The FCA announced that it will conduct a formal investigation into the IT malfunction at RBS last summer, which left 17 million of its customers unable to access their accounts for up to three weeks. The investigation could result in enforcement action being taken against RBS.
Because of the public interest in the matter, the financial regulator took the unusual step of publicly announcing its investigation, as is allowed in “exceptional” circumstances in the FCA Handbook.
On February 6, the FSA issued a final notice to RBS imposing a fine of £87.5 million for misconduct in submitting rates for the calculation of LIBOR. RBS’ misconduct included the manipulation of submissions and several failings in respect of risk management systems and controls (including ongoing failings to identify inappropriate LIBOR submissions), as well as RBS’ collusion with other LIBOR panel banks and brokers in setting rates.
The FSA stated that the significant financial penalty of £87.5 million is intended to reflect both the widespread nature of the misconduct, as well as the harm caused to market participants and the integrity of the UK financial system. In related actions, RBS has agreed to pay $324 million to the US Commodities and Futures Commission and $150 million to the US Department of Justice.
On December 21, 2012, the High Court decided an alleged mis-selling of interest rate swaps case in favour of the defendant, RBS. The claimants alleged that the interest rate swap sold to them by RBS in May 2005 as a form of insurance against their existing liabilities of £1.5 million had been mis-sold, on account of the fact that they “fared very badly under the swap” after interest rates fell from October 2008. The claimants argued that RBS was in breach of its common law duty of care and that, had it not been for these breaches of duty, they would never had entered into the swap.
In his judgment Judge Wakeman QC found that “Because of the credit crunch, the ensuing parlous position of RBS, and the taking of the wholly unforeseeable step of increasing margin significantly, it transpired that the protection given by the swap was not complete . . . But none of that means that the swap was an unsuitable product back in May 2005.” However he added that “this is a highly fact-sensitive case” that turned on what was said in meetings between the claimants and the defendant prior to the claimants entering into the swap.
On August 21, 2012, several Prudential entities sued several RBS entities in New Jersey State court seeking to recover damages allegedly suffered in connection with over $343 million in RMBS. Prudential also sued several Goldman Sachs entities in New Jersey State court on August 24, 2012, seeking to recover damages allegedly suffered in connection with over $270 million in RMBS. In both cases, Prudential alleges that the offering documents for the RMBS at issue contain untrue statements of material fact and omissions concerning the underwriting standards used to originate the underlying loans, the result of the defendants’ pre-closing due diligence, owner-occupancy rates, the process by which appraisals in connection with the underlying loans were performed, the assignment of the loans to the RMBS trusts, and the credit ratings assigned to the RMBS. In the case against RBS, Prudential also alleges that the offering documents contain untrue statements of material fact and omissions concerning the loans’ LTV and CLTV ratios; in the case against Goldman Sachs, Prudential also alleges that the offering documents contain untrue statements of material fact and omissions concerning exceptions made during the loan underwriting process. Prudential asserts causes of action for common-law fraud / fraudulent inducement, aiding and abetting fraud, negligent misrepresentation, and violation of New Jersey’s civil RICO statute. Prudential seeks compensatory damages, treble damages in connection with its RICO claim, rescission, attorneys’ fees and costs, and prejudgment interest. RBS Complaint. Goldman Sachs Complaint.
On July 25, Judge Richard D. Rogers of the United States District Court for the District of Kansas denied defendants’ motion to dismiss the National Credit Union Administration Board’s suits against RBS Securities and Wachovia Capital Markets. The two consolidated actions allege violations of Sections 11 and 12(a)(2) of the federal Securities Act of 1933, as well as violations of the Kansas Uniform Securities Act, in connection with the sale of residential mortgage-backed securities. The court concluded that plaintiffs’ claims were not barred by the applicable statutes of limitations or repose. The court also denied in large part defendants’ motion to the extent that it was based on failure to state a claim, but granted defendants’ motion to dismiss as to plaintiffs’ allegations of systematic disregard of underwriting guidelines as to certain certificates for which plaintiffs failed to identify specific originators or underwriting practices, as well as plaintiffs’ allegations that defendants had misrepresented the benefits of the credit enhancement associated with the certificates at issue. Decision.
On July 18, 2011, the National Credit Union Administration (“NCUA”) filed a lawsuit against RBS Securities Inc. (“RBS”) in United States District Court for the Central District of California. NCUA alleges that RBS misled Western Corporate Federal Credit Union (“WesCorp”) about the safety of mortgage-backed securities. The lawsuit alleges violations of Sections 11 and 12(a)(2) of the ’33 Act as well as the California Corporate Securities Law. NCUA alleges RBS made untrue statements of material fact regarding borrowers’ likelihood to repay the mortgage loans, reduced documentation programs, loan-to-value ratios, and credit enhancement. NCUA previously filed similar lawsuits against JP Morgan and Royal Bank of Scotland. NCUA Complaint vs. RBS.
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.
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.
On January 11, 2011, Federal District Judge Deborah Batts of the Southern District of New York dismissed several claims in a securities class action against the Royal Bank of Scotland Group (“RBS”). The dismissed putative class claims were brought on behalf of purchasers and acquirers of RBS ordinary shares, which trade outside the U.S., and allege that RBS made false and misleading statements when it failed to adequately disclose that it had accumulated billions of pounds of subprime, Alt-A, and other high-risk RMBS-related assets. The court dismissed the claims, relying on the 2010 Supreme Court decision in Morrison v. National Australia Bank Ltd., which held that U.S. federal securities laws do not apply to purchases of foreign securities outside the U.S. The court declined plaintiffs’ invitation to apply U.S. law to the RBS ordinary shares on the basis that other RBS securities (ADRs) are listed and trade on a U.S. Exchange. Decision.
