13‐3289

IBEW Local Union v. Royal Bank of Scotland

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

August Term 2013

(Argued: June 19, 2014    Decided: April 15, 2015)

Docket No. 13‐3289

IBEW LOCAL UNION NO. 58 PENSION

TRUST FUND AND ANNUITY FUND,

Lead Plaintiff‐Appellant,

LIGHTHOUSE FINANCIAL GROUP,

INDIVIDUALLY AND ON BEHALF OF ALL OTHERS

SIMILARLY SITUATED,

Plaintiff,

ETHAN GOLD,

INDIVIDUALLY AND ON BEHALF OF ALL OTHERS

SIMILARLY SITUATED,

Movant‐Consolidated Plaintiff,

v.

THE ROYAL BANK OF SCOTLAND GROUP, PLC,   

SIR THOMAS FULTON MCKILLOP, JOHN CAMERON,  

Defendants‐Appellees,

SIR FREDERICK ANDERSON GOODWIN,  

Defendant‐Consolidated Defendant‐Appellee,
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THE ROYAL BANK OF SCOTLAND PLC, SIR, LAWRENCE K. FISH, GORDON

F. PELL, GUY R. WHITTAKER, COLIN A.M. BUCHAN, JAMES CURRIE, SIR

STEPHEN A. ROBSON, ROBERT A. SCOTT, PETER D. SUTHERLAND,

ARCHIBALD HUNTER, CHARLES J. KOCH, JOSEPH P. MACHALE, MERRILL

LYNCH, PIERCE, FENNER & SMITH CORPORATED, GREENWICH CAPITAL

MARKETS, LLC, WACHOVIA CAPITAL MARKETS, INC., WACHOVIA

CAPITAL MARKETS, LLC, MORGAN STANLEY & CO. INCORPORATED, UBS

SECURITIES LLC, RBC CAPITAL MARKETS CORPORATION, BANC OF

AMERICA SECURITIES LLC, FREDERICK A. GOODWIN, SIR THOMAS

MCKILLOP, JANIS KONG, MARK FISHER, JAMES MCGILL CURRIE,

WILLIAM M. FRIEDRICH,

Defendants,

SIR THOMAS FULTON WILSON MCKILLOP, JOHN ALISTAIR NIGEL

CAMERON,

Consolidated Defendants.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF NEW YORK

Before:

WINTER, LEVAL, and CHIN, Circuit Judges.

Appeal from orders of the United States District Court for the

Southern District of New York (Daniels, J.) dismissing securities fraud

claims and denying motions for reconsideration, to alter or amend the

judgment, and for leave to file a second amended complaint.   

AFFIRMED.
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Judge Leval concurs in part and dissents in part in a separate

opinion.

JOSEPH D. DALEY (Theodore J. Pintar, Jason A. Forge,

Darryl J. Alvarado, Samuel H. Rudman, on the brief),

Robbins Geller Rudman & Dowd LLP, San Diego,

California, and Melville, New York, for Plaintiffs‐

Appellants.

SETH P. WAXMAN (Matthew Guarnieri, David S. Lesser,

Andrea J. Robinson, Nolan J. Mitchell, on the brief),

Wilmer Cutler Pickering Hale and Dorr LLP,

Washington, DC, New York, New York, and Boston,

Massachusetts, for Defendants‐Appellees.

CHIN, Circuit Judge:

In this putative securities class action, investors who purchased or

acquired American Depository Shares (ʺADSsʺ) of The Royal Bank of Scotland

Group, PLC (ʺRBSʺ) allege that RBS and several of its top executives made false

and misleading statements that inflated the ADSsʹ prices.  They brought this

action below under, inter alia, sections 10(b) and 20(a) of the Securities Exchange

Act of 1934 (the ʺExchange Actʺ), 15 U.S.C. §§ 78j(b), 78t(a), and Rule 10b‐5, 17

C.F.R. § 240.10b‐5.
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The district court (Daniels, J.) granted defendantsʹ motion to dismiss

and denied plaintiffsʹ motions for reconsideration, to alter or amend the

judgment, and for leave to amend.  Plaintiffs appeal.  We affirm.

