SEC Charges Subsidiary of the Royal Bank of Scotland with Fraud in Connection with Mortgage-Backed Security Offering

SEC v. RBS Securities, Inc., Case No. 3:13-cv-01643 (D. Conn.).  On November 7, 2013, the SEC announced it filed settled fraud charges against RBS Securities Inc., a subsidiary of the Royal Bank of Scotland plc, in connection with a subprime residential mortgage-backed security (“RMBS”) offering.  According to the SEC, RBS claimed that the loans backing the offering “generally” met the lender’s underwriting guidelines.  In reality, almost one-third of the loans did not come close to meeting the guidelines and RBS should not have included them in the offering.  The relevant guidelines required a consideration of the value of the home relative to the mortgage and the borrower’s ability to repay the loan.  The SEC alleges that RBS knew or should have known that a substantial number of loans underlying the offering did not meet the underwriting guidelines.  The SEC further alleges that RBS created a misleading impression of the quality of the loans backing the
offering and the likelihood of their repayment.  Without admitting or denying the SEC’s charges, RBS consented to entry of a final judgment enjoining it from violating Sections   17(a)(2) and (3) of the Securities Act.  The final judgment will also require RBS to disgorge $80.3 million, plus prejudgment interest of $25.2 million, and pay a civil monetary penalty of $48.2 million.

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