We are barely into the New Year, but all signs are that two of the critical securities litigation trends of 2008 – the subprime/credit crisis related litigation wave and the Madoff-related litigation wave – remain significant factors and apparently will continue to drive new lawsuit filings as we head into 2009, as the recent lawsuit filings discussed below suggest.
The New RBS Lawsuit
First, with respect to the credit crisis litigation, on January 12, 2009, plaintiffs’ lawyers issued a press release (here) stating that they had initiated a securities class action lawsuit in the Southern District of New York on behalf of purchasers of Series S American Depositary Shares (ADSs) of the Royal Bank of Scotland Group and related entities and certain directors and officers. The complaint also names as defendants the offering underwriters that conducted the June 2007 offering of the shares.
The Complaint (which can be found here) alleges misrepresentations and omissions in the offering documents, which incorporated the Company’s 2004, 2005 and 2006 financial statements. The Complaint alleges that the company "ultimately announced huge multi-billion pound impairment charges associated with its exposure to debt securities, including mortgage-related securities tied to the U.S. real estate markets, causing the price of RBS’s Series S ADSs issued in the Offering to decline." The ADSs, which were originally offered at $25/share, now trade around $10/share.
According to the Complaint, the offering documents omitted that:
(a) defendants’ portfolio of debt securities was impaired to a much larger extent than the Company had disclosed; (b) defendants failed to properly record losses for impaired assets; (c) the Company’s internal controls were inadequate to prevent the Company from improperly reporting its debt securities; (d) the Company’s participation in the consortium which acquired ABN AMRO would have disastrous results on the Company’s capital position and overall operations; and (e) the Company’s capital base was not adequate enough to withstand the significant deterioration in the subprime market and, as a result, RBS would be forced to raise significant amounts of additional capital.
RBS is actually the second company from the ill-fated consortium that was the "successful" bidder in the ABN AMRO buyout to get dragged into U.S. securities litigation.
As I noted here, another consortium member, Fortis, was also hit with a securities class action lawsuit in October 2008. As I noted in that prior post, "it is one more of those amazing things about the current circumstances that, despite the size of the ABN AMRO calamity, it is effectively just background noise in the larger cataclysm." (An abridge version of the ABN AMRO debacle can be found here.) Both RBS and Fortis have also been the recipients of massive bailout efforts from their respective governments.
The ABN AMRO losses to RBS continue to amount. For example, on January 12, 2009, Bloomberg reported (here) that, as a result of loans RBS acquired as part of the ABN AMRO deal, RBS is the biggest lender to bankrupt U.S. chemical maker Lyondell Chemical Co., and may face losses on its $3.47 billion of loans. The loans were part of the $20.5 billion raised to finance Bassell AF’s 2007 leveraged buyout of Lyondell.
More Madoff Litigation
According to their release (here), on January 12, 2009, plaintiff’s counsel initiated another Madoff-related securities class action lawsuit in the Southern District of New York on behalf of investors in the Herald USA Fund, Herald Luxemburg Fund, Primeo Select Funds, and Thema International Funds, against the Funds, Medici Bank, Bank Austria Creditianstait, Unicredit S.A., Pioneer Alternative Investments, HSBC Holdings plc and Ernst & Young LLP, as well as Medici Bank’s founder Sonja Kohn and its former CEO Peter Scheithauer. A copy of the complaint in the case can be found here.
Austrian regulators took control of Bank Medici after the bank revealed that it had invested as much as $3.2 billion in funds managed by Bernard Madoff and his firm. Bank of Medici is 25% owned by Unicredit. As reported here, one of the Bank’s largest customers was Unicredit’s Pioneer Investments, which invested as much as €805 with the Funds. Further background can be found here.
According to the press release, the Complaint alleges defendants caused the Funds "to concentrate almost 100% of their investment capital with entities that participated in the massive, fraudulent scheme perpetrated" by Madoff and his firm.
Run the Numbers: With the addition of the RBS case, the total number of subprime and credit crisis-related securities lawsuits going back to 2007 now stands at 143, of which two have been filed already in 2009. My updated tally of the subprime and credit crisis-related cases can be accessed here.
The new lawsuit on behalf of the Bank Medici Funds investors brings the total of Madoff-related securities class action lawsuits to eight, as reflected on my running tally of the cases, which can be accessed here.
Keeping Count: In my analysis (here) of the recently released Cornerstone/Stanford Clearinghouse report regarding the 2008 securities litigation, I noted that the report’s count of new 210 securities lawsuit filings through December 15, 2008 contrasted with my own count of 224 securities lawsuits through December 31, 2008. As I noted in my analysis, the additional lawsuits filed between December 15 and December 31 were critically important in understanding fully 2008 filing trends, as they significantly affect relative and absolute filing numbers during the year.
The Stanford Law School Securities Class Action Clearinghouse website has now updated its count through year’s end, bringing their 2008 tally to 226. The Stanford website can be accessed here.
On further review of their figures, my account appropriately should be adjusted from 224 to 226.