STATEMENT OF THE CASE

A. The Facts

    The facts alleged in the proposed Second Consolidated Amended

Complaint (ʺSCACʺ) are assumed to be true.  They may be summarized as

follows:   

Between 2001 and 2006, RBS ‐‐ one of the worldʹs largest financial

institutions ‐‐ experienced rapid growth by repackaging residential subprime

mortgages and leveraged loans into residential mortgage backed securities

(ʺRMBSʺ), collateralized debt obligations (ʺCDOsʺ), and collateralized loan

obligations (ʺCLOsʺ).  The housing market bubble burst in 2006 as housing sales

decreased, inventories increased, mortgage delinquencies soared, and subprime

assets lost much of their value.  In part, the market collapsed because of the rise

of ʺless creditworthy borrowers, more highly leveraged loans, and more risky

mortgage structures,ʺ which ultimately caused massive defaults.  App. at 1179.  
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RBS, along with many of its peers, deteriorated as the housing and credit

markets crumbled.     

    RBSʹs financial downfall was compounded by the timing of its

acquisition of ABN AMRO, a Dutch bank also heavily invested in credit markets,

in October 2007.  Plaintiffs acquired RBS ADSs on the open market between

October 17, 2007 and January 20, 2009 (the ʺClass Periodʺ), including ADSs

acquired pursuant to the ABN AMRO acquisition.    

Prior to and during the Class Period, RBS provided an optimistic

outlook as discussed further below.  On April 22, 2008, RBS announced a Rights

Issue to issue additional shares and raise capital.  Notwithstanding its attempts

to raise capital and salvage its business, RBS could not survive the marketʹs

crash.  The U.K. government provided an initial $40 billion bailout and took a

94% ownership stake in RBS.  The price of the ADSs dropped substantially

during the Class Period.

Plaintiffs contend that defendants made fraudulent statements to

investors in three respects:  (1) RBSʹs exposure to subprime assets, (2) the success

(or lack thereof) of RBSʹs acquisition of ABN AMRO, and (3) RBSʹs Rights Issue

announcement to raise capital.
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1. Exposure Statements

Plaintiffs claim that RBS misrepresented its exposure to subprime

assets on three occasions.  First, during an August 3, 2007 conference call, John

Cameron, Chief Executive of Corporate Banking and Financial Markets and a

director of RBS, was asked about RBSʹs exposure to leveraged lending and

CDOs.  He responded that RBSʹs ʺexposure to these sorts of marketsʺ had been

ʺcut back a lot since the year end of ʹ06.ʺ  App. at 1346.  Cameron added that

ʺ[w]e have hedges in all sorts of places against the various portfoliosʺ and

ʺ[w]eʹve taken no credit losses anywhere in the portfolio.ʺ  App. at 1346.  During

the call, Frederick Anderson Goodwin, RBSʹs CEO and a director of RBS, and Sir

Thomas Fulton McKillop, Chairman of the Board of RBS, also represented that

RBS had not been affected by the crash of the subprime mortgage market.  

Plaintiffs allege that these statements were false because RBS had increased its

CDO holdings in 2007, RBSʹs CDO exposure was not hedged, and RBS incurred

at least $425 million in losses.   

Second, four months later, in its December 6 press release, RBS

represented that its total U.S. subprime exposure amounted to $10.3 billion.  

Plaintiffs contend that this misrepresented RBSʹs true exposure of $17.1 billion,
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and also allege that RBS failed to disclose an additional $14.4 billion in insured

risk.  Plaintiffs contend that RBS misrepresented the amount of CDOs and

subprime assets held by RBS.   

