RBS May Launch Civil Suit Against Goldman Sachs

By Jessica Hodgson

Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--Royal Bank of Scotland PLC (RBS) is considering launching a civil suit against Goldman Sachs Group Inc. (GS) to recoup additional losses sustained through its investment in a controversial mortgage-backed security that prompted a Securities and Exchange Commission fraud suit, a person familiar with the matter said Friday.

Goldman Sachs Thursday settled civil charges with the SEC on the marketing of the security: a package of debt securities called Abacus 2007-ACI.

The bank has agreed to pay $550 million to settle civil charges that it duped clients by selling the derivatives without disclosing the role of Paulson & Co., a hedge fund, in the transaction and specifically the fact that Paulson was effectively betting the mortgages in the security would fail.

Of the $550 million, approximately $100 million will be paid to RBS, with another $150 million going to IKB Industrie Bank AG (IKB.XE) of Germany.

Paulson, which helped design the Abacus debt securities package, wasn't accused of wrongdoing by the SEC.

RBS, which was a major investor in the security, lost $841 million as a result of the deal.

"RBS has been monitoring the complaint closely," the bank said in a statement. "Following the SEC's announcement, RBS will now carefully consider all of its options."

A person familiar with the situation said that a civil suit was one of a range of options being examined by RBS to try to recoup more of the losses from the transaction.

The Goldman complaint resonated with European banks because the transaction led to write-downs at British and German banks.

IKB didn't immediately comment.

Goldman, as part of its settlement, admitted that the marketing materials for the Abacus transaction "contained incomplete information."

In particular, it admitted that it was "a mistake" not to disclose the role of Paulson & Co. in the process of selecting the portfolio, and the fact that Paulson's economic interests were "adverse" to the investors who had positions in the debt securitiesi package.

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