Royal Bank of Scotland Settles Mortgage-Backed Securities Fraud Case Brought by Pension Funds for $125M

According to Reuters, Royal Bank of Scotland Group plc (RBS) has settled a mortgage-backed securities fraud case brought by the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) for $125M. The settlement resolves claims alleging that the bank made misrepresentations when selling MBSs to the pension funds, which contend that they sustained millions of dollars in losses as a result.

According to California Attorney General Xavier Becerra, a probe by his office determined that the descriptions the firm provided to investors “failed to accurately disclose the true characteristics” of many of the mortgages backing the securities, but that RBS, which knew about the alleged misrepresentations, did nothing to remedy them. The state AG’s investigation also found that RBS did not conduct the necessary due diligence to eliminate the loans that were of “poor quality.” Becerra contends that RBS purposely misled CalPERS and CalSTRS to enrich itself. He noted that the MBS fraud settlement gives back the money to the pension funds that the bank “wrongfully took” from them.

Already, The California AG’s office has gotten back more than $1B over securities that were sold to the state’s public pension funds, which sustained losses during the economic crisis of 2008. Last year, $150M was recovered from Moody’s, the credit rating agency. In 2015, $210M was recovered from another credit rating agency, Standard & Poor’s. Other banks to have settled include Citigroup (C) for $102M, Bank of America for $300M and J.P. Morgan Chase (JPM) for $300M.

RBS is Still Not Done with MBS Fraud Claims
Meantime, RBS is still in the process of resolving a federal probe by the US Department of Justice into mortgage-backed securities that the bank sold to investors prior to the economic crisis. In 2017, RBS settled an MBS fraud case brought by the Federal Housing Finance Agency on behalf of Freddie Mac and Fannie Mae for $5.5B.

Also last year, the Second Circuit Court of Appeals panel rejected an appeal brought by RBS and Nomura Holdings Inc. (NMR) seeking to overturn an order that they pay $839M for alleged misrepresentations and false statements made when selling securities to Freddie and Fannie. Nomura had sponsored $2B of the securities sold to the mortgage lenders. RBS was the underwriter on several of the deals.

In March, RBS, Deutsche Bank AG (DB), and Wells Fargo & Co. (WFC) settled a class action MBS fraud lawsuit with investors related to underwriting for the now defunct lender NovaStar Mortgage Inc. That lawsuit was brought by lead plaintiff New Jersey Carpenters Health Fund. In 2016, RBS settled for $1.2B MBS fraud claims brought by the U.S. National Credit Union Administration over securities sold to credit unions that ended up going under.

MBS Fraud Lawyers
Since the 2008 financial crisis, our mortgage-backed securities fraud lawyers have worked with institutional investors in trying to recover losses they sustained because banks and financial firms made misrepresentations when selling these investments to them. Many institutional investors lost hundreds of millions of dollars as a result. Contact The SSEK Partners Group today.

RBS to pay $125 million to settle California mortgage bond claims, Reuters, December 22, 2017

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US Bank Sued by Pension Funds Over $25B Tribal Bond Fraud Involving Jason Galanis, Institutional Investor Securities Fraud Blog, August 28, 2017

Houston Technology Company is Accused of $28M Texas Securities Fraud, Stockbroker Fraud Blog, December 26, 2017