If a settlement isn’t reached, the case could go to trial before the Ontario Securities Commission (OSC) on Wednesday.
The OSC has accused RT Capital staff of “intentionally, repeatedly and openly” inflating the prices of 26 stocks in late 1998 and early 1999 through a process known as “high closing.” The process involves executing large transactions late in the day to boost a stock’s price.
The higher price boosts the value of portfolios investing in the stock – and can increase fund manager compensation. Two RT Capital Management fund managers are named, as well as five executives charged with failing to supervise staff properly.
RT Capital, the pension management arm of Royal Bank, is one of the largest pension management firms in the country. The firm is responsible for some $34 billion in assets, with more than 700 client accounts, most of which are institutional pension funds.
Friday, Royal Bank took the unprecedented step of issuing a public apology in full-page ads in newspapers across the country. Chairman John Cleghorn said the actions of some at RT Capital were “unacceptable”, noting “we have taken and will continue to take steps to ensure there will not be a recurrence of these activities.”
“It’s significant pressure on the organization and it’s a complete distraction,” said Ernest McNee, a securities lawyer with Blake, Cassels and Graydon. In Canada’s National Post, McNee also says that trustees are now legally obliged to rethink their investment with RT because the law says they must invest pension funds in a “prudent fashion.”
Murray Gold, a pension lawyer with Koskie Minsky, which represents firms who invest with RT Capital said “My clients are very concerned and they treat this as a serious issue.”
Gold predicts the impact of the case will continue because” once the integrity of the market’s pricing mechanisms are called into question, then the questions don’t stop.”
Four RT Capital employees have been suspended until the negotiations are finished.