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March 20, 2014

Ruling Highlights Unequal Treatment in Penalizing Corporate Wrongdoers

“Bankers are not exactly popular these days, but is it right to let directors escape scot-free when they do wrong and an investment bank pays the bill?”

“A Delaware judge recently found the Royal Bank of Canada’s investment bank liable for up to $250 million based on a claim that the investment bank, RBC Capital Markets, “aided and abetted” wrongdoing by the board of the ambulance services company Rural/Metro Corporation — namely, selling the company on the cheap. Yet, because of laws that make it virtually impossible to hold directors personally liable, Rural/Metro’s board was able to settle a shareholders’ lawsuit over the sale for just $6.6 million, most of which was paid by insurance, according to a source with knowledge of the lawsuit. The case shows just how greedy investment bankers can be, but is it right for the bank to be paying so much money and not the directors, particularly when it is the directors’ misconduct that the bank’s liability is based on?”

“The road to the Delaware courtroom began in 2010, when Rural/Metro formed a special committee to examine a possible combination with its biggest competitor, American Medical Response, and subsequently other strategic alternatives. At this point, two directors on the Rural/Metro board began to favor their own interests, according to the opinion by Delaware judge overseeing the case, Vice Chancellor J. Travis Laster.”

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Read full New York Times article here.

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