Third, on February 28, 2008, RBS purported to disclose its full

ʺCredit Market Exposuresʺ as of December 31, 2007.  The amount was not limited

to U.S. subprime exposures, and also included exposures from the ABN AMRO

acquisition.  Plaintiffs claim that one year later, RBS ʺcorrectedʺ the figures in

Appendix II to its year‐end 2008 financial results, revealing that RBS had over

$66 billion more credit‐market assets on its balance sheet than it had previously

stated.  

2. ABN AMRO Statements

The statements related to the ABN AMRO acquisition arise from the

same December 6, 2007 press release and February 28, 2008 conference call.  The

2007 press release contained the following statement from Goodwin:  ʺThe

integration of ABN AMRO is off to a promising start . . . .  The acquisition of

ABN [AMRO] has rarely seemed more attractive and relevant than it does at this

point.ʺ  App. at 1375.  In the 2008 conference call, Goodwin made the following

statements:  ʺthe positive view we have of the ABN [AMBRO] businesses has
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been confirmedʺ; ʺ[u]nderlying performance of retained ABN AMRO businesses

[is] in line with expectationsʺ; ʺ[t]here are a lot of areas where [the ABN AMRO

acquisition] just goes ching, ching, ching, ching, chingʺ; ʺ[w]e are happy we

bought what we thought we bought.ʺ  App. at 1378.  An RBS manager also stated

that the ABN businesses were ʺkind of in line with where we thought they would

be and probably is slightly ahead of the equivalent number last year.ʺ  Id.  

Plaintiffs contend that these statements misrepresented the immediate and

substantial loss suffered by ABN AMRO, and thereby suffered by RBS.

3. Rights Issue Statements

Finally, the statements related to the Rights Issue arise from the

February 28, 2008 conference call where Goodwin stated that ʺ[t]here are no

plans for any inorganic capital raisings or anything of the sort.ʺ  App. at 1370‐71.  

On April 22, 2008, RBS announced a £12 billion Rights Issue.  McKillop stated

that the Rights Issue was ʺpurely the Board of RBS decisionʺ and ʺwe were not

asked to raise capital by anyone so we have to be very, very clear about that.ʺ  

App. at 1372.  Goodwin echoed McKillop, stating, ʺI completely agree with that.ʺ  

Id.  ʺ[T]he [Financial Services Authority (the ʺFSAʺ)] are happy to see us raising

capital and encourage us in our plans to do so, but they didnʹt request us to do
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it.ʺ  Id.  Plaintiffs contend that these statements are false because Hector Sants,

the CEO of the FSA, the U.K.ʹs regulatory authority, later testified to the U.K.

Parliament that he had a conversation with RBS on April 9, 2008, and told RBS

that it was ʺspecifically required . . . to have a rights issue,ʺ and that the FSA

ʺrequired them to raise as much capital as possible.ʺ  Id.

B. The Proceedings Below

On January 19, 2011, plaintiffs commenced this action asserting

claims for securities law violations.  On November 1, 2011, they submitted a

Consolidated Amended Complaint (ʺCACʺ).  Plaintiffs asserted claims for

violations of the Securities Act of 1933, and violations of Sections 10(b) and 20(a)

of the Exchange Act.  On January 13, 2012, defendants moved to dismiss the CAC

for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), and

under the forum non conveniens doctrine.  On September 28, 2012, the district

court granted defendantsʹ motion to dismiss.  Judgment was entered on October

2, 2012.    

On October 12, 2012, plaintiffs moved for reconsideration.  They also

moved to alter or amend the judgment.  The district court concluded that, in

substance, the motions were for leave to amend the CAC, and so analyzed the
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motions under that standard.  The district court concluded that the SCAC,1

attached to plaintiffsʹ reply brief in support of its motion to alter or amend the

judgment, failed to state a claim, and denied leave to amend as futile.  

Accordingly, on August 6, 2013, the district court denied plaintiffsʹ motions.  

    This appeal followed.     

DISCUSSION

A. Applicable Law   

We review the district courtʹs grant of a motion to dismiss de novo.  

