RBS 2013 Annual Report Download - page 478
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Notes on the consolidated accounts
476
32 Memorandum items continued
Certain members of the Group have also been named as defendants in
class actions relating to (i) JPY LIBOR and Euroyen TIBOR (the "Yen
action") and (ii) Euribor (the "Euribor action"), both of which are pending
in the United States District Court for the Southern District of New York.
Details of LIBOR investigations and their outcomes affecting the Group
are set out under ‘Investigations and reviews’ below.
Credit Default Swap Antitrust Litigation
Certain members of the Group, as well as a number of other financial
institutions, are defendants in a consolidated antitrust class action
pending in the United States District Court for the Southern District of
New York. The plaintiffs generally allege that defendants violated the
U.S. antitrust laws by restraining competition in the market for credit
default swaps through various means and thereby causing inflated bid-
ask spreads for credit default swaps.
FX antitrust litigation
Certain members of the Group, as well as a number of other financial
institutions, have been named as defendants in multiple antitrust class
action complaints filed in the United States District Court for the Southern
District of New York since November 2013. The plaintiffs generally allege
that the defendants violated the U.S. antitrust laws, state statutes, and
the common law by conspiring to manipulate the foreign exchange
market by manipulating benchmark foreign exchange rates.
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 The Royal Bank of Scotland N.V. (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.
Thornburg adversary proceeding
RBS Securities Inc. and certain other Group companies, as well as
several other financial institutions, are defendants in an adversary
proceeding filed in the U.S. bankruptcy court in Maryland by the trustee
for TMST, Inc. (formerly known as Thornburg Mortgage, Inc.). The trustee
seeks recovery of transfers made under certain restructuring agreements
as, among other things, avoidable fraudulent and preferential
conveyances and transfers.
Complex Systems
RBS N.V. is a defendant in an action pending in the United States District
Court for the Southern District of New York filed by Complex Systems,
Inc (CSI). The plaintiff alleges that RBS N.V. has since late 2007 been
using the plaintiff's back-office trade finance processing software without
a valid licence, in violation of the US Copyright Act. On 17 October 2013,
the Court granted summary judgment to CSI on the issue of liability. The
plaintiff was seeking in excess of US$300 million in alleged profits that
the plaintiff claimed was attributable to RBS N.V.'s use of the disputed
software, but on 8 November 2013, the Court barred the plaintiff from
recovering any such profits although the plaintiff continues to seek actual
damages of an unspecified amount. On 25 October 2013, the plaintiff
filed a motion for a permanent injunction against RBS N.V.'s further use
of the software, and a hearing on that motion, which RBS N.V. opposes,
has been scheduled for 14 March 2014.
CPDO Litigation
CPDO claims have been served on RBS N.V. in England, the
Netherlands and Australia relating to the sale of a type of structured
financial product known as a constant proportion debt obligation (CPDO).
In November 2012, the Federal Court of Australia issued a judgment
against RBS N.V. and others in one such case. It held that RBS N.V. and
others committed certain wrongful acts in connection with the rating and
sale of the CPDO. In March 2013, RBS N.V. was ordered to pay A$19.7
million. RBS N.V. has appealed this decision and the appeal is due to be
heard in March 2014. The judgment may potentially have significance to
the other claims served and to any future similar claims.
Investigations and reviews
The Group’s businesses and financial condition can be affected by the
fiscal or other policies and actions of various governmental and
regulatory authorities in the United Kingdom, the European Union, the
United States and elsewhere. The Group has engaged, and will continue
to engage, in discussions with relevant governmental and regulatory
authorities, including in the United Kingdom, the European Union, the
United States and elsewhere, on an ongoing and regular basis regarding
operational, systems and control evaluations and issues including those
related to compliance with applicable anti-bribery, anti-money laundering
and sanctions regimes. It is possible that any matters discussed or
identified may result in investigatory or other action being taken by
governmental and regulatory authorities, increased costs being incurred
by the Group, remediation of systems and controls, public or private
censure, restriction of the Group’s business activities or fines. Any of the
events or circumstances mentioned below could have a material adverse
effect on the Group, its business, authorisations and licences, reputation,
results of operations or the price of securities issued by it.
The Group is co-operating fully with the investigations and reviews
described below.