SEC Division of Corporation Finance no-action letter: Royal Bank of Canada

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

June 11, 2009 DIVISION OF
CORPORATION FINANCE
Mr. George S. Canellos

Milbank, Tweed, Hadley & McCloy LLP

1 Chase Manhattan Plaza

New York, N.Y. 10005-1413

Re: SEC v. RBC Capital Markets Corporation (HO-l 0906) Waiver Request of Ineligible Issuer Status under Rule 405 of the Securities Act by Royal Bank of Canada Dear Mr. Canellos:
This is in response to your letter dated May 6,2009, written on behalf of your client Royal Bank of Canada ("Company") and its subsidiary RBC Capital Markets Corporation ("RBC Capital") and constituting an application for relief from the Company being considered an "ineligible issuer" under Rule 405(1)(vi) of the Securities Act of 1933 ("Securities Act"). The Company requests relief from being considered an ineligible issuer under Rule 405, arising from the settlement of a civil injunctive proceeding with the Commission. The Commission filed a civil injunctive complaint against RBC Capital in the United States District Court for the Southern District ofNew York alleging that RBC Capital violated Section 15(c) ofthe Securities Exchange Act of 1934 ("Exchange Act"). RBC Capital filed a consent in which it agreed, without admitting or denying the allegations ofthe Commission's Complaint, to the entry ofa Final Judgment against it. Among other things, the Final Judgment as entered on June 9, 2009, permanently enjoins RBC Capital from violating Section 15(c) ofthe Exchange Act. Based on the facts and representations in your letter, and assuming the Company and the RBC Capital will comply with the Final Judgment, the Commission, pursuant to delegated authority has determined that the Company has made a showing of good cause under Rule 405(2) and that the Company will not be considered an ineligible issuer by reason ofthe entry ofthe Final Judgment. Accordingly, the relief described above from the Company being an ineligible issuer under Rule 405 ofthe Securities Act is hereby granted and the effectiveness of such relief is as ofthe date of the entry ofthe Final Judgment. Any different facts from those represented or non-compliance with the Final Judgment might require us to reach a different conclusion. ;n;ti~t Mary Kosterhtz . Chief, Office of Enforcement Liaison Division of Corporation Finance

MILBANK, TWEED, HADLEY & MCCLOY LLP
1 CHASE MANHATTAN PLAZA
LOS ANGELES NEW YORK. N.Y. 10005-1413 BEIJING
213-892-4000 8610-5 123-5120
FAX,213-629-5063 FAX,8610-5123-5191
212-530-5000
WASHINGTON. D.C. .. HONG KONG FAX: 212-530-5219 202-835-7500 852-2971-4888 FAX, 202-835-7586 FAX, 852-2840-0792 LONDON SINGAPORE 020-7615-3000 GEORGE S. CANELLOS 65-6428-2400 FAX,020-761'5-3100 PARTNER FAX, 65-6428-2500 DIRECT DIAL NUMBER

212-530.5174

FR..ANKFURT FAX: 212-822-5174
TOKYO
49-69-71914-3400 E-MAIL: gcanellos@milbank.com 813-3504-1050

FAX,49-69-71914-3500 FAX: 813-3595-2790

MUNICH May 6, 2009 49-89-25559-3600
FAX: 49-89·25559-3700
VIA FIRST CLASS MAIL AND E-MAIL
Mary Kosterlitz, Esq.
Chief, Office ofEnforcement Liaison
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-7553
Re: Securities and Exchange Commission v. RBC Capital Markets Corporation (File No. HO-I0906) Dear Ms. Kosterlitz:
We submit this letter on behalf of our client Royal Bank ofCanada, a reporting company registered under Section 12 ofthe Securities Exchange Act of 1934 (the "Exchange Act"), to request a determination by the Division of Corporation Finance, acting pursuant to authority duly delegated by the Securities and Exchange Commission (the "Commission"), that Royal Bank of Canada should not be an "ineligible issuer" as defined under Rule 405 promulgated under the Securities Act of 1933 (the "Securities Act") as a result ofthe entry of a Judgment as to Defendant RBC Capital Markets Corporation ("RBC") (the "Judgment"). Relief from the ineligible issuer provisions is appropriate in the circumstances ofthis case for the reasons set forth below. It is also our understanding that the Staff ofthe Division ofEnforcement (the "Staff') does not oppose the grant of exemptive relief, including the requested waiver. Royal Bank ofCanada requests that this determination be made effective upon the entry ofthe Judgment.

