutdown. Prior to those unusual factors, claims had reached pre-recession levels, a sign that companies are cutting very few workers.

"Once the special factors are weeded out, and businesses carry on as best they can, we should continue to see moderate job growth," said Jennifer Lee, an economist at BMO Capital Markets.

California and Michigan continued to sift through backlogged claims held up by computer changes. Furloughed private-sector workers drove up applications by 15,000 two weeks ago. About 70,000 furloughed federal employees also sought benefits in the week ending Oct. 5, although those workers aren't included in the overall totals.

About 3.9 million Americans received benefits in the week ended Sept. 28, the latest data available. That's about 83,000 fewer than the previous week. A year ago, 5 million people were receiving aid.

The government opened for business on Thursday. Federal employees who receive back pay will likely have to reimburse the government if they claimed unemployment benefits during the two-week shutdown, although the law varies by state.

Before the government shutdown and California's backlog, applications fell to a six-year low three weeks ago, thought that figure was pushed lower by California's delays.

Falling applications for unemployment benefits are typically followed by more hiring. But so far, there haven't been many signs of that happening.

The shutdown has delayed a raft of government data, including September's employment report. And it will likely affect hiring and weigh on the economic growth in the October-December quarter.

Several economists have cut their forecasts for fourth-quarter growth by half a percentage point to about 2 percent or lower.

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