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The Case Against RBS and Named Directors

The case against RBoS is focussed on a series of misleading statements made by the Directors in the lead up to the announcement of the Rights Issue, and the omission of critical information from the Prospectus. These matters constitute a breach of the Financial Services and Markets Act 2000. The same Act makes it clear that as a result RBoS is liable to pay compensation to shareholders in respect of their losses.

In summary:
The true purpose of the Rights Issue was not disclosed. Whereas it was inferred as an attempt to improve ratios, the bank was actually strongly advised by the Financial Services Authority to shore up a balance sheet  which was critically damaged by the ABN AMRO acquisition.

RBoS portrayed the ABN AMRO acquisition as going well in the prospectus, whereas in reality it was not.

RBoS did not disclose its capital ratios, something it was obliged to do.

RBoS failed to make adequate Goodwill Impairment write-downs in relation to ABN AMRO in circumstances where the goodwill had not been tested for impairment, despite severe market instability.

Risk management and control systems at RBoS were fundamentally flawed, something not represented in the prospectus.

RBoS failed to disclose its reliance on US$11,904m in loans provided by the US Federal Reserve.
 

Date

RBS and Directors external comments

What was happening at the time

28 Feb 2008

Fred Goodwin, "I think the main news is that with our view of all the businesses, the positive view that we have of the ABN businesses has been confirmed"  and "There are no plans for any inorganic capital raising or anything of the sort"

 

29 Feb 2008

No comment made or information supplied to shareholders.

RBS drew down $706m from US Federal reserve Emergency funds

April 3 2009

No comment made or information supplied to shareholders.

RBS informed the FSA that it was likely to have fallen below Individual Capital Guidance Levels at the end of March

April 9 2008

No comment made or information supplied to shareholders

The CEO of the FSA, Hector Sants, indicated that they would require written confirmation from RBS that it would be pursuing a Rights Issue 

April 22 2008

RBS announces £12bn Rights Issue

RBS failed to disclose to shareholders and the market that it had found it necessary to draw on $11,904m in loans from the US Federal Reserve



Had information not remained undisclosed as outlined above, the share-price would have collapsed.  In essence, the Directors created a false market for RBoS shares to raise the £12bn required to shore up the balance sheet. Evidence of the bank's exposure is supported by an FSA report from December 2011.  

The legislation
This constitutes a clear breach of S.80 of the Financial Services and Markets Act 2000. S.90 of the same act states that any person publishing a prospectus is liable to pay compensation if shares were bought and a loss suffered as a result of:

Any untrue or misleading statement in the particulars
The omission of any information that investors and their advisors would reasonably require and reasonably expect to find there. We believe the behaviour of the bank in the run-up to and during the Rights Issue, as outlined above, gives us a strong case. A letter from our legal representatives stating this has not been adequately answered by the bank. For this reason, we are now in the advanced stages of drafting the Particulars of the Claim which will form the basis of our High Court claim against the bank and its then executive officers. This claim will be the biggest claim of its kind in the history of English law.