Mary Kosterlitz, Esq.
May 6,2009
BACKGROUND
The Staffhas engaged in settlement discussions with RBC in connection with the above￾captioned civil proceedings, which will be brought alleging violations of Section 15(c) ofthe Exchange Act. As a result of these discussions, RBC submitted an executed Consent of Defendant RBC Capital Markets Corporation (the "Consent"). In the Consent, solely for the purpose ofthe proceedings brought by or on behalfofthe Commission or in which the Commission is a party, RBC agreed to consent to the entry ofthe Judgment, without admitting or denying the allegations contained in the above-captioned Complaint (other than those relating to personal and subject matter jurisdiction, which are admitted). The Complaint concerns the marketing and sale of auction rate securities ("ARS") by the Respondent to investors. The Complaint alleges that RBC failed properly to disclose in communications with certain customers the increasing risks associated with ARS that RBC underwrote, marketed and sold. The Complaint further alleges that, through its employees and marketing materials, RBC misrepresented to many ofits customers that ARS were safe, highly liquid investments that were substitutes for cash or money-market funds. The Complaint alleges that, as a result, numerous customers invested their savings in RBC's ARS that they needed or expected to have available on a short-term basis. The Complaint further alleges that (i) on February 11,2008, RBC determined that it would not place bids in most ofits auctions, as it had historically done, (ii) at or around the same time, other broker-dealers also discontinued their practice of placing bids in auctions, and (iii) as a result, most auctions failed, and RBC's customers were left holding more than $8.8 billion in illiquid ARS. The Complaint alleges that RBC violated Section 15(c) ofthe Exchange Act. The Judgment, among other things, will permanently restrain and enjoin RBC and its agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice ofthe Judgment, from violating, directly or indirectly,
Section 15(c) ofthe Exchange Act. Royal Bank of Canada is not a party to the proceedings.
DISCUSSION
Effective on December 1, 2005, the Commission reformed and revised the registration, communications, and offering procedures under the Securities Act. I As part ofthese reforms, the Commission created a new category ofissuer defined under Rule 405 as a well-known seasoned issuer ("WKSI"). A WKSI is eligible und~r the new rules, among other things, to register securities for offer and sale under an "autotnatic shelf registration statement," as so defined. A WKSI is also eligible for the benefits of a streamlined registration process including the use offree-writing prospectuses in registered offerings pursuant to Rules 164 and 433 under Securities Offering Refonn, Securities Act Release No. 8591, Exchange Act Release No. 52,056, Investment Company Act Release No. 26,993,70 Fed. Reg. 44,722, 44,790 (Aug. 3,2005). 1

Mary Kosterlitz, Esq.
May 6, 2009 the Securities Act. These benefits, however, are unavailable to issuers defined as "ineligible issuers,,2 under Rule 405. Rule 405 defines "ineligible issuer," in pertinent part, as any issuer which itself or any of its subsidiaries had within the past three years been "made the subject of any judicial or administrative decree or order arising out of a government action that [prohibits certain conduct or activities regarding, including future violations of, the antifraud provisions ofthe federal securities laws." Notwithstanding the foregoing, paragraph (2) ofthe definition provides that an issuer "shall not be an ineligible issuer ifthe Commission determines, upon a showing of good cause, that it is not necessary under the circumstances that the issuer be considered an ineligible issuer." The Commission has delegated authority to the Division ofCorporation Finance to make such a determination pursuant to 17 CFR § 200.30-1 (a)(lO). The Judgment might be deemed to render Royal Bank of Canada an ineligible issuer for a period ofthree years after the Judgment is entered.3 This result would preclude Royal Bank of Canada from qualifying as a WKSI and having the benefits of automatic shelfregistration and other provisions the Securities Offering Reform for three years. This would impose a significant burden on Royal Bank of Canada. Royal Bank of Canada is a frequent issuer'ofregistered securities that offers and sells securities under a shelf registration statement in both one-off and ongoing debt and equity transactions. For Royal Bank of Canada, the shelf registration process provides an important means of access to the U.S. capital markets, which are an essential source offunding for the company's global operations. Consequently, the ability to avail itself of automatic shelf registration and the other benefits available to a WKSI is very important to Royal Bank of Canada. As set forth above, Rule 405 authorizes the Commission to determine for good cause that an issuer shall not be an ineligible issuer, notwithstanding that the issuer or a subsidiary ofthe issuer becomes subject to an otherwise disqualifying judicial order. Royal Bank ofCanada believes that there is good cause for the Commission to make such a determination here on the following grounds:

