SEC Says RBS Securities Misled Investors in Subprime Deal

The ""Securities and Exchange Commission"":http://www.sec.gov (SEC) on Thursday charged ""RBS Securities Inc."":http://mib.rbs.com/, the wholesale banking subsidiary of the ""Royal Bank of Scotland"":http://www.rbs.com/, with misleading investors in a 2007 subprime residential mortgage-backed security (RMBS) offering.

[IMAGE]

RBS agreed to settle the matter and pay more than $150 million, which the SEC will use to compensate investors for harm suffered as a result of the RBS deal.

The SEC alleges RBS said the loans backing the offering ""generally"" met the lender's underwriting guidelines, even though government officials say nearly 30 percent fell so short of the guidelines that RBS should have excluded them from the offering entirely.

[COLUMN_BREAK]

Stamford, Connecticut-based RBS, known as Greenwich Capital Markets back in 2007, was paid approximately $4.4 million for its work as the lead underwriter on the transaction. RBS based its statements regarding loan quality on reviews of only a very small portion of the mortgages pooled, the SEC said in a complaint filed in federal court in Connecticut.

RBS told investors the loans backing the offering were ""generally in accordance with"" the lender's underwriting guidelines, which consider the value of the home relative to the mortgage and the borrower's ability to repay the loan. SEC officials allege RBS knew or should have known such statements were false because due diligence before the offering showed that almost 30 percent of the underlying loans did not meet the underwriting guidelines.

In its complaint, the SEC said RBS gave investors a misleading impression of the quality of the loans backing the offering and the likelihood of their repayment. The federal agency charged RBS with violations of Sections 17(a)(2) and (3) of the Securities Act of 1933.

RBS, without admitting or denying the SEC's allegations, agreed to a final judgment that orders the firm to disgorge $80.3 million, plus prejudgment interest of $25.2 million, and pay a civil penalty of $48.2 million.