By Sinead Cruise
LONDON (Reuters) - Lawyers for Royal Bank of Scotland <RBS.L> asked an ex-employee to destroy confidential documents, according to a letter seen by Reuters, in a move which the former staffer's lawyer said put him at risk of legal action by the U.S. government.
The letter, dated Jan. 18 and signed by Herbert Smith Freehills, a British law firm acting for the bank, asked Victor Hong to "permanently destroy any confidential materials in his possession" obtained via litigation disclosures or during his employment in breach of his separation agreement with the bank.
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A spokesman for the bank denied any wrong-doing, describing the action as "necessary and appropriate" and in line with standard practice.
Hong resigned from RBS in Nov. 2007, less than two months after joining as a managing director for risk management and head of fixed-income independent price verification at the bank's U.S. division, Greenwich Capital.
Hong submitted evidence against RBS in a UK legal action brought by shareholders who believed they were misled about the bank's true financial position when they were tapped for 12 billion pounds of emergency cash in April 2008.
The bank narrowly avoided insolvency after accepting a 46 billion pound government bailout six months later.
In his witness statement for that case, Hong said he had repeatedly warned managers the bank was misrepresenting the values of millions of dollars of asset-backed securities on its books prior to the subprime mortgage crisis.
In documents filed by lawyers acting for RBS in 2016, the bank rejected those allegations, and denied that it should have repriced assets more promptly or that it misled shareholders over its finances.
RBS settled the case in May 2017, prompting HSF to request destruction of documents circulated among the case participants, including witness statements, emails and transcripts of interviews given by executives to regulators that shed light on how RBS valued these assets.
Prior to the settlement of the case, lawyers for the bank had requested the court to seal some evidence from the public domain, court documents show.
In the letter, HSF alleged that Hong was responsible for uploading the documents in question to the online library Scribd which is accessible to registered users.
Hong declined to comment on the allegation.
In a statement, a spokeswoman for Scribd said all documents are uploaded by users without approval but Scribd would remove content deemed to be in violation of its policies when notified. She added Scribd typically did not divulge user account activity to third parties without a subpoena or court order.
HSF wrote that the documents were "never put in evidence" and that publishing them in this way "arguably interfered in the administration of justice" and potentially put those responsible for publishing them in contempt of court.
HSF also reminded Hong's representatives that sharing confidential material in this way would "likely" breach the terms of his separation agreement.
"Confidential copies of documents disclosed by RBS ahead of the Rights Issue litigation were published on the internet. This is absolutely prohibited by UK Civil Procedure Rules and the bank took the necessary and appropriate action to have the documents removed from the public domain and destroyed, in line with normal practice," a spokesman for RBS said.
HSF referred all comment for this article to RBS.
Hong's lawyer said that compliance with the request to destroy documents would violate U.S. federal law and requirements that bound the former employee following earlier submissions to the Department of Justice in its separate investigations into RBS's mis-selling of residential mortgage-backed securities (RMBS).
"The letter was apparently written by RBS' UK lawyers in disregard of legal requirements under federal law and governmental subpoenas," said Richard Corenthal of Meyer Suozzi English & Klein, the law firm which represented Hong with respect to his employment at RBS.
The DOJ declined to comment.
RBS said last week it had agreed to pay $4.9 billion to the DOJ to settle its years-long civil investigation into the bank's sales of mis-priced RMBS and collateralized debt obligations.
Some lawyers unconnected to the case said that RBS's request to destroy legally sensitive documents could also be interpreted as a breach of Deferred Prosecution Agreements the bank signed to settle earlier DOJ investigations into its role in the widespread manipulation of interest rate and foreign exchange benchmarks.
The Foreign Exchange DPA obliges RBS to use its "best efforts to secure the full, truthful, and continuing cooperation of the current or former directors, officers and employees" and to provide "any non-privileged or non-protected document, record, or other tangible evidence" upon request.
"On its face, this seems to me an extraordinary proposition that documents could be destroyed in these circumstances," Jonathan Fisher, QC at Bright Line Law, a London-based barrister law firm which specializes in white collar crime cases, told Reuters.
Pointing to the conflicting legal demands on his client, Corenthal said the letter had caused Hong emotional distress.
"It's disingenuous for RBS to tell Mr. Hong to destroy evidence and then claim it is not trying to intimidate him into silence," he told Reuters.
RBS, however, denied any possible breach of the DPA or intimidation of its former employee.
"RBS has not at any point sought to prevent the disclosure of evidence to the relevant authorities in relation to other investigations, nor does it believe that the letter in any way infringes on the terms of its Deferred Prosecution Agreements or constitutes mistreatment of a witness," the spokesman said.
Hong told Reuters that he had alerted the DOJ to the existence of the letter on April 30.
A second notification, to the U.S. Securities and Exchange Commission, was made on May 9, Hong said.
The SEC declined to comment.
(Additional reporting by Lawrence White, Emma Rumney and Kirstin Ridley in London, Nate Raymond in Boston and Michelle Price in Washington D.C.; Editing by Mike Collett-White)