On September 27, 2016, the Royal Bank of Scotland (“RBS”) announced a $1.1 billion settlement with the National Credit Union Administration (“NCUA”) in connection with two federal securities litigations concerning RBS’s underwriting and sale of RMBS. The NCUA, as liquidating agent for Western Corporate Federal Credit Union and U.S. Central Federal Credit Union, brought these actions against RBS and other defendants, claiming that the defendants had misled the credit unions about the risks of RMBS and made various misrepresentations in the offering documents. Further details of the settlement are not publicly available.
Royal Bank of Scotland
Court Denies Summary Judgment on Issues of Timeliness in NCUA RMBS Suit
On September 1, 2016, Judge John W. Lungstrum of the U.S. District of Kansas denied cross-motions for summary judgment on the issue of timeliness brought by RBS, Nomura and the NCUA in NCUA v. RBS Securities, et al. NCUA alleges in its 2011 complaint that it suffered losses of $800 million on 2006-2007 vintage RMBS certificates based on misstatements by the defendants. Defendants RBS and Nomura argued on summary judgment that NCUA’s claims must be dismissed because they were not brought within one year after discovering the allegedly untrue statement or omission, or after such discovery should have been reasonably made. NCUA argued in opposition that it did not have constructive notice of the facts underlying its claims by the relevant dates and that its claims were timely. The Court found that “a jury could reasonably find in favor” of either party as to what a “reasonably diligent investor would have known and done in 2007 and 2008 on the timeliness issue” and that as a result fact questions remained precluding summary judgment for either side. Memorandum and Court Order.
5th Circuit Revives FDIC’s Suit Against Goldman, Deutsche Bank, and Royal Bank of Scotland
On August 10, 2015, the Fifth Circuit revived a securities fraud suit brought by the Federal Deposit Insurance Corporation (“FDIC”) as receiver for Guaranty Bank against Goldman Sachs & Co., Deutsche Bank AG, and the Royal Bank of Scotland PLC. The FDIC brought claims under the federal Securities Act and the Texas Securities Act, alleging that the defendants made false and misleading statements in selling and underwriting $2.1 billion in RMBS to Guaranty Bank. The suit was filed within the limitations period in the FDIC Extender Statute, 12 U.S.C. § 1821(d)(14), but outside of the limitations period in the Texas Securities Act. The district court held that state law statutes of repose are not pre-empted by the FDIC Extender Statute, and it therefore dismissed the case as untimely. The Fifth Circuit reversed and remanded. The appellate court held that the FDIC Extender Statute preempts all state limitations periods, whether characterized as statutes of limitations or as statutes of repose. The court distinguished the Supreme Court’s decision in CTS Corp. v. Waldburger, 134 S. Ct. 2175 (2014), which held that a similar extender provision in CERCLA did not preempt state statutes of repose. The Fifth Circuit characterized the similarities between the two provisions as “superficial,” and cited legislative history as supporting Congress’s intent to preempt state statutes of repose. Opinion.
Royal Park Sues RBS Over $1.6 Billion in RMBS
On October 11, Royal Park Investments SA/NV sued several Royal Bank of Scotland (RBS) entities in New York state court over its purchase of $1.6 billion worth of residential mortgage-backed securities. At issue in the suit are fifty-three RMBS securitizations that RBS underwrote between 2005 and 2007. Royal Park, which initiated the action as the assignee of Fortis Bank and its subsidiaries, alleges that the offering documents on which the assignors relied contained misrepresentations about the quality of the certificates and underlying mortgage loans. Specifically, Royal Park claims that RBS failed to disclose that due diligence providers had concluded that a significant percentage of the underlying mortgage loans did not comport with underwriting guidelines and made knowing misrepresentations concerning loan-to-value ratios, owner occupancy ratios, certificate credit ratings, and transfer of title to the underlying mortgage loans. Royal Park further alleges that RBS had simultaneously taken short positions through credit default swaps on RMBS similar to those at issue in this case. Royal Park asserts claims for fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation and seeks both compensatory and punitive damages. Complaint.
Second Circuit to Issuers: You Need Not Disclose Every Single Asset in Your Registration Statements
On September 25, the Second Circuit upheld dismissal of claims against defendant Royal Bank of Scotland (RBS) for alleged failure to disclose enough information about its exposure to subprime mortgages. In so doing, the Court reaffirmed longstanding principles at the heart the securities laws and issued an opinion as applicable to technology companies as it is to banks. RBS had issued five offering documents in 2005 and 2006, which plaintiff alleged contained a number of misstatements and omissions. Among others, the complaint alleged RBS had misstated its exposure to subprime mortgages, falsely claimed it had effective risk controls, and failed to disclose an inadequate capital base. For more information and to read our Securities Litigation blog, please click here. Order.
National Credit Union Administration Sues JP Morgan, RBS In Connection With Over $800 Million In RMBS
On June 20, 2011, National Credit Union Administration, acting as the liquidating agent for five now-defunct credit unions, filed two separate lawsuits against JP Morgan and Royal Bank of Scotland, and various other depositors and issuers, in the U.S. District Court for the District of Kansas. The NCUA brings claims under Section 11 and 12(a)(2) of the Federal Securities Act as well as under the state securities laws of Kansas, Illinois, Texas and California. NCUA alleges that defendants misrepresented the risks associated with the sale of hundreds of RMBS, including in connection with representations concerning underwriting guidelines, loan-to-value ratios and credit enhancements, which caused the credit unions who bought the RMBS to suffer “unprecedented” losses. The NCUA is seeking $800 million dollars from the defendants. NCUA Compl. vs. JPM. NCUA Compl. vs. RBS.
Royal Bank of Scotland and Ten Underwriters Move to Dismiss Remaining Subprime Mortgage Claims
On June 1, 2011, the Royal Bank of Scotland (“RBS”) moved to dismiss claims brought in the U.S. District Court for the Southern District of New York by investors in RBS preferred securities. Plaintiffs allege that RBS failed to disclose its exposure to subprime mortgage-backed assets early enough. Plaintiffs also allege that ten banks which underwrote the RBS preferred securities were negligent in preparing the offering documents. In January, Judge Deborah Batts dismissed approximately 95 percent of the claims – those brought by the Massachusetts Pension Reserves Investment Management Board and the Public Employees’ Retirement System of Mississippi. RBS argues in its motion that the remaining claims should be dismissed on forum non conveniens grounds and consolidated with litigation ongoing in the United Kingdom. The ten underwriters separately moved to dismiss, arguing that plaintiffs claims are untimely and fail to adequately allege violations of Sections 11 and 12(a)(2) of the ’33 Act. RBS Memo in Support. RBS Memo to Dismiss.