ECA & Local 134 IBEW Joint Pension Trust of Chi. v. JP Morgan Chase Co., 553 F.3d

187, 196 (2d Cir. 2009).  ʺTo survive a motion to dismiss, a complaint must plead

enough facts to state a claim to relief that is plausible on its face.  Any complaint

alleging securities fraud must satisfy the heightened pleading requirements of

the [Private Securities Litigation Reform Act] and Fed. R. Civ. P. 9(b) by stating

with particularity the circumstances constituting fraud.ʺ  Id. (citations and

internal quotation marks omitted).  

We review the district courtʹs denial of leave to amend de novo where

ʺthe denial was based on an interpretation of law, such as futility.ʺ  Panther

                                               1   The SCAC disavowed all Securities Act claims, and narrowed the

Exchange Act claims to focus on the three categories of misstatements identified above.   
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Partners Inc. v. Ikanos Commcʹns, Inc., 681 F.3d 114, 119 (2d Cir. 2012).  Proposed

amendments are futile if they ʺwould fail to cure prior deficiencies or to state a

claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure.ʺ  Id.  Thus, the

standard for denying leave to amend based on futility is the same as the standard

for granting a motion to dismiss.

To establish a § 10(b) claim, a plaintiff must prove:  (1) the defendant

made a material misrepresentation or omission; (2) with scienter; (3) in

connection with the purchase or sale of a security; (4) reliance; (5) economic loss;

and (6) loss causation.  Stoneridge Inv. Partners, LLC v. Scientific‐Atlanta, Inc., 552

U.S. 148, 157 (2008).   

A statement or omission is material if ʺthere is a substantial

likelihood that a reasonable shareholder would consider it important in deciding

how to act.ʺ  ECA, 553 F.3d at 197 (alterations and internal quotation marks

omitted).  ʺIn other words, . . . for the misstatement to be material, there must be

a substantial likelihood that the disclosure of the omitted fact would have been

viewed by the reasonable investor as having significantly altered the ʹtotal mixʹ 

of information made available.ʺ  Id. (internal quotation marks omitted).  On a

motion to dismiss, a complaint may not be properly dismissed unless the
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misstatements are ʺso obviously unimportant to a reasonable investor that

reasonable minds could not differ on the question of their importance.ʺ  Id.

(internal quotation marks omitted).

Plaintiffsʹ complaint relies heavily on a report issued by the FSA (the

ʺFSA Reportʺ) and on testimony given in a parliamentary inquiry on RBSʹs

collapse for its factual allegations regarding misleading statements by RBS made

with scienter.  Both the FSA Report and the testimony are cited in the SCAC, and

their contents as public documents are not subject to reasonable dispute.  See Fed.

R. Evid. 201(b)(2).  We may, therefore, consider them in determining the merits

and context of the allegations of the SCAC that are based on them.  See Kramer v.

Time Warner, Inc., 937 F.2d 767 (2d Cir. 1991).   

B. Application

We discuss each of the three sets of allegedly fraudulent statements

in turn.   

1. Exposure Statements

a. August 3, 2007 Statements

The August 3, 2007 statements regarding RBSʹs exposure were made

prior to the start of the Class Period and cannot be the basis of liability unless
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there was a duty to update or correct them.  See Lattanzio v. Deloitte & Touche LLP,

476 F.3d 147, 154 (2d Cir. 2007).  Because the statements referred only to past

events or conditions and did not imply anything about future circumstances,

there was no duty to update.  See Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124,

1129 (2d Cir. 1994).  And because the FSA Report shows that the statements were

not untrue, there was no duty to correct them.  See In re Time Warner Inc. Sec.

Litig., 9 F.3d 259, 267 (2d Cir. 1993).   

The FSA Report supports the truthfulness of Cameronʹs statements

that RBS had ʺcut back a lotʺ on some of its risky exposures.  It notes that, in

2007, RBS ʺhalted its new origination of structured creditʺ and ʺceased all

originationʺ of leveraged finance in July and August of that year.  App. at 1275.  

