RBS prevails in US fraud lawsuit over pre-crisis disclosures

By Jonathan Stempel

NEW YORK (Reuters) - A U.S. appeals court on Wednesday declined to hold Royal Bank of Scotland Group Plc liable for allegedly defrauding investors in its American depositary shares by downplaying its subprime asset exposure prior to the global financial crisis.

The 2nd U.S. Circuit Court of Appeals in New York rejected claims by ADS investors seeking to recoup losses on their shares.

It said these investors did not show that the bank, former Chief Executive Fred Goodwin and other officials intended to mislead them in 2007 and early 2008 about RBS' exposure to leveraged loans, collateralised debt obligations and other risky assets, or its ability to manage that exposure.

Writing for a 2-1 majority, Circuit Judge Denny Chin said various of RBS' alleged misstatements, including over its 2007 purchase of much of ABN Amro, were immaterial, amounted to "puffery," or would not have misled reasonable investors.

Circuit Judge Pierre Leval partially dissented. He said RBS materially misled investors by falsely denying on April 22, 2008, that Britain's Financial Services Authority had ordered it to raise capital because its reserves had become dangerously low.

Wednesday's decision upheld rulings by U.S. District Judge George Daniels in Manhattan.

Joseph Daley, a lawyer for pension funds and other plaintiffs that brought the proposed class-action lawsuit, was not immediately available for comment.

The British government owns roughly 79 percent of RBS, which has been shrinking its asset base following a 45 billion pound (US$66.7 billion) bailout. Ex-CEO Goodwin was stripped of his knighthood in 2012.

The case is IBEW Local Union No. 58 Pension Trust Fund and Annuity Fund v. Royal Bank of Scotland Group Plc, 2nd U.S. Circuit Court of Appeals, No. 13-3289.

(Reporting by Jonathan Stempel in New York; editing by Gunna Dickson)