City investors today launched a major compensation claim against Royal Bank of Scotland in the High Court over its decision to raise £12 billion from shareholders in 2008, just months before it collapsed.

A total of 21 financial institutions, including pension funds representing British coal miners and electricity workers and retired school teachers from the US state of Illinois, have teamed up to sue RBS in the claim.

Stewarts Law, the City law firm which is acting on behalf of the claimants, alleges the RBS prospectus for the rights issue contained “serious omissions and misstatements” and “the shareholders are entitled to compensation”.

The RBS share price collapsed by 95% within months and it had to be bailed out by taxpayers in October 2008.

Stewarts Law did not put a value on the claim, the first of its kind against RBS, but observers suggested it could be worth more than £200 million.

Fred Goodwin, RBS’s disgraced former chief executive, was at the helm at the time and the case raises the possibility the bank could call him as a witness.

The court action could unleash further claims. Other aggrieved shareholders, including a group calling itself the RBS Shareholder Action Group, have also talked about suing the bank but are not thought to have filed any claim yet.

Clive Zietman, head of commercial litigation at Stewarts Law, said: “I can think of 12 billion reasons why this case will be very closely watched by past investors, current investors and in particular the Government.”

The 21 claimants include US asset manager ING and a string of international funds from Germany, Italy, Switzerland and Luxembourg. They are suing RBS under Section 90 of the Financial Services and Markets Act 2000.

“The claimants allege that the prospectus on which the rights issue was based was defective in that it contained material misstatements and omissions,” said the law firm.

“The claimants maintain that although the prospectus portrayed an image of the bank being in a state of financial good health and stability, the reality was very different and that had the truth been known, the take up of shares under the rights issue would have been severely impacted.”

RBS shares slumped from the equivalent today of £20 to £1 in the months after the rights issue and Stewarts Law said the bank should pay compensation “amounting to the difference between the price paid for the new shares [in the rights issue] and their actual value”.

A spokesman for RBS was not immediately available for comment.

Comment: Claim may cost us but it has merit

Given that the Government owns 82% of Royal Bank of Scotland it would be tempting to say that the only potential loser if today’s legal claim were to be successful is the British taxpayer.

On that basis, it is fair to ask what a bunch of pension funds, City institutions and international investors think they are doing trying to extract money from us.

Surely it would be in everyone’s best interests to let RBS get on with what it is doing and have it returned to the private sector as expeditiously as possible.

But today’s claim is not without merit. It specifically challenges the documentation for the £12 billion rights issue launched five years ago before the bank’s collapse and bail-out. If the courts find that the then management under Fred Goodwin misled investors it will be today’s shareholders who are punished.

What is certain is that, as usual, it will be the lawyers who are the main winners in this case.

Nick Goodway