The U.S. Court of Appeals for the Second Circuit refused on Wednesday to revive claims that the Royal Bank of Scotland Group plc misled investors about its subprime exposure. The ruling is a win for RBS’ lawyers at Wilmer Cutler Pickering Hale and Dorr, and for a team at Cleary Gottlieb Steen & Hamilton representing Morgan Stanley & Co., UBS AG and other underwriters for five mortgage-backed securitization deals.
The Second Circuit affirmed the year-old dismissal in a summary order, concluding that investors in mortgage-backed securities issued by RBS in 2005 and 2006 failed to identify any actionable misstatements in offering documents.
Wilmer’s Seth Waxman argued for RBS, which is also represented by partners Andrea Robinson and David Lesser. Lewis Liman of Cleary argued for the underwriter-defendants. Jonathan Levine of Girard Gibbs argued on behalf of the plaintiffs.
In January 2009, RBS reported write-downs of $41 billion for the previous year. The securities plaintiffs bar pounced, alleging that RBS misstated the extent of its subprime exposure. RBS also faced claims that it misled shareholders about the benefits of its 2008 acquisition of the Dutch banking giant ABR AMRO Group. There were two main categories of plaintiffs in the consolidated litigation: holders of ordinary shares and holders of preferred shares. Morgan Stanley, UBS and other banks that underwrote the RBS securities were named as co-defendants.
U.S. District Judge Deborah Batts in Manhattan gutted the case in January 2011, ruling that the holders of ordinary shares don’t have standing to sue because they bought their shares on European stock exchanges. She based her ruling on the U.S. Supreme Court’s 2010 decision in Morrison v. National Australia Bank, which held that U.S. securities laws don’t apply to overseas transactions.
The holders of preferred shares pressed on, alleging violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933. Batts dismissed the remainder of the case in September 2012, finding that Girard Gibbs and its co-counsel failed to identify any actionable misstatements.
The Second Circuit agreed in Wednesday’s decision, which was issued just two weeks after oral arguments. “The offering documents here extensively described” RBS’ holdings of residential mortgage-backed securities, the court wrote. “We conclude that the defendants-appellee’s disclosures satisfied their legal obligations.”
Both Waxman and Levine declined to comment.