Similarly, Cameronʹs statement that RBS had taken no ʺcredit lossesʺ on its

portfolio is consistent with the FSA Reportʹs statement that RBS took markdowns

of at least $240 million on certain CDOs in response to ʺmarket developments.ʺ  

App. at 1287.  The SCAC omits the context of Cameronʹs statement, which

referred to market, as opposed to credit, losses.    

Accordingly, we affirm the district courtʹs holding with respect to

the August 2007 statements.
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b. December 6, 2007 Statements

Plaintiffs contend that RBSʹs December 6, 2007 press release failed to

disclose $6.8 billion in subprime exposures and $14.1 billion in exposure to

monoline insurers.  As this Court has already recognized, the SEC has provided

internal guidance with respect to determinations of materiality.  ECA, 553 F.3d at

197.  The SECʹs Staff Accounting Bulletin (ʺSABʺ) No. 99 provides that a

misstatement related to less than 5% of a financial statement carries the

preliminary assumption of immateriality.  See 64 Fed. Reg. 45150, 45151 (Aug. 19,

1999).  This ʺrule of thumb,ʺ however, is not conclusive.  Courts must also

consider qualitative factors, which can turn a quantitatively immaterial statement

into a material misstatement.  See id. at 45152.  Such qualitative factors include,

among others:  whether the misstatement ʺarises from an item capable of precise

measurementʺ; ʺmasks a change in earnings or other trendsʺ; ʺchanges a loss into

income or vice versaʺ; ʺconcerns a segment or other portion of the . . . business

that has been identified as playing a significant role in the registrantʹs operations

or profitabilityʺ; ʺinvolves concealment of an unlawful transactionʺ; and whether

ʺa known misstatement may result in a significant positive or negative market

reaction.ʺ  Id.   
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Plaintiffs allege that RBS understated its exposure in its December

2007 press release.  The allegedly undisclosed $6.8 billion constitutes less than 4%

of RBSʹs total asset backed securities exposure, and less than 1% of its total assets.  

SAB No. 99 suggests that this low percentage of assets ʺmay provide the basis for

a preliminary assumption that . . .  a deviation of less than [5% on] the

registrantʹs financial statement[] is unlikely to be material.ʺ  See 64 Fed. Reg.

45150, 45151; see, e.g., Hutchison v. Deutsche Bank Sec. Inc., 647 F.3d 479, 485 (2d

Cir. 2011) (stating that materiality turns on whether there is ʺa substantial

likelihood that the disclosure of the omitted fact would have been viewed by the

reasonable investor as having significantly altered the total mix of information

made availableʺ (internal quotation marks omitted)); In re UBS AG Sec. Litig., No.

07 Civ. 11225 (RJS), 2012 WL 4471265, at *15 (S.D.N.Y. Sept. 28, 2012) (stating that

undisclosed $100 billion portfolio constituted approximately 5% of overall

portfolio and was not an ʺundue risk concentrationʺ compared to entire UBS

balance sheet).  This quantitative assumption is not dispositive, and we thus

consider all relevant qualitative circumstances related to the alleged

misstatements.
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The qualitative factors here do not favor treating the presumptively

immaterial statements as material statements.  Plaintiffs do not allege that the

amount of exposure could have been calculated precisely, masks a change in

earnings, changes a loss into income or vice versa, or involves an unlawful

transaction, or that the misstatements resulted in a significant positive market

reaction.  And, although RBSʹs asset‐backed securitization group was a driving

factor in its profitability, this factor alone does not tip the scales in favor of

finding the misstatements material.

Even if the qualitative factors weighed more heavily in favor of

plaintiffs, we would still dismiss the misstatements for failure to plead fraud.  

