Underwriters Win Dismissal of Securities Class Action Suit

September 4, 2012

On September 4, the District Court of the Southern District of New York dismissed with prejudice the securities class action complaint brought against Cleary Gottlieb underwriter clients as well as against Royal Bank of Scotland and several individual defendants. Our clients included Merrill Lynch, Greenwich Capital Markets; Wachovia Capital Markets; Morgan Stanley; UBS; Bank of America Securities; RBC Dain Rauscher; Citigroup Global Markets; A.G. Edwards & Sons; and Goldman, Sachs & Co.

Plaintiffs brought purported class action claims in the S.D.N.Y. under Sections 11 and 12 of the Securities Act in connection with five offerings of RBS Preference Shares that were issued between May 22, 2006 and September 28, 2007. The underwriter defendants acted as underwriters on one or more of these offerings. Plaintiffs alleged that the offering documents for these offerings contained false or misleading statements regarding RBS’s risk management procedures, its internal financial controls, the strength of its capital base, the company’s financial condition, and the benefits of its acquisition of ABN AMRO in 2007. In particular, the complaint alleged that these statements were false because of RBS’s failure to disclose the magnitude of its exposure to subprime assets that it had accumulated prior to and during the time of the offerings.

Defendants moved to dismiss the complaint for failure to state a claim, as well as on the grounds that the claims were time barred and that plaintiffs lacked standing to bring their Section 12 claims. Judge Batts granted the motions to dismiss on the grounds that the Complaint failed to adequately identify any actionable misstatement or omission. Among other things, she held that the allegations failed to plead any contemporaneous facts showing that the alleged misstatements were false at the time they were made. She concluded that, at best, the complaint impermissibly relied on hindsight allegations regarding the performance during the financial crisis of subprime assets owned by RBS, which showed nothing about the financial and risk management conditions at RBS at the time its statements were made. She did not reach the statute-of-limitations or standing arguments.