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Thousands of staff line up to sue RBS

A third of the 12,000-plus individuals signed up to sue Royal Bank of Scotland over its allegedly "misleading" £12.3 billion rights issue are current or former members of staff at the bank.

RBS Shareholders' Action Group, the largest of the investor groups suing RBS over the 2008 rights issue, said it processed its 4000th application from a current or former RBS member of staff last Thursday. That application is understood to have come from an Edinburgh-based risk expert.

Most of the bank employees who have joined the action group worked in RBS itself, NatWest, Ulster Bank, Coutts & Co, Adam & Company and Global Banking & Financial Markets (RBS's investment bank, since reinvented as M&IB). They come from all seniority levels, from call centre staff to ex-members of the group executive management committee.

A spokesman for the investor group claimed "scores" of current senior RBS executives have applied to join the action group in recent days. All believe they were misled by Fred Goodwin and other members of the bank's board during the critical April-June 2008 rights issue period.

They are effectively suing their employer, together with four of their former bosses - Fred Goodwin, Sir Tom McKillop, Johnny Cameron and Guy Whittaker. Most of the cash ploughed into the new shares evaporated as a result of the bank's near collapse and government bailout a few months later. Rights issue shares bought for £2 in June 2008 had collapsed in value to 10p-11p by January 2009.

A spokesman for the RBS Shareholders' Action Group, comprising more than 12,000 individual investors and 100 institutional investors, including charities, said it has had to take on staff and volunteers to handle a late surge in applications from aggrieved investors, including from bank insiders. The final deadline for applications is Thursday, May 1.

In the wake of the March 2008 collapse of US investment bank Bear Stearns, then RBS chief executive Goodwin and chairman McKillop recognised their bank's urgent need of fresh capital. Persuaded to pursue a rights issue by the Financial Services Authority, they urged employees to participate, providing reassurances about the bank's financial strength.

Some RBS group employees now allege management effectively "bullied" them into taking part. An action group spokesman said the court would hear evidence that staff were warned by line managers of "career limiting" consequences of failing to buy the shares.

The bank is also alleged to have given staff so-called "soft loans" - unsecured loans on relatively easy terms - to fund their share purchases. One former Gogarburn-based manager of RBS's corporate lending arm told the Sunday Herald: "They were more or less telling us to remortgage our homes to go out and buy as many shares as possible."

The case against RBS will also refer to a message posted by McKillop, described by the complainants as "particularly persuasive". One ex-NatWest call centre worker said: "Like many others I believed our senior management team and invested a further £12,000, borrowed from my parents, into the rights issue. Within weeks I lost virtually all of this."

The investors will highlight critical omissions in RBS's 147-page rights issue prospectus. These included that the bank made no reference to the fact that on April 9 the Financial Services Authority ordered RBS to carry out a right issue of this scale, and that RBS's finances were already in such a parlous state it was making use of $11.9 billion of clandestine emergency loans from the US Federal Reserve.

An RBS spokesman said: "While RBS and its former directors made some business decisions that have been criticised, this does not mean that they misled investors or acted illegally. We believe we have strong defences to the claims that are being brought against the bank."

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