BoS in $1bn US court clash

Bank of Scotland, whose record of expansion in the US is not happy, is to go to court in Oklahoma as a plaintiff in a billion-dollar lawsuit which is linked to the collapse of a debt- collecting agency. The agency went belly-up with the loss of 3,900 jobs.

Bank of Scotland, whose record of expansion in the US is not happy, is to go to court in Oklahoma as a plaintiff in a billion-dollar lawsuit which is linked to the collapse of a debt- collecting agency. The agency went belly-up with the loss of 3,900 jobs.

The Edinburgh bank bought a $14.7m (£10m) stake in Commercial Financial Services in Tulsa in the late 1990s. The investment turned sour after allegations surfaced in an anonymous letter claiming executives at the firm hoodwinked BoS into buying the company's bonds.

Papers filed in the US courts allege that CFS, Chase Securities, the firm's financial adviser, and Arthur Andersen, the accounting giant, misled BoS into believing that its debt- collecting business was a good investment. In fact, claim court papers, it wasn't making the revenue it claimed.

CFS dealt in underperforming loans which it bought from financial institutions and by the late 1990s had 40 per cent of all US credit-card debt, and was listed as one of the fastest-growing companies in the country.

It touted its business at big- ticket events like the Superbowl and attracted, as well as BoS, Provident Mutual Life Insurance Company, Bank Austria, The Union Central Life Insurance Company, Orix USA Corp and Erste Bank der oesterreichischen Sparkassen.

"As a consequence of the acts of the defendants, notes and certificates with a face value of over $1.6bn now have only a fraction of their original value. Investors are likely to suffer damages in excess of $1bn," claim the papers which were lodged in the northern district of Oklahoma. Total losses amounted to $1.7bn.

On 4 August, 1997, BoS bought $5m in bonds and followed this in September of that year by purchasing another $4.7m and a further $5m in November.

It bought the bonds on information contained in Offering Documents that were made by CFS and Chase Securities. Arthur Andersen had signed off on their accounts and gave CFS a clean bill of health.

"This is not a case about a risky investment that went sour or a company that merely fell short of rosy predictions and disappointed investors. This is a case about a company that lied to investors," claims the law firm Richards, Spears, Kibbe & Orbe, which is acting on behalf of BoS and others.

Arthur Andersen, Chase Securities, Mayer Brown & Platt, Caroline Benediktson and Bruce Hadden are all defendants in the litigation. William Bartmann, Kathryn Bartmann and Jay Jones controlled CFS and are also defendants in the case.

The alleged fraud was uncovered when an anonymous letter was sent to a bond rating agency.

Bank of Scotland, which on Friday agreed its merger with Halifax, was embarrassed two years ago over a joint venture it struck with a company controlled by the Reverend Pat Roberston. The deal fell apart when the right-wing minister described Scotland as a dark land populated by homosexuals.