BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe

RBC unit to pay $30.4M to settle SEC charges


WASHINGTON (Reuters)—A unit of Royal Bank of Canada will pay $30.4 million to settle civil charges that it sold unsuitable complex financial products to five Wisconsin school districts.

The U.S. Securities and Exchange Commission issued the administrative order against RBC Capital Markets L.L.C. in an expansion of its investigation into collateralized debt obligations and other risky products that played a role in the recent financial crisis.

In August, the agency sued the brokerage firm that engineered the sale, Stifel Nicolaus & Co.

According to the SEC, RBC Capital Markets and Stifel in 2006 sold the school districts $200 million worth of credit-linked notes tied to the performance of CDOs.

The notes, paid for largely with borrowed funds, resulted in heavy losses for the schools.

The SEC said the bank went ahead with the deal even though the products were not suitable for less sophisticated investors. The bank also failed to disclose the major risks in its marketing materials, the agency said.

"RBC failed Securities 101 when it sold complex derivatives that were unsuitable to five school districts without fully informing them of the risks," said SEC enforcement director Robert Khuzami in a news release.

RBC Capital settled the charges without admitting or denying wrongdoing.

In a statement, RBC Capital said Stifel acted on its own in misrepresenting the investments.

"We did not know that Stifel was misrepresenting the products' risks to its clients and would not have participated in the transaction had we had full knowledge of Stifel's communication with its client," an RBC Capital spokesman said.

A Stifel spokesman said the firm was "gratified" the SEC determined RBC Capital had failed to adequately disclose the risk of the investments.

The SEC settlement could provide some incentive for the school districts to resolve a long-running lawsuit they filed against both the brokerage and the bank.

That case, filed in state court in 2008, has survived attempts to dismiss it and has produced some 3 million documents, a lawyer for the schools, C.J. Krawczyk, said.

RBC and Stifel have also sued each other, attempting to shift liability for the failed investments.

The SEC settlement moves the ball forward in the private case since the $30 million in sanctions RBC agreed to pay will go directly to the school district, the bank said.

"Events like this have a tendency to create an opportunity for the settlement of companion civil litigation," Mr. Krawczyk said.