RBC turned down settlement offer from the Commodities Futures Trading Commission (CFTC), prepares for court battle, and lays forth the broad outlines of its defense. And guess what? RBC's snagged a pretty good lawyer. For people wondering why is this news, check out my earlier CFTC-RBC post.
RBC's 'Wash' Suit Lawyer Talks To the Press
Bloomberg and The Star, splitting updates from RBC’s defense attorney, report that the Royal Bank of Canada (RBC) has opted to fight CFTC’s charges in court, and even turned down a settlement offer from the CFTC. This leads me to suspect that the settlement offer was rather high, which—in turns—increases the odds that the CFTC is looking for big financial penalty from the Manhattan federal district court.
The Bloomberg article also begins to outline how RBC may defend itself in court. At Bloomberg, RBC’s defense attorney Arthur W. Hahn chats with Doug Alexander and Silla Brush, and appears to lay out two lines of defense:
The Bloomberg article also begins to outline how RBC may defend itself in court. At Bloomberg, RBC’s defense attorney Arthur W. Hahn chats with Doug Alexander and Silla Brush, and appears to lay out two lines of defense:
“No Injury.” Hahn argues that there was “no injury” to the market from RBC's allegedly 'wash' transactions. What does this mean? Well it appears to implicitly concede two chief points of the CFTC’s complaint: that (a) RBC’s OneChicago LLC exchange transaction were between RBC and its affiliate, and (b) that senior RBC officials set the prices on the trades. Doesn’t look good, but Hahn’s cournter: “The trades all took place art absolutely appropriate calculable market prices” and hence there was “no injury…” What this leaves out? The small fact that RBC was the only market participant, which to me seems the real crux of this case.
RBC Followed the Rules. Hahn also states that RBC’s transactions were “within standard rules and the guidances put out” by the CFTC.
The Star’s Madhavi Acharya and Tom Yew give two additional insights from Hahn:
CFTC Changed the Rules on RBC After the Fact. The Star talks to Hahn too, and adds this interesting gloss that could work in a jury trial:
RBC says that it informed the regulator and the exchange, OneChicago, as far back as 2005 that it was making large block trades between various subsidiaries.
“We called the exchange and fully detailed everything we were doing and we wanted to make sure this is okay. We had essentially a green light. We proceeded to do these exact trades as we described them, all the way through 2010,” Hahn said.
“They now would like to take a different position. Our view is that’s fine. Change the rule but don’t bring in enforcement action after the fact.”
Will This All Come Down to a Canadian Tax Ruling? The Star also gives us this nugget of insight from former CFTC general counsel and current D.C.-based partner for Arnold & Porter LLP:“The question is whether the tax scheme is legitimate. If it’s not, the whole thing looks very unsavoury,” Waldman said. “If the tax scheme is legitimate, then it’s an issue of the trading mechanisms that were used and what was said to the regulator.”
Naturally, the Canada Revenue Agency isn't talking.
A Bit More On RBC's Lawyer, and my Burning Market-Of-One Quandary for Him (and the CFTC)
A Bit More On RBC's Lawyer, and my Burning Market-Of-One Quandary for Him (and the CFTC)
Finally, here’s more on RBC’s attorney David W. Hahn. He’s a long-time “super lawyer” partner at Katten Muchin Rosenman LLP, A Northwestern law grad, and worked for Senator Paul Douglass (a finance committee member back in the 60s). Not only has he taken on suits like this on both sides of the ‘v’, Katten LLP’s website boasts their knowledge of CFTA’s recent legislative changes and regulatory moves (which serves as a good introduction to the statute sections and regulations that will be defining this case).
The burning issue (maybe): Perhaps Hahn or someone at CFTA will catch this post and explain to me how the injury of price distortion works in a one-participant market setting, or simply showthat my ‘injury’ focus in utterly misplaced.
The burning issue (maybe): Perhaps Hahn or someone at CFTA will catch this post and explain to me how the injury of price distortion works in a one-participant market setting, or simply showthat my ‘injury’ focus in utterly misplaced.
Securities Lawyers Get the Best Discovery Process Settings? And, on a lighter note, I hope Hahn gets a nice trip out what's shaping up to be a deeply contested and consequential court battle. RBC's tax-avoidance/alleged 'wash' trading scheme taking place between RBC subsidies in Toronto, Europe, the Bahamas, and the Cayman Islands, suggesting--perhaps--a more pleasant-than-not discovery process. Sadly, I suspect most of the documents and witnesses with be flown in Chicago.
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