Royal Bank of Canada, the country’s largest lender, and several units were sued by Rakuten Bank Ltd. over claims it marketed and sold unsuitable securities backed by deteriorating mortgage loans that wiped out a $10 million investment, Bloomberg News reported yesterday. RBC induced Rakuten to invest 1 billion Japanese yen ($10.3 million) in a tranche of notes in a collateralized debt obligation called Logan CDO III Ltd. in June 2007. The notes ultimately became worthless when Rakuten sold them in December 2008 “for a nominal sum equivalent to approximately one cent,” according to a summons filed yesterday in state court in Manhattan. The lawsuit, which accuses RBC of fraudulent misrepresentation, is seeking to recover the U.S. dollar equivalent of the investment plus interest.
