Breaking ground for litigation funding in pioneering shareholder action against RBS

04 Apr, 2013

It has long been the preference of third party litigation funders to provide capital for claims involving well-established areas of law. Third party litigation funding is, after all, an inherently risky business. In order to limit the risk of unexpected outcomes (i.e. losses) litigation funders have, until now, generally funded cases where there is a strong body of case law supporting the claim.

 

However, litigation funder, Argentum has broken the mould by providing funding for a substantial lawsuit by aggrieved shareholders against the Royal Bank of Scotland (RBS).

 

A group of current and former shareholders in RBS has launched a multi-million pound lawsuit against the bank for misleading investors in relation to a rights issue of new shares in the lead up to the credit crisis in 2008. In the first court document filed in the UK over the bank’s record £12 billion cash call in April 2008, a group of 21 claimants – including pension funds – allege the bank published a defective prospectus littered with misstatements and omissions.

 

Among those bringing the suit are the Coal Staff Superannuation Scheme, the Mineworkers’ Pension Scheme, pension schemes for electricity workers in the UK, a number of ING funds and the teachers’ retirement system of the state of Illinois.

 

The claimants are alleging that the prospectus on which the rights issue was based was defective and contained “material misstatements and omissions”. They are also claiming that the prospectus portrayed the bank as being in good financial health, but the reality was different and the take-up of shares would have been limited or non-existent “had the truth been known”.

 

The claim for compensation is being brought under section 90 of the Financial Services and Markets Act 2000, which is a relatively untested piece of legislation. Funding a case of this nature represents a bold move for a litigation funder.

 

Matthew Reach (pictured), solicitor and Head of Legal Review at Argentum said: “This is truly a case of David and Goliath. Without litigation funding from Argentum these shareholders might never have had access to justice. It is important that these shareholders, who lost substantial sums, have their day in court and the bank is held accountable for its actions. This is a pioneering piece of litigation, but we feel it is compelling and are proud to be supporting such a cause.”

 

The claim was issued in London’s High before today’s £4billion pound lawsuit another investor grouping called the RBoS Shareholders Action Group – a group of some 12,000 ordinary shareholders and 100 institutions – who have also alleged that RBS misled investors about its financial health at the time of the rights issue and is demanding compensation.

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