Royal Bank to pay $31M SEC fine
The Royal Bank has agreed to pay $30.4 million US ($31 million Cdn) to settle charges arising from the 2008 financial crisis, the U.S. Securities and Exchange Commission announced Tuesday.
The SEC had charged that the capital markets division of Canada’s biggest bank sold unsuitable investments to five Wisconsin school districts. The proceeds will be paid back to the school districts.
The agreement was reached without the bank admitting to or denying any of the SEC’s findings.
The U.S. securities watchdog said the Royal in 2006 sold the school districts $200 million US worth of collateralized debt obligations, or CDOs, which are complex financial derivatives created to speculate on or protect against default by the issuers of bonds.
"The sales took place despite significant concerns within RBC Capital about the suitability of the product for municipalities like the school districts," the SEC said in a release.
"Additionally, RBC Capital’s marketing materials failed to adequately explain the risks associated with the investments," it added.
"RBC failed Securities 101 when it sold complex derivatives that were unsuitable to five school districts without fully informing them of the risks," said Robert Khuzami, Director of the SEC’s Division of Enforcement.
Royal blames seller
"We are pleased to resolve this matter and are heartened by the fact that the school districts will be the beneficiary of the settlement," the bank said in a statement emailed to The Canadian Press.
Last month, the SEC filed separate charges against a St. Louis investment bank, Stifel, Nicolaus & Co., and one of its former executives alleging fraud in connected with the same sale.
At that time, Stifel blamed RBC for the losses, and accused the bank of intentionally understating the profits it was going to earn on the CDOs.
A representative for Stifel wasn't immediately available for comment.
The Royal Bank addressed those accusations indirectly, essentially pegging the blame on Stifel.
"We did not know that Stifel Nicolaus & Co., an investment bank, was misrepresenting the product's risks to its clients and would not have participated in the transaction if we had full knowledge of Stifel's communication with its client," the bank said.
With files from The Canadian Press