RBC to pay $2.5 million for proxy violations over Rural/Metro sale

August 31, 2016 11:55 AM EDT

A Royal Bank of Canada (RBC) sign is seen outside of a branch in Ottawa, Ontario, Canada, May 26, 2016. REUTERS/Chris Wattie


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By Suzanne Barlyn

(Reuters) - A Royal Bank of Canada (NYSE: RY) unit has agreed to pay $2.5 million for causing false and misleading disclosures in a proxy statement for the sale of ambulance company Rural/Metro Corp, the U.S. Securities and Exchange Commission said on Wednesday.

RBC Capital Markets LCC, in settling the case, neither admitted nor denied the allegations, the SEC said.

"We are pleased to resolve this matter and put this behind us," an RBC spokeswoman said. A spokesman for Rural/Metro, acquired last year by Envision Healthcare Holdings Inc (NYSE: EVHC), declined comment.

RBC was the lead financial adviser to Scottsdale, Arizona-based Rural/Metro and received a $500,000 fee for an opinion it presented to the ambulance company's board in 2011, which was considering the company's sale to a private equity firm.

An SEC investigation found that RBC’s presentation included "materially false and misleading statements," making the bid look more attractive. The presentation also caused the information to be included in a proxy statement filed by Rural/Metro in May 2011 to solicit shareholder approval for the sale, the SEC said.

RBC's actions leading up to the sale were challenged in a lawsuit by former Rural/Metro shareholders that triggered concerns on Wall Street about the potential liability of financial advisers in merger deals where a board mishandled a company's sale.

In 2014, a Delaware court ordered RBC to pay $76 million in damages to the former shareholders, after finding the firm liable for convincing Rural/Metro's board to rush into a $438 million buyout led by private equity firm Warburg Pincus.

The court, in a ruling that was later upheld by the Delaware Supreme Court, also found that RBC concealed that it was also trying to win the more lucrative role of providing financing to Warburg.

The SEC, in its settlement with RBC on Wednesday, took issue with the firm's presentation of its valuations for Rural/Metro. The agency found that RBC's presentation described one of its valuations as based on Wall Street analysts' collective projections of a pretax earning figure.

But the valuation did not reflect analysts' research or a collective view, the SEC said. Instead, the valuation was based on an actual 2010 adjusted earnings figure.

(Reporting by Suzanne Barlyn in Washington Crossing, Pa.; Editing by Phil Berlowitz and Matthew Lewis)



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