RBS Dishonest Testimony Derails Bid to Block Highland Suit

Royal Bank of Scotland Group Plc lost a bid to block a fraud lawsuit in Texas filed by Highland Capital Management LP after a U.K. appeals court said dishonest testimony by a former trader tarnished a 2010 ruling in the bank’s favor.

The three justices in London today also overturned part of the 2010 ruling in the case over a collateralized-debt obligation that required Highland to pay Edinburgh-based RBS about 19 million pounds ($29 million).

That judgment was “obtained by the fraud of RBS through the misstatement and concealment of facts,” by one of its witnesses, former trader Sam Griffiths, appellate Judge Richard Aikens said in a written decision.

Highland claims it lost as much as $100 million when RBS improperly terminated the CDO and seized the underlying loans in 2008, at the height of the credit crisis that followed the collapse of Lehman Brothers Holdings Inc. The investment firm’s Texas lawsuit has been on hold since RBS appealed to a U.K. court for an injunction stopping the case.

RBS spokeswoman Rebecca Nelson declined to comment.

The ruling allows Highland to pursue its claim in Texas, the firm’s U.K. lawyer Marc Keidan said in a statement.

“This judgment validates Highland’s position that no financial institution, regardless of size, is above the law,” the Dallas-based firm said in a statement. Highland manages about $18 billion, chiefly in credit markets.

London Judge Michael Burton in May ruled the bank’s actions had been legal despite the dishonest evidence.

The court of appeal today overturned the decision against Highland and rejected RBS’s request for an injunction stopping the Texas lawsuit.

The judges said Griffiths “had lied” about his knowledge of the CDO loans and that he had done so on behalf of RBS.

Griffiths was later fired by RBS and is now suing for unfair dismissal. His lawyer, Raja Nadarajan, didn’t immediately respond to an e-mail seeking comment.

RBS used an accounting provision to terminate the Highland CDO and seize its underlying loans, according to court papers from Highland’s Texas lawsuit in Dallas.

The U.K. case is The Royal Bank of Scotland Plc v. Highland Financial Partners L.P & Ors, U.K. Court of Appeal (Civil Division) A3/2012/1474

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