1. Designation of Royal Bank ofCanada as an ineligible issuer is not warranted
   given the nature ofthe violations that are the basis ofthe Complaint. The alleged conduct related to the marketing and sale ofARS issued by third party issuers to RBC's customers. The Complaint does not challenge the disclosures by Royal Bank ofCanada in its filings with the Commission, nor does it involve allegations of fraudulent activity by Royal Bank ofCanada. 2 This request for relief is not intended to be limited solely for the purpose of continuing to qualify as a WKSI, but for all purposes of the definition of "ineligible issuer" under Rule 405 including but not limited to whatever purpose the definition may now or hereafter be used under the federal securities laws, including Commission rules and regulations. 3 RBC Capital Markets Corporation is a wholly-owned indirect subsidiary of Royal Bank of Canada.

Mary Kosterlitz, Esq.
May 6, 2009
2. Royal Bank of Canada and RBC have strong records of compliance with the
securities laws and fully cooperated with the Enforcement Division's inquiry into this matter.
3. Designation ofRoyal Bank ofCanada as an ineligible issuer would be unduly and
disproportionately severe. The Judgment will require RBC, among other things, to buy back approximately $867 million ofARS sold to retail customers, without regard to whether customers received or relied upon false ofmisleading information supplied by RBC. RBC will also make whole any losses sustained by certain customers who sold ARS on or between February 11, 2008 and October 8, 2008. In addition, until RBC provides par solutions to clients pursuant to the Judgment, RBC will provide customers no-net-cost loans that will remain outstanding until the ARS are repurchased. Loss of, or the possibility of preclusion from WKSI privileges, and other adverse consequences thereof, would impose an additional penalty beyond what the Judgment requires and is not necessary to achieve its remedial purposes. In light ofthe foregoing, subjecting Royal Bank of Canada to ineligible issuer status is not necessary under the circumstances, either in the public interest or for the protection of investors, and good cause exists for the grant ofthe requested relief. Accordingly, we respectfully request that the Division ofCorporation Finance, acting pursuant to authority duly delegated by the Commission and pursuant to paragraph (2) ofthe definition of "ineligible issuer" in Rule 405, determine that under the circumstances Royal Bank of Canada will not be considered an "ineligible issuer" within the meaning ofRule 405 as a result ofthe Judgment.4 We further request that this determination be made (i) effective upon entry ofthe Judgment and (ii) for all purposes ofthe definition of "ineligible issuer," however it may now or hereafter be used under the federal securities laws and the rules thereunder. If you have any questions regarding this request, please contact me at (212) 530-5174. Sinc~rely yours, We note in support ofthis request that the Division ofCorporation Finance, acting pursuant to authority duly delegated by the Commission, has in other instances granted reliefunder Rule 405 for similar reasons. See Waiver Requests of Ineligible Issuer Status under Rule 405 of the Securities Act were granted for: UBS Financial Services, Inc. (December 23,2008); Bank of America (May 1,2008); Morgan Stanley (May 11, 2007); Banc ofAmerica Securities LLC (March 14,2007); Bank ofNew York (January 9,2007); and Deutsche Bank, AG (January 9, 2007). 4