A large scale civil action by two pension funds has been initiated against the royal Bank of Scotland in New York, to recover losses incurred due to the alleged non disclosure of the failed bank's precarious financial positioning.

"On May 6, 2009, United States District Court Judge Deborah A. Batts appointed Massachusetts Pension Reserves Investment Management Board (“PRIM”) and Mississippi Public Employees’ Retirement System (“PERS”) as Lead Plaintiffs on behalf a class of purchasers of Royal Bank of Scotland’s ordinary shares between June 6, 2007 and January 9, 2009, in a case designated in re Royal Bank of Scotland plc Securities Litigation, civil matter 09-cv-00300, pending in New York's Federal Court," the funds' agents said in a statement.

"The complaint alleges that during the Class Period, RBS defendants falsely reassured investors that RBS was well capitalized when, in fact, the Company was effectively insolvent as a result of impaired assets, bad loans, and its disastrous partial acquisition of ABN AMRO (“ABN”).

"On May 11, 2008, Times Online reported that the SEC was investigating RBS over its exposure to American sub prime mortgages. On October 7, 2008, news began to emerge that the British government was holding talks with major banks, including RBS, concerning the possibility of government funding, and on November 28, 2008, RBS announced that the government would take majority control of the bank, buying a 57.9% stake in the Company. In December 2008, it was revealed that RBS had lost half a billion dollars in the Madoff scandal.

"Then, on January 19, 2009, RBS announced that it expected to lose approximately £28 billion in 2008, in large part due to the write-off of goodwill associated with ABN as well as charges associated with bad loans, the biggest loss in British corporate history. Thereafter, as the truth regarding the Company’s deteriorating financial results began to emerge, the prices of RBS’s publicly traded securities declined significantly.

"Accordingly, between February 1, 2007 and January 19, 2009, RBS failed to disclose (1) the Company’s extensive investments in asset-backed securities, including collateralized debt obligations, and its exposure to the subprime mortgage market; (2) all of the risks associated with the purchase of ABN’s assets; (3) insufficient capital levels; and (4) the failure to adequately write-down bad assets. Over the past six months, the investing public has learned that (1) RBS’s portfolio of debt securities was impaired to a much larger extent than the Company had disclosed; (2) RBS failed to properly record losses for impaired assets; (3) RBS’s internal controls were inadequate to prevent the Company from improperly reporting its debt securities; and (4) RBS’s capital base was not adequate enough to withstand the significant deterioration in the subprime market and, as a result, RBS was forced to raise significant amounts of additional capital, ultimately selling itself to the government."

Ian Hamilton QC tried to raise a similar action in Oban Sheriff Court, but failed to secure legal aid after it was ruled his small claims bid had to be pursued as an ordinary civil case.