Victims of financial fraudster Earl Jones have reached a $17 million out-of-court settlement in their class-action lawsuit with the Royal Bank of Canada (TSX:RY), both sides announced Tuesday.
Reached after several months of discussions, the settlement was welcome news for the son of one victim.
"I can't speak for the people that have been defrauded and I'm sure it might not be sufficient but I think in time it will become more clear to these people," said Kevin Curran, whose mother was bilked out of her savings by Jones.
"I can understand that (the wording of) RBC's statement might not give them complete closure, but it's a start."
Much of the money 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.
The bank said in a statement that the proposed settlement amount will not be final until the court approval process is complete, and said the settlement is not material to RBC earnings.
"(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," the statement said.
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.
He bilked everyone from close family friends to his own brother, all while living lavishly with multiple homes and frequent trips.
Jones' criminal case heard that he never invested a penny of the money people gave him.
The victims had argued in their civil suit that the bank was aware of irregularities in the Jones account but did nothing. RBC said Tuesday that it did nothing wrong.
"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.
For Ginny Nelles, whose family lost $1 million by investing with Jones, it means some immediate help for the victims, mostly pensioners.
"I believe that we are receiving some form of justice. The bank certainly heard our demands and I think that it's a compromise, like any other settlement that takes place outside of court," Nelles said.
"For the elderly victims in our group, it will help them out in the short term."
The bank had earlier offered $12.5 million in compensation but that offer was rejected.
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 estimated amount of the fraud has changed as accountants have taken a closer look at the books. Jones pleaded guilty to defrauding 158 investors of a little more than $50 million — a dollar amount that was initially pieced together by the bankruptcy trustee.
The figure was revised in subsequent in-depth probes conducted by forensic accountants, who erased fictitious interest and added money from other accounts. The final figure from that report came in at somewhere between $34 million and $36 million in fraud.
The head of the association representing Jones' victims, who has advocated for tougher laws for white-collar criminals, called the settlement a fair deal given the circumstances.
Joey Davis says the possibility of 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, whose mother was defrauded by Jones.
"We didn't want to drag this out for years and years — which it could have, had it gone to trial."
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.