Securities Fraud Settlements: HSBC, Deutsche Bank, and Citi Settle Libor Class Action for $132M & RBS Settles Mortgage Bond Trading Case for $44M

Royal Bank of Scotland Settles DOJ RMBS Fraud Probe for $44M
Royal Bank of Scotland Group Plc (RBS) has agreed to a non-prosecution deal with the US Justice Department to resolve a criminal probe accusing traders of defrauding residential mortgage-backed securities (RMBS) and collateralized loan obligation (CLO) customers. As part of the settlement, RBS will pay a $35M fine. It will also pay at least $9M to over 30 customers, including affiliates of Barclays (BARC), Goldman Sachs (GS), Bank of America (BAC), Citigroup (C) and Morgan Stanley (MS), as well as to the Soros Fund Management and Pacific Investment Management Co. RBS admitted to the misconduct.

The bank’s fraud involved mortgage-backed securities, asset-backed securities, and commercial mortgage-backed securities. The group that handled these securities for the bank is no longer in operation.

According to prosecutors, from ’08 to ’13, RBS lied about bond prices, charged unwarranted commissions, and hid the fraud, all the while enhancing its own profits and costing customers money. In a joint press release, the DOJ and the Special Inspector General for the Troubled Asset Relief Program said that the bank’s employees were encouraged to engage in the wrongful behavior, including misrepresenting material facts to customers, lying about the seller’s asking price to the buyer and lying about the buyer’s asking price to the seller, pocketing the difference between what the buyer paid and what the seller received, and misrepresenting that a non-existent third party was involved in the bond sales so that the bank could charge the extra, unwarranted commission. RBS is also accused of training its CLO and RMBS traders to engage in the fraudulent practices, lying to customers that suspected the fraud, and disregarding its employees who complained about the fraud.

This RMBS fraud settlement is related to the government’s probe into bond trading fraud. Eight traders, including two RBS traders, were charged for their alleged crimes. Adam Siegel, RBS’s ex-co-head of US asset-backed securities, commercial mortgage-backed securities, and mortgage-backed securities trading, has pleaded guilty to conspiracy to commit securities fraud. Ex-RBS trader Matthew Katke pleaded guilty, too.

Citigroup, HSBC, and Deutsche Bank Settle Libor Case for $132M
Deutsche Bank AG (DB), Citigroup Inc. (C) and HSBC Holdings Plc. (HSBC) Will collectively pay $132M to settle a class action securities lawsuit accusing them of rigging the London Interbank Offered Rate (LIBOR) benchmark interest rate. The case was brought by futures traders. A federal judge will have to approve the settlement.

Per the terms of the deal, Citi will pay $33.4M, HSBC will pay $18.5M and Deutsche Bank will pay $80M. The funds would go to those who traded in Eurodollar futures on exchanges between January 2003 and May 31, 2011.

Last Wednesday, in a different case, Deutsche Bank agreed to settle for $220M with 45 US states over Libor and other benchmark interest rates rigging allegations. The German lender admitted that its traders and managers manipulated the benchmark interest rates between ’05 and ’09. Both settlements come on the heels of the announcement that Deutsche Bank agreed to resolve forex rigging claims brought by investors for $119M.

Also, last month, it was announced that the US Federal Reserve had ordered HSBC to pay $75M for not properly overseeing its forex trading business. The government contends that this lack of proper oversight made it possible for traders to go into chat rooms and exchange information about investment positions to increase the bank’s profits.

On Monday, Mark Johnson, the former head of foreign-exchange cash trading, was found guilty of fraud for front-running involving a $3.5B currency trade. Among the allegations against him was that he used confidential confirmation regarding the transaction to make trades so that he and the bank could make millions of dollars. Meantime, the client did not make as much money as it could have because of Johnson’s actions.

On Thursday, a London court ruled that ex-senior HSBC currency trader Stuart Scott, who had been accused of front-running along with Johnson, will be extradited to the US to face the criminal charges against him.

The SSEK Partners Group is a securities fraud law firm. Contact us today.

RBS to pay $44 million to settle U.S. charges it defrauded customers, Reuters, October 26, 2017

Citigroup, Deutsche, HSBC agree Libor settlement, MarketWatch, October 13, 2017

Ex-HSBC FX Trader Scott Loses U.K. Bid to Block Extradition, Bloomberg, October 26, 2017