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In Re: Royal Bank of Scotland Group PLC Securities Litigation 09-CV

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In Re: Royal Bank of Scotland Group PLC Securities Litigation 09-CV TABLE OF CONTENTS Page I. NATURE OF THE ACTION ............................................................................................. 1 II. OVERVIEW OF THE SEPARATE CLAIMS................................................................... 8 A. Ordinary Share Exchange Act Claims .................................................................... 8 B. Preferred Share Securities Act Claims.................................................................... 8 C. Exchange Offer Securities Act Claims ................................................................... 9 D. Rights Issue Securities Act Claims......................................................................... 9 III. JURISDICTION AND VENUE......................................................................................... 9 A. Jurisdiction Over Ordinary Share Claims............................................................... 9 B. Jurisdiction Over Preferred Share Claims............................................................. 12 C. Venue .................................................................................................................... 12 IV. THE PARTIES.................................................................................................................. 12 A. Lead Plaintiffs....................................................................................................... 12 1. Massachusetts Pension Reserves Investment Management Board........... 13 2. Public Employees’ Retirement System of Mississippi ............................. 13 3. The Freeman Group .................................................................................. 13 B. Defendants ............................................................................................................ 14 1. Defendant RBS......................................................................................... 14 2. The Individual Defendants—All Claims .................................................. 16 3. Individual Defendants—Exchange Offer and Preferred Share Offerings 19 4. Individual Defendants—Exchange Offer Only ........................................ 21 5. Preferred Share Offerings Underwriter Defendants ................................. 21 6. Rights Issue Underwriter Defendants ....................................................... 24 C. Definitions Used in the Complaint for Groups of Defendants ............................. 26 i 1. The Exchange Act Defendants.................................................................. 26 2. Preferred Share Offerings Defendants...................................................... 26 3. Exchange Offer Defendants...................................................................... 27 4. Rights Issue Defendants............................................................................ 27 V. CLASS ACTION ALLEGATIONS APPLICABLE TO ALL CLAIMS......................... 27 VI. FACTUAL BACKGROUND AND SUBSTANTIVE ALLEGATIONS RELATING TO EXCHANGE ACT CLAIMS ................................................................ 29 A. Goodwin’s Central Role in Defendants’ Fraud .................................................... 29 B. The Mortgage Industry and How Mortgage Securitization Works ...................... 34 C. Contrary to Defendants’ Statements, RBS Had Exposure To Billions of Dollars in Materially Overvalued Subprime Assets ............................................. 37 1. Defendants Repeatedly Deny the Extent to Which RBS Had Exposure to Subprime Assets........................................................................................ 39 2. Market Indicators Establish the Need to Substantially Write Down Subprime Assets........................................................................................ 41 3. Defendants Knew that RBS’s Subprime Assets Were Materially Overvalued................................................................................................ 45 4. Defendants Continued to Significantly Understate the Magnitude of RBS’s Subprime Exposure ....................................................................... 47 5. U.S. Authorities Investigate RBS’s Subprime Exposure.......................... 51 D. RBS’s Acquisition of ABN AMRO Compounds the Company’s Subprime Problems ............................................................................................................... 52 E. RBS Fails to Timely Impact Billions of Pounds of Goodwill Attributable to the ABN AMRO Acquisition ........................................................................... 54 F. RBS Raises Capital In a Desperate Attempt to Shore Up Its Mounting Subprime Losses ................................................................................................... 59 G. RBS’s Subprime Assets Lead to the Company’s Partial Nationalization............. 60 H. RBS Projects £28 Billion Loss Tied to Subprime Exposure and Goodwill Impairment............................................................................................................ 61 I. Post-Class Period Revelations .............................................................................. 64 ii VII. CONFIDENTIAL WITNESSES ...................................................................................... 68 VIII. The Company’s Strong and Numerous Ties to the U.S.................................................... 73 A. The U.S. Accounted for A Substantial Portion of the Worldwide Market for RBS Shares...................................................................................................... 73 B. Actions Taken By Defendants in the U.S. Were Integral to Defendants’ Scheme to Defraud Investors................................................................................ 75 IX. EXCHANGE ACT DEFENDANTS’ FALSE & MISLEADING STATEMENTS......... 78 The March 1, 2007 Statements ......................................................................................... 78 The May 29, 2007 Statements .......................................................................................... 81 The June 5, 2007 Statements ............................................................................................ 82 The July 16, 2007 Statements ........................................................................................... 84 The July 20, 2007 Statements ........................................................................................... 85 The August 2007 Statements ............................................................................................ 88 The September 28, 2007 Statements................................................................................. 97 The October 10, 2007 Statements..................................................................................... 99 The December 6, 2007 Statements ................................................................................. 100 The February 28, 2008 Statements ................................................................................. 111 The April 22, 2008 Statements ....................................................................................... 121 The May 14, 2008 Statements in RBS’s Form 20-F....................................................... 125 The May 20, 2008 Statements ........................................................................................ 130 The August 8, 2008 Statements ...................................................................................... 132 The October 13, 2008 Statements................................................................................... 136 The November 20, 2008 Statements............................................................................... 138 X. SCIENTER ALLEGATIONS......................................................................................... 140 A. The Exchange Act Defendants Knew that RBS Had Significant Exposure to the Subprime Market ...................................................................................... 140 iii B. The Exchange Act Defendants Knew that RBS’s Assets Were Materially Overstated ........................................................................................................... 141 C. RBS’s Board Learned of the Company’s Undisclosed Subprime Exposure No Later Than Summer 2007 ............................................................................. 144 D. Defendants’ Fraudulent Scheme Triggers Government Investigations.............. 144 E. RBS Fails to Take Required Goodwill Impairments in Order to Induce Participation in the Rights Issue ......................................................................... 145 F. Virtually All of RBS’s Directors Are Removed as Defendants’ Fraudulent Scheme Unravels ................................................................................................ 147 G. The Individual Defendants’ Personal Financial Motives.................................... 148 H. Goodwin’s Additional Motive............................................................................ 151 XI. IFRS VIOLATIONS....................................................................................................... 152 A. RBS Was Required to Follow International Accounting Standards................... 152 B. RBS Fails to Properly Report Goodwill ............................................................. 152 C. RBS Fails to Timely Test and Impair Goodwill ................................................. 155 D. RBS Fails to Properly Value Asset Backed Securities
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