4th September 2012
How ironic it would be, if the odd three or so billion was squeezed out of its (and Fred's) now depleted resources using financial innovation created since the money melt-down and as a reaction to it.
An investor action group set up after the now largely state-owned back lost shareholders up to 90 per cent of their money is now close to finalising a legal action against RBS and a number of former directors including one-time chief executive Fred Goodwin, ex-chairman Sir Tom McKillop and the then investment bank chief Johnny Cameron. None of these came out of the FSA report into RBS with a smelling of roses reputation.
The group says: "The case against RBS is focussed on a series of misleading statements made by the Directors in the lead up to the announcement of the Rights Issue, and the omission of critical information from the Prospectus. These matters constitute a breach of the Financial Services and Markets Act 2000. The same Act makes it clear that as a result RBS is liable to pay compensation to shareholders in respect of their losses."
Details of the claim
In particular, the group which is backed by 91 institutional and some private investors claims:
Royal Bank of Scotland disagrees. It said the group has "substantial and credible legal and factual defences" to the claims and will "defend itself vigorously".
Going to law is expensive – especially for oligarchs
Litigation is pricey – as the £100m Roman Abramovich and Boris Berezovsky case shows. The £3bn claim against RBS and former directors needs around £15m seed capital – and this is where financial innovation comes to the fore. The group believes it can find a litigation funding company to come up with the cash in return for a share in the proceeds. The money would be a form of insurance policy, giving the claimants the wherewithal to go ahead while providing the defendants with a cushion for their costs should they beat off the attack. The shareholder action group believes it is now close to finding the cash it needs for its lawsuit.
Litigation funding is the big brother of divorce litigation funding. Both offer investors the opportunity to take a view on a legal case, put money up for one side, and then share in the hoped-for winnings. Funders use legal insurance policies and other costs management devices to put a limit on the potential downside. As elsewhere, investment is dependent on the merits of the proposition.
Litigation funding – a new asset class
The market is growing as recent and forthcoming legal changes should increase the scope for this form of finance. Investors – or potential litigants – can choose from a number of companies, including a number quoted on the London stock market. Here are some.
Burford Capital is quoted on the Alternative Investment Market with most of its shares held by UK institutions led by Invesco and Baillie Gifford. Currently trading at 107p, it hit 146p in the spring, leading analysts to rate it a "buy".
Calunius Capital has the Calunius Litigation Risk Fund which was launched in December 2010 with £40 million of capital to invest in litigation and arbitration cases. The private equity fund finances large-scale commercial litigation and arbitration claims in both domestic and international contexts.
Commercial Intelligence Funds Group is privately held. It has over 20 years specialising in the recovery of private distressed commercial and sovereign debt claims, principally in Africa, Asia, Middle East and Latin America. It works in offshore jurisdictions where assets or revenue streams have been deliberately concealed, identifying assets belonging to debtors, and applying for seizures to enforce final judgments and arbitration awards.
Safe harbour for litigants
Harbour Litigation Funding raised £120m in May from investors to fund litigation. Currently, it is closed to new investors. It says: " As well as covering a claimants' own costs, a litigation funder can cover liability for the other sides' costs. Litigation funders can also cover anything ordered to be paid into court by way of security for costs or amounts payable to the defendant for interlocutory hearings. In arbitrations they can pay the institutional fees and those of the arbitration panel. Harbour, set up in 2007, says it has funded more cases, over a longer period, than anyone else.
Juridicia is also quoted on AIM. Its main institutional investors include Invesco, Baillie Gifford, Jupiter and Henderson Global Investors. The share price has fallen from more than 120p to below 80p before recovering to 92p over the past three years. It says of itself: "Juridica invests directly and indirectly in a diversified portfolio of corporate claims in litigation and arbitration. It is the premier source of value-added and direct financing for large business claims in the United States and one of the leading sources in the United Kingdom."
Therium is privately owned. It says: "We focus on large commercial litigation and arbitration claims (usually in excess of £1 million) and fund actively in the UK, continental Europe, North America and Australasia, providing litigation funding for clients of litigation and arbitration lawyers from leading national and international law firms, patent attorneys and insolvency practitioners. We fund cases for individuals, companies, trustees, public bodies, charities and also group actions and class actions."
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