Investors in four collateralized debt obligations managed by Credit Agricole Indosuez are eyeing the possibility of voting on a move to switch the business over to Royal Bank of Canada to keep the deals managed by former managers who recently departed the firm. The potential shift is one bone of contention in a lawsuit filed by Indosuez against RBC and the team it hired away from Indosuez. Dan Smith, Lee Shaimen, Ken Kencel, and Michael Arougheti left Indosuez Capital for RBC last month. Market sources said investors are beginning the voting process on Indosuez Capital Funding IV, Indosuez Capital Funding VI, Porticoes Funding, and Serves 2001-I Limited as all four of the deals have triggers for management changes built in. Paul Travers, managing director at Indosuez, did not return calls regarding a change in managers. Smith declined to comment.
A market source said that within these structures investors can vote to change managers if the management team they originally invested with has left. The lawsuit, first reported last week on LMW's Web site, states Indosuez is seeking damages from Royal Bank of Canada, Smith, Shaimen, Kencel and Arougheti after the defection of the staff to form a leveraged finance team at RBC. CAI claims in the lawsuit that the mass departure was planned surreptitiously over the previous eight months and was referred to as "Project Northstar and Project Mapleleaf." The lawsuit has been filed in the New York Supreme Court. An RBC spokesman said, "RBC is aware of the complaint by CAI, and we're in the process of responding to it. As a matter of policy RBC does not comment on matters before the court. We are, however, confident that at the end of the day our actions will be vindicated."
The document filed with the court says the action is for compensatory and punitive damages based upon what it claims is the unlawful raid by RBC on the Indosuez Capital division of CAI. The suit further claims Smith, Shaiman, Kencel and Arougheti provided confidential information to RBC, assisting the raid on other employees. Additionally, the claim states that in the months prior to the resignations, the group invested millions of dollars in several private equity sponsored funds with the belief that such investments would benefit future business at RBC. Since leaving, CAI claims the group interfered with CAI's asset management business by soliciting investors with $3.5 billion in assets under management with CAI to transfer the management over to RBC