A New York state Supreme Court judge has dismissed a lawsuit from a group of institutional investors against Royal Bank of Canada (TSX:RY), and various RBC affiliates, seeking to recover their losses in the collapse of Canadian hedge fund firm, Norshield Financial Group, back in 2005.
On Nov. 3, Justice Peter Sherwood granted RBC’s motion for summary judgment, dismissing the suit from Balanced Return Fund Ltd., Mendota Capital, Inc., Commax Investors Services Ltd., and Comprehensive Investors Services, Ltd. seeking U.S.$140 million in damages. The firms were seeking to recover losses they suffered when Norshield failed. And, they made a number of claims against RBC alleging breach of fiduciary duty, fraud, and unjust enrichment, based on RBC’s participation in various options contracts with Norshield.
According to the decision, the investors alleged that they suffered losses when RBC approved transactions that “depleted the Fund of liquid and valuable investments to allow favored investors to redeem Fund shares at artificially inflated net asset values” And, they also claimed that “RBC prematurely terminated the [options contracts] in order to sell the underlying basket of securities and recover for RBC the assets which investors had been led to believe belonged to the Fund in which they purchased shares” .
Norshield came under regulatory investigation in 2005 and was subsequently placed into receivership by the Ontario Superior Court of Justice. At that time, RBC exercised its contractual right to terminate one of its funds, and it liquidated the hedge fund and managed account positions. The proceeds from those actions of about $38.5 million, were ultimately paid out to Norshield’s receivers, and the bank secured releases from the funds’ liquidators in Canada, the United States, the Bahamas, and Barbados, the decision notes.
Ultimately, the judge ruled in favour of RBC, dismissing the suit, on the basis that there was insufficient connection between the plaintiffs and their losses, and RBC. In his decision, Sherwood notes that the claims are being dismissed because “there is no contractual or other relevant relationship between those plaintiffs and the defendants, and they have raised no issue of fact as to how the defendants proximately caused their losses.”