RBS faces class action on $10bn share offering

US court filing alleges bank misled investors

Royal Bank of Scotland faces a class-action lawsuit in the United States accusing the bank and its directors of misleading investors in its shares just before the credit crisis began.

The suit, filed on Tuesday, alleges that when the bank announced a sale of up to $10bn ($£7bn) of American depository shares (ADS) in June 2007 it failed to disclose the damage suffered by debt securities on its balance sheet.

The bank is also accused of allegedly failing to disclose poor internal controls, the damage that would be done by its acqusition of ABN Amro and the weakness of its capital buffer against the deteriorating sub-prime market.

The legal filing in the US court for the Southern District of New York names Sir Tom McKillop, RBS's chairman, and Sir Fred Goodwin, its ex-chief executive, along with other directors and former executives and its underwriting banks. Sir Fred left the bank at the end of last year and Sir Tom will stand down at April's annual meeting.

The case has been brought by Natalie Gordon, an individual investor. The suit asks for the court to grant class-action status and for the case to be heard by a jury.

When RBS issued the preference shares in question, it was pursuing its disastrous hostile takeover of ABN Amro while defaults on US sub-prime mortgages, which RBS packaged up for sale as investments, soared.

"RBS ultimately annouced multi-billion pound impairment charges associated with its exposure to debt securities, including mortgage-related securities tied to the US real estate markets, causing the price of RBS's ADSs issued in the offering to substantially decline," the lawsuit states.

Stephen Hester, RBS's new chief executive, said last week that RBS had taken on too much debt and that its risks were too concentrated. Flagging up a loss of up to £28bn for 2007, he said that RBS was one of many banks to get carried away in the credit boom.

The lawsuit states that after insisting that its capital position was strong, the bank announced a record £12bn rights issue last April and in October accepted £20bn of capital from the Government. RBS said: "We are aware of this action and similar complaints that have been filed against a number of banks over the past 18 months arising from the turmoil in global financial markets.

"The action will be defended vigorously. It would be inappropriate to comment further at this early stage."

US class actions allow the court to bring all comparable cases under one action. They are controversial because, though they avoid inefficient multiple actions, they can lead to massive payouts such as those made by US cigarette companies in recent years to ill smokers. Antonio Vozzolo, the lawyer acting for Ms Gordon, said: "We would encourage all investors with significant financial losses to come forward and move for lead plaintiff."

RBS ordinary shares in London have fallen from 530p at the end of June 2007 to just 21.3p at yesterday's close.

PROMOTED VIDEO
Sport
Wembley Stadium
footballNews follows deal with Germany
Arts and Entertainment
A spell in the sun: Emma Stone and Colin Firth star in ‘Magic in the Moonlight’
filmReview: Magic In The Moonlight
Voices
voicesApple continually kill off smaller app developers, and that's no good for anyone
Sport
A 'Sir Alex Feguson' tattoo
football

Arts and Entertainment
Ben Whishaw is replacing Colin Firth as the voice of Paddington Bear
tv

Thriller is set in the secret world of British espionage

News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
life

News
ScienceGallery: Otherwise known as 'the best damn photos of space you'll see till 2015'
Life and Style
fashion

Bomber jacket worn by Mary Berry sells out within an hour

Life and Style
tech
Sport
Andros Townsend is challenged by Vladimir Volkov
football
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Audit Manager Central Functions

To £85,000 + banking benefits: Saxton Leigh: You will be expected to carry out...

Credit Risk Audit Manager

Up to £90,000 + benefits: Saxton Leigh: Credit Risk Audit Manager required to ...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week