Royal Bank of Scotland (RBS)

Second Circuit Affirms Dismissal of Class Action Alleging That RBS Mislead Investors About RMBS Exposure

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On April 15, 2015, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of a putative investor class action against the Royal Bank of Scotland (RBS).  The plaintiffs had brought claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, alleging that RBS induced them into buying American Depository Shares (ADSs) of RBS between October 2007 and January 2009 by misrepresenting the scope of RBS’s investment exposure to subprime mortgage-backed securities at that time.

The Second Circuit affirmed the District Court’s dismissal on all grounds, holding that certain of the alleged misstatements could not serve as the basis for the investors’ claims because they were made in August 2007, before the class period began, and that other alleged misstatements, concerning RBS’s acquisition of Dutch Bank ABR AMRO, likewise could not sustain a claim because they constituted inactionable puffery.  Opinion.

RBS Motion to Dismiss RMBS Fraud Claim Granted in Part

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On March 20, U.S. District Judge Paul G. Gardephe of the Southern District of New York granted in part and denied in part Defendants’ motion to dismiss a complaint filed by several HSH Nordbank affiliates against several RBS affiliates relating to Plaintiffs’ investment in RMBS issued or underwritten by RBS.  The court held that Plaintiffs sufficiently alleged fraudulent intent in connection with alleged misstatements concerning the underlying loans’ compliance with underwriting guidelines, but failed to do so in connection with alleged misstatements concerning the loans’ LTV and CLTV ratios, and owner occupancy rates, as well as the RMBS certificates’ credit ratings and the validity of the assignment of the mortgages to the RMBS trusts.  The court thus allowed Plaintiffs’ fraud and aiding and abetting fraud claims to proceed as to alleged misstatements concerning compliance with underwriting guidelines only.  The court separately dismissed Plaintiffs’ claims for negligent misrepresentation and fraudulent concealment due to the absence of privity, as well as Plaintiffs’ claim for rescission based on mutual mistake.  Order.

RBS Settles Nevada Securitization Investigation

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On October 23, Royal Bank of Scotland (RBS) agreed to pay $42.5 million to the State of Nevada in a settlement to end an investigation by the Nevada Attorney General into RBS’s mortgage acquisition and securitization business.  The investigation focused particularly on RBS’s acquisition and securitization of subprime and pay-option adjustable rate mortgages originated by Countrywide and Option One.  The Nevada Attorney General’s investigation concerned potential misrepresentations made in connection with the origination of those loans as well as RBS’s potential awareness of the originators’ allegedly deceptive practices.  In addition to the settlement payment, RBS agreed to certain conditions for its future financing of subprime and pay option mortgages secured by Nevada properties, including a “reasonable review” requirement to ensure that the loans adequately disclose interest rate and payment information and are based on documented borrower income.  In entering into the settlement, RBS did not admit to any wrongdoing.  Agreement.