RBS 2012 Annual Report Download - page 458

456
Notes on the consolidated accounts continued
32 Memorandum items continued
Group companies have been named as defendants in their various roles
as issuer, depositor and/or underwriter in a number of claims in the
United States that relate to the securitisation and securities underwriting
businesses. These cases include actions by individual purchasers of
securities and purported class action suits. Together, the pending
individual and class action cases involve the issuance of more than
US$85 billion of mortgage-backed securities (MBS) issued primarily from
2005 to 2007. Although the allegations vary by claim, in general, plaintiffs
in these actions claim that certain disclosures made in connection with
the relevant offerings contained materially false or misleading statements
and/or omissions regarding the underwriting standards pursuant to which
the mortgage loans underlying the securities were issued. Group
companies have been named as defendants in more than 45 lawsuits
brought by purchasers of MBS, including the purported class actions
identified below.
Among these MBS lawsuits are six cases filed on 2 September 2011 by
the US Federal Housing Finance Agency (FHFA) as conservator for the
Federal National Mortgage Association (Fannie Mae) and the Federal
Home Loan Mortgage Corporation (Freddie Mac). The primary FHFA
lawsuit is pending in the federal court in Connecticut, and it relates to
approximately US$32 billion of MBS for which Group entities acted as
sponsor/depositor and/or lead underwriter or co-lead underwriter. The
defendants’ motion to dismiss FHFA’s amended complaint in this case is
pending, but the court has permitted discovery to commence. The other
five FHFA lawsuits (against Ally Financial Group, Countrywide Financial
Corporation, JP Morgan, Morgan Stanley, and Nomura) name RBS
Securities Inc. as a defendant by virtue of the fact that it was an
underwriter of some of the securities at issue. Four of these cases are
part of a coordinated proceeding in federal court in New York in which
discovery is underway. The fifth case (the Countrywide matter) is pending
in federal court in California, and is currently the subject of a motion to
dismiss.
Other MBS lawsuits against Group companies include two cases filed by
the National Credit Union Administration Board (on behalf of US Central
Federal Credit Union and Western Corporate Federal Credit Union) and
eight cases filed by the Federal Home Loan Banks of Boston, Chicago,
Indianapolis, Seattle and San Francisco.
The purported MBS class actions in which Group companies are
defendants include New Jersey Carpenters Vacation Fund et al. v. The
Royal Bank of Scotland plc et al.; New Jersey Carpenters Health Fund v.
Novastar Mortgage Inc. et al.; In re IndyMac Mortgage-Backed Securities
Litigation; Genesee County Employees’ Retirement System et al. v.
Thornburg Mortgage Securities Trust 2006-3, et al. (the Thornburg
Litigation); and Luther v. Countrywide Financial Corp. et al. and related
cases. On 25 February 2013, the federal district court overseeing the
Thornburg Litigation entered a final order approving a settlement of the
litigation, involving a US$11.25 million payment by the defendants.
Certain other institutional investors have threatened to bring claims
against the Group in connection with various mortgage-related offerings.
The Group cannot predict whether any of these individual investors will
pursue these threatened claims (or their outcome), but expects that
several may. If such claims are asserted and were successful, the
amounts involved may be material.
In many of these actions, the Group has or will have contractual claims to
indemnification from the issuers of the securities (where a Group
company is underwriter) and/or the underlying mortgage originator
(where a Group company is issuer). The amount and extent of any
recovery on an indemnification claim, however, is uncertain and subject
to a number of factors, including the ongoing creditworthiness of the
indemnifying party.
With respect to the current claims described above, the Group considers
that it has substantial and credible legal and factual defences to these
claims and will continue to defend them vigorously.
London Interbank Offered Rate (LIBOR)
Certain members of the Group have been named as defendants in a
number of class actions and individual claims filed in the US with respect
to the setting of LIBOR. The complaints are substantially similar and
allege that certain members of the Group and other panel banks
individually and collectively violated various federal laws, including the
US commodities and antitrust laws, and state statutory and common law
by manipulating LIBOR and prices of LIBOR-based derivatives in various
markets through various means. The Group considers that it has
substantial and credible legal and factual defences to these and
prospective claims. It is possible that further claims may be threatened or
brought in the US or elsewhere relating to the setting of interest rates or
interest rate-related trading.
Details of LIBOR investigations affecting the Group are set out under
‘Investigations and reviews’ on page 457.
Madoff
In December 2010, Irving Picard, as trustee for the bankruptcy estates of
Bernard L. Madoff and Bernard L. Madoff Investment Securities LLC.,
filed a clawback claim against RBS N.V. in New York bankruptcy court. In
the operative complaint, filed in August 2012, the trustee seeks to recover
US$75.8 million in redemptions that RBS N.V. allegedly received from
certain Madoff feeder funds and US$162.1 million that RBS N.V.
allegedly received from its swap counterparties at a time when RBS N.V.
allegedly ‘knew or should have known of Madoff’s possible fraud’. The
Trustee alleges that those transfers were preferences or fraudulent
conveyances under the US bankruptcy code and New York law and he
asserts the purported right to claw them back for the benefit of Madoff’s
estate. A further claim, for US$21.8 million, was filed in October 2011.
The Group considers that it has substantial and credible legal and factual
defences to these claims and intends to defend itself vigorously.