Risk & Compliance

RBC Fined $2.5M Over Advice to Rural/Metro

The SEC says the bank caused a false valuation of Rural/Metro to be included in materials provided to shareholders.
Matthew HellerSeptember 1, 2016

In more legal fallout from Royal Bank of Canada’s role in the sale of Rural/Metro, the U.S. Securities and Exchange Commission has fined the bank $2.5 million for causing a false valuation of the ambulance company to be included in the proxy statement provided to its shareholders.

An RBC unit was the lead financial adviser to Rural/Metro as it considered the $438 million buyout proposal of private equity firm Warburg Pincus. According to the SEC, RBC Capital Markets provided a fairness opinion to the Rural/Metro board that made the offer appear “more attractive” than a competing bid from another PE firm.

The opinion contained materially false and misleading statements about RBC’s valuation analysis, the SEC said in an administrative order, and those statements were subsequently repeated in the proxy statement Rural/Metro filed in May 2011 to solicit shareholder approval for the sale to Warburg.

To settle the charges, RBC agreed to pay $500,000 in disgorgement, $77,759 in interest, and a $2 million penalty.

“Accurate disclosures about financial advisers’ fairness opinions are important to shareholders in the sale of a corporation,” Andrew J. Ceresney, director of the SEC Enforcement Division, said in a news release. “This enforcement action holds RBC accountable for causing its client to distribute material misstatements about its financial analysis to shareholders.”

A Delaware court previously ordered RBC to pay $76 million in damages to former Rural/Metro shareholders, finding the firm liable for aiding and abetting breaches of fiduciary duty by the company’s former directors.

In its draft fairness opinion to the board, the SEC said, RBC presented two precedent transaction ranges — $15.49 to $21.91 for the management case and $13.31 to $19.15 for the Wall Street analyst “consensus” case. Warburg’s $17.25-per-share bid was within both ranges.

But according to the SEC, RBC’s bankers then revised the precedent transaction analysis by lowering Rural/Metro’s “consensus” pro forma adjusted EBITDA from $76.5 million to $69.8 million, choosing not to add back $6.3 million of one-time expenses.

“As a result of these changes, RBC lowered the ‘consensus’ precedent transaction range … to $8.19 to $16.71 per share, entirely below Warburg’s $17.25 offer,” the SEC said.