RBS 2012 Annual Report Download - page 457

RBS GROUP 2012
455
Litigation, investigations and reviews
The Group and certain Group members are party to legal proceedings,
investigations and regulatory matters in the United Kingdom, the United
States and other jurisdictions, arising out of their normal business
operations. All such matters are periodically reassessed with the
assistance of external professional advisers, where appropriate, to
determine the likelihood of the Group incurring a liability. The Group
recognises a provision for a liability in relation to these matters when it is
probable that an outflow of economic benefits will be required to settle an
obligation which has arisen as a result of past events, and for which a
reliable estimate can be made of the amount of the obligation.
In many proceedings, it is not possible to determine whether any loss is
probable or to estimate the amount of any loss. Numerous legal and
factual issues may need to be resolved, including through potentially
lengthy discovery and determination of important factual matters, and by
addressing novel or unsettled legal questions relevant to the proceedings
in question, before a liability can be reasonably estimated for any claim.
The Group cannot predict if, how, or when such claims will be resolved or
what the eventual settlement, fine, penalty or other relief, if any, may be,
particularly for claims that are at an early stage in their development or
where claimants seek substantial or indeterminate damages.
While the outcome of the legal proceedings, investigations and regulatory
matters in which the Group is involved is inherently uncertain,
management believes that, based on the information available to it,
appropriate provisions have been made in respect of legal proceedings,
investigations and regulatory matters as at 31 December 2012.
The material legal proceedings, investigations and reviews involving the
Group are described below. If any such matters were resolved against
the Group, these matters could, individually or in the aggregate, have a
material adverse effect on the Group’s consolidated net assets, operating
results or cash flows in any particular period.
Litigation
Shareholder litigation
RBS and certain of its subsidiaries, together with certain current and
former individual officers and directors were named as defendants in
purported class actions filed in the United States District Court for the
Southern District of New York involving holders of RBS preferred shares
(the Preferred Shares litigation) and holders of American Depositary
Receipts (the ADR claims).
In the Preferred Shares litigation, the consolidated amended complaint
alleged certain false and misleading statements and omissions in public
filings and other communications during the period 1 March 2007 to 19
January 2009, and variously asserted claims under Sections 11, 12 and
15 of the US Securities Act of 1933, as amended (Securities Act). The
putative class is composed of all persons who purchased or otherwise
acquired Group Series Q, R, S, T and/or U non-cumulative dollar
preference shares issued pursuant or traceable to the 8 April 2005 US
Securities and Exchange Commission (SEC) registration statement.
Plaintiffs sought unquantified damages on behalf of the putative class.
The defendants moved to dismiss the complaint and briefing on the
motions was completed in September 2011. On 4 September 2012, the
Court dismissed the Preferred Shares litigation with prejudice. The
plaintiffs have appealed the dismissal to the United States Court of
Appeals for the Second Circuit.
With respect to the ADR claims, a complaint was filed in January 2011
and a further complaint was filed in February 2011 asserting claims under
Sections 10 and 20 of the US Securities Exchange Act of 1934, as
amended (Exchange Act) on behalf of all persons who purchased or
otherwise acquired the Group’s American Depositary Receipts (ADRs)
between 1 March 2007 and 19 January 2009. On 18 August 2011, these
two ADR cases were consolidated and lead plaintiff and lead counsel
were appointed. On 1 November 2011, the lead plaintiff filed a
consolidated amended complaint asserting ADR-related claims under
Sections 10 and 20 of the Exchange Act and Sections 11, 12 and 15 of
the Securities Act. The defendants moved to dismiss the complaint in
January 2012 and briefing on the motions was completed in April 2012.
The Court heard oral argument on the motions on 19 July 2012. On 27
September 2012, the Court dismissed the ADR claims with prejudice.
The plaintiffs have filed motions for reconsideration and for leave to re-
plead their case.
The Group has also received notification of similar prospective claims in
the United Kingdom and elsewhere but no court proceedings have been
commenced in relation to these claims. In October 2011, the Group
submitted a detailed response to a letter before action from one
purported plaintiff group in the United Kingdom.
Other securitisation and securities related litigation in the United States
There continues to be a high level of litigation activity in the financial
services industry focused on residential mortgage and credit crisis related
matters. As a result, the Group has become the subject of claims for
damages and other relief regarding mortgages and related securities and
expects that it may become the subject of additional such claims in the
future.