A Quebec court has rebuffed Royal Bank’s effort to hold a pair of Florida-based financial firms responsible for losses the bank suffered as part of a kiting scheme.
According to a decision of the Quebec Superior Court handed down earlier this month, RBC made a US$9 million claim against Regions Bank (formerly known as Union Planters Bank of Florida) and Capital Factors Inc., as a result of an apparent kiting fraud that occured back in 1998.
RBC argued that it suffered a loss due to various interbank transactions involving its client, Tiagi – Tabah International Apparel Group Inc., and Tiagi’s U.S. subsidiary, Global Orbit Industries Inc., which was a client of Unions Bank and Capital Factors.
“RBC claims that the two Florida financial institutions should have put an end to the kiting and to their business dealings with Global in January or February 1998 when they began to have doubts about the way in which the line of credit with Capital Factors and the bank account with Union Bank were being operated, or at least that the two defendants showed negligence by not notifying the Royal Bank of Canada of the considerable disparity between the volume of transactions charged to Global Orbit’s account with Capital Factors and the amounts advanced by the latter in relation to the purchase of accounts receivable,” it says.
The Florida firms denied liability for the loss incurred by RBC, which, according to them, “was very negligent in the operation of Tiagi’s bank account. They asserted that RBC has only itself to blame for the loss,” it notes.
The court sided with the defendants, finding that they didn’t do anything wrong, and that RBC was actually better placed to suspect fraud and kiting.
“The court finds that the two defendants had the right to assume that RBC was aware of how the account was being operated and the potential risks involved and that it had all the means at its disposal to avoid any loss from overdrafts,” the court said. As a result, it dismissed the action.