US Hedge Fund Sues RBS In Fraud Lawsuit

According to the Daily Telegraph, the US hedge fund Highland Capital has filed a lawsuit against the Royal Bank of Scotland, in which it accuses the banking group of committing fraud and of lying to clients.

The lawsuit is just the latest action in a long-running dispute between the two financial organisations. It all centres on a collateralised debt obligation (CDO) – a loan-backed bond – which failed in 2008 due to the onset of the economic crisis. RBS apparently provided financing for Highland Capital in order for the CDO to be launched, but then called the loans in when the markets seized up.

In December 2010, it was ruled that the hedge fund should cover the shortfall between the outstanding RBS financing and the value of the loans, which added up to £19.8 million. However, Highland is disputing this decision and is using Mr Justice Burton’s damning criticism of RBS’s practices at the time to fight the case.

In the lawsuit, filed recently in Texas, Highland Capital accuses RBS of fraud, fraudulent inducement and unjust enrichment in relation to the bank’s behaviour in the aftermath of the CDO launch.

Both parties, plus two of RBS’ former capital markets staff who are also named in the suit, will need to have professional indemnity insurance in place in order to fight this case and cover the costs of its outcome.

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