Investors of RBS Securities Inc.’s multi-billion 2007 subprime mortgage-backed security offering – Soundview Home Loan Trust 2007-OPT1 – will soon be eligible to receive payment from the SEC’s $153.7 million fair fund.
The SEC first commenced its case in 2013 alleging RBS – a subsidiary of the Royal Bank of Scotland plc – misled investors by claiming that the loans backing the $2.2 billion security offering were generally in compliance with the lender’s underwriting guidelines. The loans allegedly deviated so much from RBS’s underwriting guidelines that about 30% should have been excluded from the mortgage-backed security offering entirely.
When RBS purchased the more than 11,000 mortgages in subprime mortgage pools from an H&R Block Inc. subsidiary, it was under “acute pressure” to package and sell off the mortgages into securities quickly – before the closing date of April 30, 2017. In a rush to meet the seller’s deadline, RBS is alleged to have quickly reviewed only a fraction of the mortgage loans, even after finding significant deficiencies during diligence.
The SEC fair fund punishes RBS for its alleged misconduct and secures more than $150 million in relief for those harmed by the “shoddy securitization.” RBS consented to an entry of judgment in November 2013, agreeing to disgorge $80.3 million, plus prejudgment interest of $25.2 million, and pay a civil penalty of $48.2 million. The court approved the SEC’s plan to distribute the funds in May 2023, more than nine years later.
This fair fund is by far the largest with a claim filing deadline of this year – more than double the Kraft Heinz $62 million fair fund created by the SEC.