Fred Goodwin RBS
Fred Goodwin is the former chief executive of RBS who was forced out when his bank nearly collapsed during the financial crisis and had to be rescued by taxpayers (Reuters) Reuters

State-owned RBS will pick up the legal tab for former executives likely to be hauled in front of a judge as part of the bank's defence against cases brought by investors who lost money in a 2008 shares offering.

It means taxpayers will likely foot the legal bill for Fred "the shred" Goodwin, the fallen former RBS chief executive who led the bank until it had to be rescued from collapse by a £45.5bn government bailout during the financial crisis.

An anonymous source close to the legal action from investors told the Edinburgh Evening News that it is "absolutely certain" Goodwin will be called on to give evidence in court as he is a "critical witness" for the RBS defence.

Goodwin was stripped of his knighthood for services to banking over the RBS meltdown. He still draws several hundred thousand pounds a year from the taxpayer-backed bank in a pension.

Investors are accusing RBS of misleading them in a 2008 rights issue prospectus from before the bank reached breaking point and had to be rescued by the taxpayer, causing its share price to plummet.

In the most significant of multiple claims, the RBoS Shareholder Action Group has alleged that Goodwin along with three other RBS diretcors at the time - Chairman Sir Tom McKillop, investment banking boss Johnny Cameron, and Group Finance Director Guy Whittaker - misled shareholders by misrepresenting the underlying strength of the bank in the 2008 shares offer.

As a result, argues the investor group, they were in breach of Section 90 of the Financial Services and Markets Act 2000. The case is worth around £4bn and was revealed in November 2012 by IBTimes UK.

In separate cases related to the same issue, Bloomberg reported that RBS faces legal action from Legal & General Group, Prudential and Standard Life.

Around 16,000 investors, a mix of both individuals and institutions, are taking legal action against RBS over the 2008 share offering.

RBS had not at the time of publishing returned IBTimes UK's call, but has previously said "the Group considers that it has substantial and credible legal and factual defences to the remaining and prospective claims and will defend itself vigorously."

The cases are another bump on the road back to health for RBS and its eventual return to private investors. The UK government holds an 81% stake in RBS as the bank undergoes balance sheet reforms to wind-down and sell-off the toxic assets bought before the financial crisis.

The government has already started selling its stake in Lloyds Banking Group, which was also bailed out during the crisis. It sold 6% of its stake to big investors for £3.2bn, reducing its total holding to 32.7%.