RBC Capital Markets will pay $2.5 million to settle charges that it caused materially false and misleading disclosures about its valuation analysis in a proxy statement for Rural/Metro Corporation’s sale in 2011 to a private equity firm.
RBC was the lead financial adviser to Rural/Metro, a medical transportation services provider, and received a $500,000 fee for a fairness opinion presented to Rural/Metro’s board as it considered the sale.
RBC was represented by George Canellos, Daniel Perry and Benjamin Sedrish of Milbank Tweed in New York.
A Securities and Exchange Commission (SEC) investigation found that RBC’s presentation contained materially false and misleading statements which made the bid look more attractive, and caused that information to be included in the proxy statement Rural/Metro filed in May 2011 to solicit shareholder approval for the sale.
The SEC found that RBC’s presentation described one of its valuations as being based on Wall Street analysts’ “consensus projections” of Rural/Metro’s 2010 adjusted EBITDA, a pretax earnings figure.
In fact, the valuation did not reflect analysts’ research or a “consensus” view, but was Rural/Metro’s actual 2010 adjusted EBITDA of $69.8 million.
Rural/Metro’s proxy statement included a summary of RBC’s valuation analysis, which falsely stated that RBC used “Wall Street research analyst consensus projections” for 2010 “consensus” adjusted EBITDA.
The SEC order found that in addition to being false, the proxy statement was misleading because shareholders would be led to believe the analysis reflected the “consensus” calculation of $76.8 million.
The SEC also found that RBC caused the proxy statement to include a misleading disclosure that suggested RBC had relied on another valuation analysis in its fairness presentation to Rural/Metro’s board when, in fact, RBC did not rely on the analysis for valuation purposes.
“Accurate disclosures about financial advisers’ fairness opinions are important to shareholders in the sale of a corporation,” said Andrew J. Ceresney, Director of the SEC Enforcement Division. “This enforcement action holds RBC accountable for causing its client to distribute material misstatements about its financial analysis to shareholders.”