The SCAC alleges that the December press release disclosed $10.3 billion in

ʺTotal US sub‐prime exposures.ʺ  App. at 1355.  Plaintiffs argue that this

disclosure was fraudulent because RBS disclosed $17.1 billion in actual sub‐

prime holdings in its 2008 Annual Report.  This $17.1 billion amount is

comprised of Super Senior CDOs, other CDOs, and subprime U.S. RMBS.  The

SCAC does not explain how the Court can determine whether the ʺTotal US sub‐

prime exposures,ʺ a subset of global CDOs, is the same subset comprised of

Super Senior CDOs, other CDOs, and subprime U.S. RMBS.  Without any factual
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allegations supporting the proposition that the two are the same, plaintiffs fail to

adequately plead fraud.  See San Leandro Emergency Med. Grp. Profit Sharing Plan

v. Philip Morris Co., 75 F.3d 801, 813 (2d Cir. 1996) (stating ʺfalse comparison

between the figuresʺ does not adequately plead fraud).   

Similarly, plaintiffs fail to explain how the $14.1 billion monoline

insurers constitute subprime exposures or that RBS had an obligation to disclose

them as U.S. subprime exposures ʺnet of hedges.ʺ2  The SCAC also does not

allege that RBS had an obligation to disclose CLOs in its Trading Statement; the

Trading Statementʹs focus was U.S. subprime exposures, including CDOs.   

c. February 28, 2008 Statements

Plaintiffs allege that RBS failed to disclose $66 billion in assets in its

2007 Annual Results.  Plaintiffs allege that RBS later corrected the 2007 numbers

in Appendix II to its 2008 Annual Report, which issued one year later.3  Our

review of the record reveals that the 2007 Annual Results did not omit assets and

that Appendix II does not correct any misstatement of the 2007 numbers.  

(Compare App. at 480 (disclosing 2007 results including £2,581 high grade CDOs,

                                               2   ʺMonoline exposures relate to credit protection purchased on credit assets,

including CDOs.ʺ  App. at 559.

3   The SCAC converts £ to $ without providing a conversion rate or any

additional information.  For consistency and ease of understanding, we use the £ values

indicated in the record.   
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£1,253 mezzanine CDOs, £1,292 sub‐prime trading inventory, £8,698 leveraged

finance, £2,233 Alt‐A, and £1,386 CLOs), and App. at 559 (£2,547 monoline

exposures), with Supp. App. at 40‐41 (disclosing 2007 results including £2,581

high grade CDOs, £1,253 mezzanine CDOs, £1,292 sub‐prime trading inventory,

£2,233 Alt‐A, £1,386 CLOs, and £2,547 monoline exposures), and Supp. App. at 54

(explaining that ʺ[l]everaged finance as disclosed above for [2007 results] has

been aligned with definitions used in 2008 in terms of industry classification and

is additionally £76 million higher than previously publishedʺ)).  Thus, with the

exception of leveraged finance, which RBS has explained was adjusted in

accordance with 2008 definitions, Appendix II does not revise or correct the

February 28 disclosure.   

2. ABN AMRO Acquisition Statements

Plaintiffs allege that RBS made false statements regarding the ABN

AMRO acquisition in its December 6, 2007 press release and conference call, as

well as during the February 28, 2008 earnings conference call.  These statements,

described above and including, for example, ʺ[t]he integration of ABN AMRO is

off to a promising start,ʺ ʺ[our] positive view . . . has been confirmed,ʺ ʺwe are

happy we bought what we thought we bought,ʺ App. at 1375, 1378, were
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misleading according to plaintiffs, because by December 2007, ABN AMRO was

suffering significant losses and the acquisition was ʺan unmitigated disaster for

RBS,ʺ App. at 1378.   

We agree with the district courtʹs determination that these

statements were inactionable puffery.  Statements of general corporate optimism,

such as these, do not give rise to securities violations.  See Rombach v. Chang, 355

F.3d 164, 174 (2d Cir. 2004) (ʺcompanies must be permitted to operate with a

hopeful outlookʺ); see also ECA, 553 F.3d at 206.  Statements of corporate

optimism may be actionable securities violations if ʺthey are worded as

guarantees or are supported by specific statements of fact, or if the speaker does

not genuinely or reasonably believe them.ʺ  In re IBM Sec. Litig., 163 F.3d at 107

(citations omitted).  The statements here are not worded as guarantees and there

are no allegations that defendants did not reasonably believe them.   

