Royal Bank of Scotland faces $6 billion investor action

A group of shareholders in Royal Bank of Scotland is suing the lender and four former directors for losses they claim they incurred when the bank succumbed to a state bailout in 2008.

The RBoS Shareholders Action Group has issued proceedings against RBS, Fred Goodwin, Tom McKillop, Johnny Cameron and Guy Whittaker, in the chancery division of Britain's High Court to recover billions of pounds lost on the value of their shares in the run up to the bank's 45 billion pound taxpayer rescue.

The final claim for compensation could be as much as 4 billion pounds ($6.05 billion), the shareholder group said.

The group, which comprises some 12,000 ordinary shareholders and 100 institutions, alleges that RBS misled investors about its financial health during a 12 billion pound share sale conducted six months before its October 2008 bailout.

It also says that the bank and its former employees omitted to include critical information in the prospectus.

"Today represents a giant step forward for the many thousands of ordinary people who lost money as the result of inexcusable actions taken by banks and their directors... Now, for the first time, some of these directors will have to answer for their actions in a British Court," a group spokesman said.

RBS and its law firm Herbert Smith declined to comment. None of the four directors could immediately be reached for comment.

The lawsuit is the second filed against the bank in as many weeks and spells fresh trouble for RBS as it counts the cost of regulatory raps for its role in Britain's biggest mis-selling scandal and a global benchmark rigging scam.

A smaller group of 21 investors filed a claim for compensation on March 28, citing similar allegations of misleading investors and publishing defective rights issue documentation.

Similar compensation claims filed in the investor-friendly U.S. courts system were thrown out by Judge Deborah Batts in 2011, reducing RBS's potential liability under U.S. law.

Despite finding evidence of bad decision-making and weak risk controls, the now-defunct Financial Services Authority also found no case for legal action against the bank or its directors in an extensive review of RBS in the run-up to its bailout.

Goodwin, dubbed "Fred the Shred" for his no-nonsense approach to cutting costs, was knighted in 2004 for services to banking in an era of "light touch" regulation and abundant credit that saw RBS evolve from a small Scottish lender to a global financial services giant.

He also played an instrumental role in RBS's acquisition of Dutch peer ABN AMRO but the assets it inherited plunged in value following the credit crunch, compounding problems in RBS's leveraged finance and commercial real estate lending business.

As bad debts surged, RBS announced a cash call to shore up its balance sheet. Shareholders stumped up the equity but the bank continued to bleed deposits, forcing the government to take an 83 percent stake just months later.

Goodwin left RBS with an annual pension of over 700,000 pounds before a public outcry forced him to slash it to an annual 342,500 pounds. He was also stripped of his knighthood in early 2012.

($1 = 0.6610 British pounds)

(Reporting by Sinead Cruise; Editing by Louise Heavens)