Editor’s letter


In early September, Canadian bank CIBC World Markets was found guilty of withholding information when it acted as bookrunner on a $200 million bond in 1997 for Renaissance Cosmetics.

The decision means that CIBC has been ordered to pay a group of distressed debt bondholders $52 million – the bondholders had bought the bonds at between 20 cents in the dollar and 50 cents. According to a lawyer representing the distressed debt investors, this is to his knowledge “the first time distressed debt purchasers have succeeded in a fraud case against the original underwriters”.

US Credit believes it is correct that CIBC should be held financially accountable for investors’ losses if it withheld information when bringing the bonds to market. But why is it only the distressed debt investors being made whole? If they bought the bonds at between 20% and 50% of their fair value, that means another bond investor has lost between 50% and 80% of their investment.

Renaissance had already filed for bankruptcy protection before any fraud became apparent. And it was the fraud that meant that the bonds had less recovery value than distressed debt investors believed. But the exaggeration of Renaissance’s sales projections must have contributed to the original financial collapse, which makes it another cause of the original bondholders’ losses.

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