A federal bankruptcy judge ordered a division of the Royal Bank of Canada this week to pay about $45 million in damages for undervaluing assets it seized from a now-defunct real estate firm in the 2007 housing collapse that fueled the recession.
Judge George L. Russell found that RBC Capital Markets LLC extended credit to Thornburg Mortgage Inc. in 2007 based on a bid for the company's mortgage-backed securities that was lower than RBC's internal valuation when it had declared Thornburg in default several days earlier.
Russell held RBC liable for $26.26 million — the difference between the two values — plus interest.
RBC declined to comment. The money will be distributed to creditors of Thornburg, which is now known as TMST Inc.
Thornburg, a large real estate investment trust based in New Mexico and registered in Maryland, filed for bankruptcy protection in Maryland in 2009, disclosing $24.7 billion in debts arising from its dealings in bonds backed by pools of residential mortgages.
Baltimore attorney Joel Sher of Shapiro, Sher, Guinot & Sandler was appointed trustee after the Department of Justice said former Thornburg executives continued to collect salaries from Thornburg after the bankruptcy filing — and after they started a new, similar firm.
As trustee, Sher filed suits against multiple companies, alleging that their actions had helped drive Thornburg into bankruptcy. A suit against five of Wall Street's biggest players is still pending.
Barclays Capital Inc. settled claims similar to those brought in the RBC suit for $23 million last year. A suit against Goldman Sachs moved to arbitration and was dismissed.