Scores of people defrauded in a high-profile Quebec pyramid scheme will be reimbursed for roughly half of what they lost, thanks to an out-of-court settlement announced Tuesday.
Victims of financial fraudster Earl Jones reached the $17-million settlement in their class-action lawsuit with the Royal Bank of Canada, the bank said.
The sum represents just under half the amount of $40 million that victims had been seeking in their lawsuit.
“(This) is the result of many months of discussion between RBC and the class-plaintiffs and seeks to address some of the financial difficulties the class-plaintiffs faced as a result of entrusting Mr. Jones with their financial affairs,” a statement said.
The bank added that the proposed settlement amount will not be final until the court approval process is completed and is not material to RBC (TSX:RY) earnings.
Much of the $50 million initially lost by Jones’ clients was held at an RBC branch on Montreal’s West Island. Victims claimed the bank was negligent and should have been able to act on irregular behaviour from Jones — something the bank denies.
Jones operated a financial-services business for more than two decades.
The unregistered, self-styled financial planner ran a Ponzi scheme in which many of his former clients were friends or family and people he met through word-of-mouth.
Some people invested money with him directly. Others were clients through the estate-management part of his business, and some he sought out and recruited by falsely promising 10- to 12-per-cent returns on personal loans.
Jones’ criminal case heard that he never invested a penny of the money people gave him — a little over $50 million from 158 investors, mostly seniors. Many were swindled out of their life savings.
The victims had argued the bank was aware of irregularities in the Jones account but did nothing. RBC denies this.
“RBC has closely examined its role in providing Earl Jones with a bank account and is satisfied that it was not negligent,” the bank said Tuesday.
The bank had earlier offered $12.5 million in compensation but the victims demanded $40 million.
Jones was sentenced in February 2010 to 11 years in prison for defrauding clients over a 25-year period. He was arrested in July 2009 after the fraud was discovered.
The head of the association representing victims says they are happy with the settlement, calling it a fair deal given the circumstances.
Joey Davis says a lengthy civil trial was a risky proposition with no guaranteed outcome.
“We wanted to try to get them something quick, in a reasonable amount of time,” said Davis. “We didn’t want to drag this out for years and years — which it could have had it gone to trial.”
Neil Stein, a lawyer representing the victims, says each will get 50% of their losses reimbursed under the deal, negotiated over several months.
“There were discussions with one another over a period of months with the Royal Bank, our clients, and experts from both sides,” Stein said. “We came to an agreement that is good for the victims and good for the bank.”
Getting half is better than getting nothing at all, Davis said.
“Considering that the average age is 75 and most of them are senior citizens living on pensions with no money left, we had to act in their best interest,” Davis said.
The settlement will be presented to a judge next week and a claims process will follow. Victims should be getting a check in the mail within several months. Until then, the committee representing victims will remain active.
“We’ll be happy when everyone gets a cheque. That’s when we’ll really close up shop,” Davis said.