Posted on 04 Apr 2013 by Neilson
Royal Bank of Scotland Group PLC and four of its former executives were sued Wednesday by 12,000 individuals and around 100 institutions--all current or former shareholders--alleging that they misled investors about the bank's financial health during a 2008 share sale.
The RBOS Shareholders Action Group issued proceedings in London's High Court against the bank, former Chief Executive Fred Goodwin, former Chairman Tom McKillop, former investment banking head Johnny Cameron and former finance director Guy Whittaker.
The shareholder group, which said its final claim may be as much as 4 billion pounds ($6 billion), alleges that the bank's directors "sought to mislead shareholders by misrepresenting the underlying strength of the bank and omitting critical information from the 2008 rights issue prospectus."
The group said the GBP4 billion potential claim figure is based on the bank potentially being found liable for losses incurred on the shares issued. RBS declined to comment on the suit.
RBS in April 2008 announced a plan to raise GBP12 billion from shareholders, to shore up capital against a weakening economy and the deteriorating value of credit derivatives and fixed-income securities it held. By October, it needed a government bailout and reported a GBP28 billion net loss for the year. The bank continues to be 81%-owned by the state.
The U.K. financial regulator in a 2011 report said that there had been management failings at RBS but there was not sufficient evidence to bring enforcement actions to tribunal. As part of that report, it studied filings by the bank including the share sale prospectus, and concluded that it didn't have grounds for any enforcement action over the filings.
Earlier that year, the Financial Services Authority had reached an agreement with Mr. Cameron that he wouldn't seek to hold any significant role in the financial services industry. Mr. Cameron at the time said he recognized it as appropriate that he should take his share of responsibility for the bank's losses.
The current case has caused a stir in the U.K. because it raises the prospect of Mr. Goodwin appearing before court. Following the taxpayer bailout Mr. Goodwin became a focus for public angst, his car was vandalized and last year the Scot was stripped of his knighthood by the U.K. government. He has since retreated from public life.
Herbert Smith Freehills spokesman Rohit Grover said the law firm is representing RBS, but declined to comment on the case. He said he couldn't comment on earlier reports that the firm is also representing the former executives.
A separate group of 21 institutions last week launched a similar lawsuit in the London High Court filed against the bank. RBS declined to comment on that suit.