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JACKSON — Mississippi and Massachusetts pension systems are suing to recover $123 million they claim was lost when the Royal Bank of Scotland Group PLC illegally sold 38 million shares of stock without revealing massive debts that nearly made the company collapse.
The lawsuit claims the stock deal violated U.S. security laws.
U.S. District Judge Deborah A. Batts ruled Tuesday that the Mississippi Public Employees' Retirement System and the Massachusetts Pension Reserves Investment Management Board will be co-lead plaintiffs because they lost the most money. The class-action suit was filed in January in the Southern District of New York.
London-based Royal Bank of Scotland nearly collapsed last year and was bailed out by the British government, which now holds 70.3 percent of its shares.
The lawsuit has many plaintiffs, including pension systems in the United Kingdom, and names RBS and former board members as defendants.
A spokeswoman said Friday that the bank would defend the lawsuit but did not comment further.
Court records indicate RBS has not yet filed a response to the lawsuit.
The Mississippi Public Employees' Retirement System referred comment to the state attorney general's office, which acknowledged the litigation but refused to discuss the case. Mississippi PERS claimed it lost more than $50 million.
The Massachusetts pension system said it lost $73 million, though an attorney did not return a call seeking comment Friday.
The lawsuit alleges RBS misled prospective investors about its exposure to credit markets when it made the public offering in June 2007.
RBS offered to sell 38 million shares of stock at $25 per share for proceeds of approximately $950 million. The suit says a prospectus incorporated financial results for 2004 through 2006 and outlooks by then-CEO Fred Goodwin that were confident in the bank's growth potential.
"We are expanding our reach and making progress in all major economies we operate in. We believe that the strategic choices we have made, together with the prospects for continued growth in the world economy, position us well for 2007," Goodwin wrote in a chief executive review letter, according to the suit.
The bank eventually announced it was billions of pounds in debt, the majority of which related to its dealings in the U.S. real estate market.
According to the lawsuit, individual plaintiffs lost hundreds of thousands of dollars when the debt was revealed and the stock price plummeted to about $10 a share.
Earlier this year, Prime Minister Gordon Brown scolded RBS for what he said was irresponsible risk-taking on mortgage-related U.S. securities and the takeover of the Dutch bank ABN Amro.
The Royal Bank of Scotland earlier this week named three new senior executives to complete a management shake-up, marking the end of Goodwin's leadership. Goodwin resigned last year.
On Friday, Royal Bank of Scotland reported a first-quarter loss of 857 million pounds ($1.29 billion) as write-offs from the financial crisis increased despite a jump in revenues. The bailed-out bank warned the next two years would be difficult.
The loss compared with a profit of 245 million pounds a year earlier.
