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In re Balanced Return Fund Limited et al. v. Royal Bank of Canada

Court: Supreme Court of the State of New York County of New York
Case No.:
Index No. 600949/09

Wexler Wallace represents a hedge fund in this breach of fiduciary case against the Royal Bank of Canada (“RBC”) and related Defendants (with RBC, the “RBC Defendants”), which seeks to recover investments in Olympus United Funds (the “Fund”) lost during the period from 2000 through mid-2005 (the “Class Period”) as a result of conduct by the RBC Defendants that caused the collapse of the Fund.  Specifically, the RBC Defendants disregarded the interests of the Plaintiffs and other investors in favor of their own interests by approving a transaction which depleted the Fund of assets while appropriating the benefits of those assets for themselves.

As alleged in the complaint, RBC was instrumental in designing and operating the investment Fund.  Until the collapse of the Fund, RBC and its subsidiaries garnered for themselves huge fees and premiums for operating the investment.  The cornerstone of the Fundwas a Cash Settled Index Call Option and a Cash Settled Equity Barrier Index Call Option (collectively, the “RBC Option”).  Investors did not know, and RBC did not disclose to them, that RBC Option and the operation of the Fund generally were heavily skewed to favor RBC’s operation and control of the Fund’s investments to the detriment of Plaintiffs and other investors.

The complaint alleges that Plaintiffs and other investors in the Fund were misled in numerous ways.  Among the material misrepresentations and omissions were the following: (1) RBC’s conflicted role in the management and oversight of the Fund’s assets; (2) the enormous financial risk to investors due to the leverage in the underlying funds extended clandestinely by RBC and which were not reflected in the Fund’s financial statements; (3) the illiquidity of certain assets underlying the Fund; (4) RBC’s alleged position as a secured creditor to the detriment of Fund investors; (5) the true net asset value of shares in the Fund; and (6) the risk that RBC, as custodian of the Fund’s assets, would choose to terminate the RBC Option on short notice to the detriment of Plaintiffs and other Fund investors.  The latter risk was precisely what was realized, causing the collapse of the Fund.

To learn more about the case and view the most recent Complaint, click here.