By Ian Fraser
Published: Sunday Herald
Date: 27 April 2014
RBoS Shareholders’ Action Group, the largest of the investor groups that is suing RBS over the flawed rights issue, said it had received and processed its 4,000th application from a current or former RBS member of staff last Thursday. The application is understood to have come from an Edinburgh-based risk expert with the bank.
Most of the 4,000 current or former RBS employees who have joined the action group work or worked for RBS itself, NatWest, Ulster Bank, RBS, Coutts, Adam & Company and Global Banking & Financial Markets (RBS’s investment bank, since reinvented as M&IB). They are from all levels of seniority, ranging from call centre staff to former members of the group executive management committee.
A spokesman for the investor group said “scores” of current senior RBS executives have applied to join the action group in recent days. All believe they were misled by Fred Goodwin and other members of the bank’s board during the critical April to June 2008 rights issue period.
They are effectively suing their employer, together with four of their ex bosses – Fred Goodwin, Tom McKillop, Johnny Cameron and Guy Whittaker – over the rights issue. Most of the cash they ploughed into the bank’s shares evaporated as a result of the bank’s near collapse and government bailout a few months later. Rights issue shares bought for £2 in June 2008 had collapsed in value to 10p-11p by January 2009.
A spokesman for the RBoS Shareholders’ Action Group, comprising more than 12,000 individual investors and 100 institutional investors including charities and churches, said it had taken on extra staff and volunteer to handle a late surge in applications from aggrieved investors, including bank insiders. The final deadline for applications is Friday 1 May. Investors who fail to sign up by then will be excluded from the case and denied any chance of compensation.
In the wake of the March collapse of US investment bank Bear Stearns in March 2008, Goodwin and McKillop recognised their bank’s urgent need of fresh capital. Persuaded to pursue a rights issue by the Financial Services Authority they urged employees, many of whom were shareholders, to participate, providing reassurances about the bank’s financial strength.
Some RBS Group employees allege management “bullied” them into taking part – with the expectation being that they would buy 18 new shares for every 11 already held. Ex staff claim line managers warned them it might be “career limiting” if they failed to buy the shares. The bank gave staff with insufficient funds “soft loans” – unsecured loans on relatively easy terms – to fund their share purchases. One former Gogarburn-based manager RBS’s corporate lending arm told the Sunday Herald: “They were more or less telling us to remortgage our homes to go out and buy as many shares as possible.”
The case against RBS will also refer to a video message from Tom McKillop, in which he urged staff to take up their rights. The video is described by staff and former staff as “particularly persuasive”. Former NatWest call centre worker Diane said: “He advised that the directors were doing so and it would be a really good thing, securing the bank’s future … I’m sad to say that like many others I believed our senior management team and invested a further £12,000 (borrowed from my parents) in to the rights issue. Within weeks I lost virtually all of this.”
The investors will highlight critical omissions in RBS’s 147-page rights issue prospectus, on which Merrill Lynch and Goldman Sachs were among the advisers. These included that the bank made no reference to the fact that on 9 April the Financial Services Authority ordered RBS to carry out a right issue of this scale, and that RBS’s finances were already in such a parlous state it was already making use of $11.9 billion of clandestine emergency loans from the U.S. Federal Reserve.
On Friday it emerged that five other institutional investors are also set to sue RBS over the rights issue as part of the same group litigation order. Legal & General, Standard Life, Prudential, Aviva and Universities Superannuation Scheme are poised to file their claims on Wednesday. The additional shareholder group, represented by law firm Quinn Emmanuel Urquhart & Sullivan, have been considering their positions since last year. Their decision to file lawsuits takes rights issue claims against RBS to some £5 billion.
A spokesperson for Leon Kay Solicitors, the law firm representing another investor group, RBS Rights Issue Action Group, confirmed it will also be issuing proceedings against RBS before the 23 May cut-off point. The Leon Kay spokesman added that, even though the group does not have after-the-event insurance, it has instituted a Proportionate Cost Sharing Order, which will limit the liability of each participant with fewer than 100 shares to £2.
A further development came last Wednesday when another group of institutional claimants – which include Strathclyde Pension Fund – which are represented by law firm Stewarts Law and have issued proceedings against the bank suffered a setback when their main litigation funder collapsed, with its website removed and URL showing only a “403 Forbidden” message. Doubts about Argentum Capital first surfaced in February when it was accused of being Ponzi funded and its shares were delisted by the Channel Islands Stock Exchange.
Legal sources said that, irrespective of what has happens to Argentum Capital, Stewarts Law should be able to proceed with its action, as it has US law firm Grant & Eisenhofer behind it. The next court action is scheduled for 23 May. The hearing in front of judge Mr Justice Hildyard will aim to set a trial date.
The RBoS Shareholders Action Group’s one-off fee starts at £800 for up to 19,999 rights issue shares, rising to £500,000 for investors with more than 50 million shares. But it said it is able to make “special arrangements” for RBS staff and pensioners suffering real hardship. Investors are able to apply online via the action group’s website www.RBoSaction.org .
An RBS spokesman said: ‘While RBS and its former directors made some business decisions that have been criticised, this does not mean that they misled investors or acted illegally. ‘We believe we have strong defences to the claims that are being brought against the bank.’
An edited version of this article was published by the Sunday Herald on 27th April 2014