HSBC Bank USA has agreed to pay $10.5 million in fines and penalties to the Securities and Exchange Commission for negligently allowing its name and logo to be used in connection with an alleged Miami-based investment fraud targeted at Latin American investors.

Under the settlement agreement, the US banking unit of the UK bank, will pay a civil fine of $10 million and give up $500,000 in fees that it earned for its work with Pension Fund of America.

The bank had served as a trustee for the investment portion of the business from August 2003 to March 2005, when a federal court shut down Pension Fund at SEC’s behest. HSBC’s name and logo appeared throughout the firm’s marketing materials, which were not properly reviewed, the SEC said.

In a press release announcing the settlement, SEC officials criticised the bank for letting the investment fund use its reputation, giving "false assurances" to investors that a legitimate bank was involved and "co-developed" the plan.

“This case should serve as an important reminder to banking and financial institutions to guard the credibility they may lend to other companies with which they associate,” said SEC enforcement director Linda Chatman Thomsen.

HSBC noted that it "immediately took steps to preserve the assets it held on behalf of investors", and did not admit to or deny wrongdoing as part of the settlement.

Pension Fund sold retirement and college "trust plans" that claimed to provide term life insurance to investors and the chance to invest in mutual funds. The company, through 500 independent agents, raised at least $127 million in that time from 3,400 investors.

The marketing materials implied that the trust plans were developed by HSBC and the Pension Fund, and that the money would be "totally safe" in a trust account at HSBC. But instead it was placed into a regular checking account in its name at HSBC and about 95 per cent was used to pay high sales commissions, expenses and fees, while only 5 per cent was actually invested. The firm also fabricated bank certificates and annual statements, and stole tens of millions of dollars, the SEC said.

Pension Fund hired HSBC as trustee in August 2003, and the SEC said HSBC "actively participated" in choosing offshore mutual funds with high front-loaded fees that would be offered under a negotiated fee arrangement between the bank and Pension Fund.

In October 2003, an HSBC Private Bank representative wrote a letter on bank letterhead inviting existing investors to transfer funds to HSBC. Pension Fund sent it to about half of its investors, along with a form with HSBC’s logo on it that listed new mutual fund options. But the materials did not disclose the high fees and were not forwarded to the bank’s corporate office, legal department or compliance departments for proper review as required under the bank’s policies. Compliance officials did not see any materials until late 2004, when a branch in Brazil obtained copies.