By Ian Fraser
Published: Sunday Herald
Date: 2 March 2014
Ian Fraser’s note: This is the unedited version of an article published by Sunday Herald. The shorter, published version can be read here http://bit.ly/rbsrights.
Investors who are suing the Royal Bank of Scotland over its “misleading” £12.3 billion rights issue have suffered a setback after a funder backing one of the claimants’ groups had its stock market listing suspended.
Jersey-listed Argentum Capital, which is providing the funding to Stewarts Law, had its listing suspended by the Channel Islands Securities Exchange (CISX) on Friday 21 February.
Stewarts Law is a specialist London-based law firm that is suing RBS on behalf of Strathclyde Pension Fund, the Mineworkers Pension Fund, Europe’s largest pension fund APG, and nine mutual funds managed by Dutch bank ING. Overall Stewart’s Law, which is working alongside Delaware-based lawyers Grant & Eisenhofer, is representing 77 institutional investors who acquired a total of approximately 220 million shares in the rights issue worth £440m.
Argentum Capital is one of a number of specialist third-party litigation funders that is taking a punt on a positive outcome for investors. The RBoS Shareholders Action Group, represented by solicitors Bird & Bird, has entered into third party funding agreements with Harbour Litigation Funding and Vannin Capital.
The suspension of Argentum Capital came three days after US-based newsletter OffshoreAlert published an article claiming that Argentum was funded by a £90m “Ponzi” scheme. OffshoreAlert claimed the scheme was headed by British-born businessman Brendan Terrill, who operates Cayman-domiciled Centaur Litigation and Hong Kong-domiciled Buttonwood Legal Capital. Terrill’s funds, marketed through a network of financial advisers, offer consistently high returns – up to 89 per cent over two years, according to documents published by OffshoreAlert.
No allegations have been made against Argentum Capital, chaired by former appeal court judge Sir David Keene. Argentum said the reason its stockmarket listing was suspended was because it failed to abide by a rule that at least 25 per cent of its shares must be publicly traded. All of Argentum Capital’s shares are held by Cayman Islands-based Centaur Litigation, which means they are never traded.
Clive Zietman, head of commercial litigation at Stewarts Law, said his firm was aware of the issue but had no comment. “We are aware of the matter and are investigating. We are not able to comment further at this stage.”
The legal costs related to the rights issue lawsuit against RBS – into whose shares the claimants claim they were duped into putting £12.3bn of investors’ cash in April 2008 following the publication of a “misleading” rights issue prospectus by the bank, then led by former chief executive Fred Goodwin – have become immense. The bank needed to bailed out with £45.5bn of taxpayers’ money five months after the rights issue completed, and the value of the rights issue shares which it sold for £2 each in April to June 2008, had collapsed to just 10 pence by January 2009.
RBS’s lawyers Herbert Smith Freehills last September told the High Court that the cost of defending the bank and four of its former directors – Tom McKillop, Fred Goodwin, Johnny Cameron and Guy Whittaker – would be £41.8m. This compares to Bird & Bird’s £10m-£13m estimate for acting on behalf of the RBoS Shareholders Action Group, which represents 12,000 individual investors and more than 100 institutional investors, and Stewart’s Law’s £8.5m costs prediction.
Philip Marshall QC, representing the RBoS Shareholders Action Group, last December told the judge he that RBS’s £41.8m costs estimate was “intimidatory”, meaning deliberately designed to scare off litigants. The size of the Herbert Smith Freehills estimate has made securing after-the-event insurance cover – which pays costs in the event of cases being unsuccessful – critical for all the claimant groups.
The other two groups of claimants, which have not yet served writs on the bank, are led by US law firm Quinn Emanuel Urquhart & Sullivan, and London-based firm Leon Kaye Solicitors.
In December Judge Mr Justice Hildyard gave Quinn Emanuel and Leon Kaye until the next case-management hearing on 23 May to either issue proceedings or confirm that they are issuing proceedings. Leon Kay senior partner Leon Kaye, representing more than 8,000 individual investors, told the Sunday Herald “I propose to issue proceedings before the limitation period expires at the end of May.”
However rival litigants are suspicious of the motives of the Quinn Emanuel group, believing its clients – Legal & General, Prudential, Scottish Widows, Standard Life, and the Universities Superannuation Scheme – have a different agenda to other claimants.
This is because, as RBS’s defence, served by Herbert Smith Freehills on 13 December 2013, made clear, the bank made these investment management groups, whose joint claim is worth £1.3bn, “insiders” ahead of the rights issue announcement and during the capital-raising process. The bank is understood to have done so by making them privy to the fact its financial position was weaker than it was publicly admitting — telling them its core tier-1 capital ratio had sunk as low as 3.6% during the first half of 2008.
Some believe the Quinn Emanuel claimants’ alleged “insider” status gives them a vested interest in collapsing the case or settling for derisory compensation in a bid to avoid embarrassment. Investors who channeled funds into the RBS rights issue via these pension and investment firms may be entitled to ask why, given the firms’ apparent knowledge of RBS’s true financial position in early 2008, why they chose to take up their rights in the 11-for-18 capital raising.
One legal source suggested that as a result of this: “Quinn Emmanuel claimants have a vested interest is seeing the action scuppered or settling out of Court for a nominal amount of compensation.”
RBS says it has “substantial and credible legal and factual defences”. Neither Standard Life nor L&G would comment on their alleged status as “insiders”. Others were unavailable.
An edited version of this article was published in the Sunday Herald on 2 March 2014 http://bit.ly/rbsrights. Ian Fraser’s book, Shredded: Inside RBS the Bank that Broke Britain, is published by Birlinn on 6 June 2014