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.

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own