A Royal Bank of Scotland subsidiary agreed to pay more than $150 million to settle U.S. Securities and Exchange Commission charges that the bank misled investors of a mortgage backed securities offering in 2007.
RBS Securities Inc., represented by Wilmer Cutler Pickering Hale and Dorr partner Paul Eckert, allegedly "misled investors about the quality and safety of their investments" according to the SEC complaint, which was filed in U.S. District Court for the District of Connecticut. The company, then known as Greenwich Capital Markets, did not admit to wrongdoing.
The SEC said the bank wrongly claimed that the subprime loans backing the $2.2 billion offering were “generally” in compliance with the lender’s underwriting guidelines. In fact, the SEC said, about 30 percent of the loans “deviated so much from the lender’s underwriting guidelines that they should have been kicked out of the offering entirely.” The agency charged the bank with violations of Sections 17(a)(2) and (3) of the Securities Act of 1933.
Without admitting or denying the allegations, RBS agreed to disgorge $80.3 million, plus prejudgment interest of $25.2 million, and pay a civil penalty of $48.2 million. The company in a statement said it “cooperated fully with the SEC throughout the investigation.”
The settlement may resolve one of RBS’s legal problems, but others remain. On Oct. 31, the bank was one of nine sued for $800 million by Fannie Mae for rigging the Libor interest rate. RBS already agreed to pay $612 million to settle Libor-related charges to the Commodity Futures Trading Commission, the Justice Department and U.K. regulators.
Also, RBS faces an ongoing suit by the Federal Housing Finance Agency for selling Fannie Mae and Freddie Mac faulty mortgage backed securities. Analysts say the bank could face $4 billion in exposure.