The company will not have to go to trial to face accusations it fooled South Korea's Woori Bank into investing $80 million in collateralized debt obligations backed by residential mortgage-backed securities that it knew were riskier than the assessments RBS persuaded ratings agency to assign to them, U.S. District Judge Harold Baer ruled.
Woori Bank, which filed the lawsuit in May, alleged that it was misled by RBS about the riskiness of securities that backed six sets of CDOs it purchased from RBS over roughly seven months beginning in August 2006. The bank also charged RBS with manipulating the London interbank offering rate, a benchmark RBS used to establish the rate of interest that Woori received on the securities.
In its motion to dismiss the case, RBS argued it had disclosed the risks inherent in the obligations and that Woori was a sophisticated investor who needed to examine the risks before investing.
"I am not persuaded that RBS, by virtue of greater experience in the [mortgage-backed securities] business, possessed some kind of expertise significantly greater than Woori or was somehow obligated to share it," Baer wrote in his opinion. "The expertise at issue here is in financial transactions and risk assessment, it matters little that this was a new area of investment for Woori."
"Woori has the relevant expertise; whether or not it put it to good use is a different matter entirely," Baer added.
RBS spokesman Ed Canaday declined to comment on the ruling, which was first reported by Reuters. Michael Hausfeld, a lawyer representing Woori, did not respond immediately to a request for comment.
Woori also has sued Citigroup and Bank of America's Merrill Lynch unit over losses Woori alleges stem from the banks' sales of CDOs.
RBS has been probed by regulators in the U.S., U.K. and Europe over its role in the setting of Libor and other key rates. RBS said a filing with the Securities and Exchange Commission in November that the company expected to enter into negotiations to settle some of the investigations, which RBS said seem likely to result in financial penalties.