Fears RBC $75m fine for tainted advice could spread
Royal Bank of Canada's (RBC) has been fined $75m by the Delaware Supreme Court for giving tainted advice on a 2011 buyout deal; the penalty may have far-reaching consequences for Wall Street banks, according to analysts. The court found that RBC had failed to secure the best deal possible for shareholders of Rural/Metro Corporation, when it was sold to Warbug Pincus. This decision has drawn significant interest, as the size of judgement was over ten times the $5m fee that RBC earned from the transaction, causing huge concern among dealmakers.

The Delaware Supreme Court struck a blow to Wall Street advisers on Monday, affirming a $76 million damage award against RBC Capital Markets over its role in advising the ambulance service Rural/Metro in its 2011 sale to the private equity firm Warburg Pincus.

The court, however, was careful to say it was not making a sweeping revision of rules regarding adviser conflicts.

In its 105-page decision affirming a lower court’s rulings, the court said, “Our holding is a narrow one that should not be read expansively to suggest that any failure on the part of a financial adviser to prevent directors from breaching their duty of care gives rise to a claim for aiding and abetting.”

Investors also have to prove an adviser acted with intent.

Andrew F. Tuch, an associate professor at the School of Law of Washington University in St. Louis, said that the ruling rejected the lower court’s characterization of investment bankers as “gatekeepers.”