3. Rights Issue Statements

It is undisputed that in April 2008, RBS announced that it was

initiating the Rights Issue to raise £12 billion in capital.  In explaining this

decision, defendants publicly stated that the FSA was ʺhappy to see [RBS] raising

capital and encourage[d RBS] in [its] plans to do so,ʺ but also represented that
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RBS was ʺnot asked to raise capital by anyone,ʺ including the FSA.  App. at 1371‐

72.  RBS explained that the decision to raise capital was ʺpurely the Board of

RBS[ʹs] decision.ʺ  App. at 1372.  Plaintiffs contend that these statements were

false because the CEO of the FSA had in fact stated in testimony to the U.K.

Parliament in 2012 that RBS was ʺspecifically requiredʺ to conduct a Rights Issue

to ʺraise as much capital as possible.ʺ  Id.

The timeline of events leading up to RBSʹs allegedly false statement

reveals that plaintiffs fail to plead a basis for a securities fraud claim.  As the FSA

reported, RBS had already started preparations for the Rights Issue by April 4,

2008 ‐‐ five days before RBSʹs conversation with the FSAʹs CEO, when the FSA

purportedly ʺspecifically requiredʺ RBS to conduct a Rights Issue.    

In its April 22, 2008 release, RBS disclosed that ʺin . . . light of

developments during March including the severe and increasing deterioration in

credit market conditions, the worsening economic outlook and the increased

likelihood that credit markets could remain difficult for some time, the Board has

concluded that it is now appropriate for RBS to accelerate its plans to increase its

capital.ʺ  App. at 557.  RBS also estimated ʺthe effect on capital of write‐downsʺ 

to be ʺ£5.9 billion before taxʺ in 2008, as well as a ʺpossible asset disposal[] which
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could generate £4 billion of capital.ʺ  App. at 557, 564.  As a result of the ʺsharp

deterioration in market conditions and outlook in credit markets,ʺ RBS stated

that ʺthe Board has determined that it is appropriate to raise £12 billion through

the rights issueʺ and acknowledged that ʺstronger capital ratios were now

required in what had become a very different world for financial institutions.ʺ  

App. at 557‐58.  And, even in the allegedly fraudulent statements themselves,

RBS acknowledged that ʺit was increasingly evident that all authorities . . . were

recommending to banks that they strengthen their capital base,ʺ and specifically

that the FSA was in ʺclose and continuousʺ contact with RBS and that the FSA

was ʺhappy to see [RBS] raising capital and encourage[d] us in our plans to do

so.ʺ  App. at 1372.   

In light of the total mix of information available to the reasonable

investor, we conclude that RBSʹs statements regarding the Rights Issue are not a

basis for a securities fraud claim.  First, as the FSA reported, RBS had already

started preparations for the Rights Issue by April 4, 2008 ‐‐ five days before the

CEO of the FSA had his conversation with RBS.  Hence, preparations for a Rights

Issue were already under way when the FSA spoke to RBS.  Second, critical facts

were already known to the investing market:  RBS needed an infusion of capital;
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it was taking additional write‐downs; the FSA was closely monitoring RBSʹs

situation and encouraging a Rights Issue; and there was generally a steep

deterioration in market conditions and credit market outlooks.   

Moreover, the background of Santsʹs testimony, as explained in the

FSA Report, shows that RBS was not deemed by the FSA to have violated FSAʹs

minimum capital guidelines.  In early April 2008, RBSʹs deteriorating condition

caused the FSA to make ʺa [t]hreshold [c]onditions analysis.ʺ  FSA Report, The

Failure of the Royal Bank of Scotland, at 87 (December 2011), available at

http://www.fsa.gov.uk/pubs/other/rbs.pdf.  That analysis concluded that RBS

ʺwas judged still to meet Threshold Condition 4 [the adequate resources

requirement], taking into account that [a minimum requirement] did not appear

to have been breached and the firm now planned to raise significant capital

through a rights issue.ʺ  Id.  As a result, Sants required ʺa written commitment

from [RBS] that [it] would be pursuing a rights issue.ʺ  Id.

