RBS 2014 Annual Report Download - page 108

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RBS – Interim Results 2015
Notes
16. Litigation, investigations and reviews (continued)
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 the New York bankruptcy court. 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.
This matter is subject to pre-discovery motions to dismiss the claims against RBS N.V..
Thornburg adversary proceeding
RBS Securities Inc. and certain other RBS companies, as well as several other financial institutions, are
defendants in an adversary proceeding filed in the US 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. On 25 September 2014, the Court largely denied the defendants' motion to
dismiss this matter and, as a result, discovery is ongoing.
CPDO Litigation
CPDO claims have been served on RBS N.V. in England, the Netherlands and Australia, and on RBS in
England, 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 holding 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.
appealed this decision and the appeal court found against RBS N.V. in May 2014. The decision is not being
further appealed. RBS N.V. made the required payments totalling A$19.7 million in March and April 2013.
The judgment may potentially have significance to the other claims served and to any future similar claims.
Interest rate hedging products litigation
RBS is dealing with a large number of active litigation claims in relation to the sale of interest rate hedging
products. In general claimants allege that the relevant interest rate hedging products were mis-sold to them,
with some also alleging RBS made misrepresentations in relation to LIBOR. Claims have been brought by
customers who are being considered under the UK Financial Conduct Authority (FCA) redress programme,
as well as customers who are outside of the scope of that programme. RBS encouraged those customers
that were eligible to seek redress under the FCA redress programme to participate in that programme. RBS
remains exposed to potential claims from customers who were either ineligible to be considered for redress
or who are dissatisfied with their redress offers.