RBC battles former executive after dropping Volcker strategy

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By Olivia Oran and Nate Raymond

<span class="articleLocation”>Royal Bank of Canada is in a court
battle with a former executive it dismissed after moving him to
the Bahamas where it could continue a lucrative trading business
hindered by U.S. regulations.

The dispute, according to court documents, centers on
whether the former executive, Tebogo Phiri, has the right to
valuable intellectual property such as data and trading
strategies underpinning the business he ran for RBC. But it also
reveals ongoing fallout from a controversial financial reform
measure known as the Volcker rule banning proprietary trading,
which banks have tried to fight in sundry ways.

Phiri first filed a lawsuit in New York State court in
December against RBC’s U.S. investment banking division, saying
his former employer had agreed in writing to let him take
certain intellectual property if the business did not survive
offshore. The information and trading strategies involved
generate tens of millions of dollars in annual revenue,
according to court filings.

Phiri’s group engaged in proprietary trading, in which a
bank’s own capital is used to place speculative market bets.
That type of trading was largely banned by the Volcker rule,
which was part of a broad set of U.S. financial reforms after
the 2008 crisis.

Lawyers for RBC and Phiri did not respond to requests for
comment. A spokeswoman for RBC declined to comment. Phiri could
not be reached for comment.

According to Phiri, RBC came up with a plan in 2015 to move
him and other traders offshore because of the Volcker rule. An
exception to the rule allows non-U.S. banks to engage in
proprietary trading activity as long as the trading is conducted
outside the United States.

But by mid-2016, the bank changed course and decided to shut
down the Bahamas operation. RBC terminated Phiri’s employment in
October, but did not grant him the intellectual property rights
he was expecting, according to court papers.

VOLCKER HARD TO GET AROUND

Wall Street banks have fought hard against the Volcker rule
on Capitol Hill and at regulatory agencies, and have recently
been lobbying the new Congress to make changes that would soften
its impact.

They have also taken advantage of exemptions related to
hedging and merchant banking. But moving proprietary trading
offshore has been a challenge for some foreign banks because of
compliance issues.

“Many big global banks have ended up implementing Volcker
procedures around the world anyway,” said John Williams, a
partner at Milbank, Tweed, Hadley & McCloy. “Even if banks can
take advantage of the exemption it’s hard to do so in a global
market.”

The Botswana-born trader launched an arbitration proceeding
before the Financial Industry Regulatory Authority (FINRA)
seeking a decision that would allow him to use the intellectual
property and award him more than $2 million, according to court
records.

He also filed the New York lawsuit, through which he
obtained a court order in December preventing RBC from selling
or transferring the intellectual property to third parties.

On Feb. 15, the FINRA panel granted Phiri’s request for an
injunction. On Tuesday, RBC filed a new lawsuit seeking an order
declaring FINRA’s ruling unenforceable.

The bank argues that FINRA’s decision is too vague to
implement, while Phiri argues it grants him rights to the
intellectual property at issue. RBC said doing so would cause “immediate and irreparable harm.”



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