Royal Bank of Canada Sued Over Failed Hedge Funds

Date: Tuesday, January 27, 2009
Author: Cynthia Cotts, Bloomberg.com

Royal Bank of Canada, the country’s biggest bank by assets, was sued by investors in Olympus United Funds who claim they lost more than $90 million in the funds’ collapse.

Royal Bank, based in Toronto, “secretly managed” the funds, according to a complaint filed Jan. 23 in U.S. District Court in Manhattan. The funds’ parent company Norshield Financial Group filed for receivership in June 2005 amid probes by securities regulators.

“In its dealings and relationships with Norshield, Royal Bank of Canada assumed control of investments, exercised discretion in key areas and thus became liable for my clients’ losses,” Lee Squitieri, a lawyer for the investors, said in an interview.

Royal Bank officials allegedly overstated the funds’ assets, breached their fiduciary duties to investors, committed fraud and misrepresented material facts, the investors said in the complaint. They seek unspecified damages.

“Royal Bank of Canada believes the lawsuit is without merit and will vigorously defend against the claims,” Jackie Braden, a spokeswoman for the bank, said in a statement today.

Among the investors suing are Balanced Return Fund Ltd., Mendota Capital and Commax Investors Services Ltd.

Squitieri filed an identical lawsuit last May, he said. The parties agreed to resolve the matter privately, after which he withdrew the suit with the option to refile it later, he said.

“We did not reach a satisfactory resolution,” Squitieri said.

The complaint doesn’t identify individuals responsible for the funds because investors can obtain complete relief without doing so, according to the lawyer.

The case is Balanced Return Fund v. Royal Bank, 09-cv-695, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Cynthia Cotts in New York at ccotts@bloomberg.net.