Investment Fraud And Dishonesty

Royal Bank of Scotland has paid $44M to settle a US criminal investigation that accused its traders of lying to clients over investments.

The bank's payment, under a non-prosecution agreement with the US Department of Justice, means it will not face criminal charges over its alleged cheating of about 30 banks and investment clients over the prices and commissions of mortgage-backed assets.

But it is difficult to argue that it has got off lightly. The settlement is separate from a multi-billion dollar penalty that is likely to be imposed on RBS over claims it mis-sold mortgage bonds prior to the 2008 banking crisis. And RBS has also come in for stinging criticism over its behaviour.

Referring to RBS' activities from 2008-13, US Attorney Deirdre Daly accused the bank of fostering "a culture of securities fraud."

She added: "Those in a position of authority taught and encouraged fraudulent trading practices. Worse, those supervisors and compliance personnel then took steps to prevent victims and honest RBS employees discovering and exposing the scheme.''

The US Department of Justice said RBS's mortgage-backed securities trading desk "misrepresented material facts to deceive and cheat its customers" by lying about asking prices and inventing third party sellers to charge buyers extra commission. RBS also lied to customers who suspected they had been the victim of fraud and did not respond to complaints about this by its own employees.

Honesty

Honesty is a central theme in investment fraud cases. Having represented all possible parties in such cases - brokers, accountants, hedge fund managers, financial advisors and company directors - I can say that honesty is the key issue, regardless of the precise circumstances or complexity of each individual investigation. If the jury cannot be persuaded that the defendant acted dishonestly, the prosecution will fail; whether it be a Fraud Act prosecution or a conspiracy to cheat or defraud accusation.

Until very recently, the question of dishonesty was decided by a two-limb test. It was in Ghosh [1982] QB 1053, that the Court of Appeal established this two-stage test of dishonesty. The jury had to decide whether "according to the ordinary standards of reasonable and honest people what was done was dishonest". If so, the jury then had to decide whether the defendant "himself must have realised that what he was doing was by those standards dishonest...."

The case of Ivey V Genting Casinos (2017), however...