In these contexts, a reasonable investor would have deemed the

difference between ʺencouragedʺ and ʺrequiredʺ to be immaterial.
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CONCLUSION

For the reasons stated above, we AFFIRM the district courtʹs

dismissal of plaintiffsʹ claims as well as its order denying plaintiffsʹ motions for

reconsideration, to alter or amend the judgment, and for leave to file the SCAC.
1 LEVAL, Circuit Judge, concurring in part and dissenting in part:

2 While I am in full agreement with most of the majority’s well reasoned opinion, I

3 respectfully believe that RBS’s alleged statements relating to the April 2008 Rights Issue

4 adequately stated a claim for securities fraud. According to the complaint (whose allegations we

5 must accept as true for these purposes), the Financial Services Authority (which sets the

standards financial services firms must meet in the United Kingdom),1 6 advised RBS on April 9,

7 2008, that it was “required . . . to raise as much capital as possible.” About two weeks later, on

8 April 22, 2008, RBS made public statements declaring, “[W]e were not asked to raise capital by

9 anyone,” and the FSA “didn’t request us to [raise capital].” These statements were false, and in

10 my view materially so.

11 The majority argues that RBS’s statements were not false because “RBS had already

12 started preparations [for] the Rights Issue on April 4, 2008 – five days before the CEO of the

13 FSA had his conversation with RBS.” Maj. Op. at 21-22. I believe this misses the point. The fact

14 that RBS had decided to raise capital before being told by the FSA that it had to do so does not

15 change the fact that it was required by the FSA to raise capital. Denial of that fact was false.

16 The majority further argues that even if those denials were false, they were not materially

17 false. RBS’s top officers, while denying that RBS had been required to raise capital,

18 acknowledged that the bank had been “encouraged” by the FSA to raise capital. In light of the

1

 The Financial Services Authority (the “FSA”) was, until 2013, the regulatory body in

the United Kingdom responsible for “regulat[ing] most financial services markets, exchanges

and firms” and “set[ting] the standards that [financial services firms] must meet,” and it had the

power to “take action against firms if they fail[ed] to meet the required standards.” What we do:

who we regulate, Financial Services Authority (last updated June 14, 2014),

http://www.fsa.gov.uk/about/what/who.

1
1 openly acknowledged losses RBS had sustained, requiring a write-off of £5.9 billion, the

2 majority posits that a reasonable investor would see no material difference between the

3 acknowledged fact that RBS had been “encouraged” by the FSA to raise capital and a further

4 statement that it had been “required” by the FSA to do so. In my view the difference is

5 substantial. The fact that such a regulatory agency has required a bank to raise capital implies

6 that the regulatory agency finds the bank’s capital reserves to be dangerously low. If the

7 regulatory agency merely “encourages” the bank to raise capital, but does not require it, this

8 implies that while the agency believes it would be prudent for the bank to raise capital, the

9 bank’s present level of capital is not dangerously low. That RBS was required by the FSA to

10 raise capital is a fact a reasonable investor would want to know. 

11 According to the majority opinion, a federal securities fraud claim may not properly be

12 dismissed under Rule 12(b)(6) because false statements are not materially false unless the

13 misstatements are “so obviously unimportant to a reasonable investor that reasonable minds

14 could not differ on the question of their importance.” Maj. Op at 12 (quoting ECA & Local 134

15 IBEW Joint Pension Trust of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 197 (2d Cir. 2009)).

16 In my view, the complaint alleging RBS’s false denials that the FSA required RBS to raise

17 capital easily passes that standard.

2