Eight years before Earl Jones was exposed as a fraudster, the Royal Bank of Canada was aware that the disgraced financier used a personal chequing account for what was supposed to be investors' money placed in trust, a lawsuit says.
Mr. Jones, a 67-year-old Montreal man who claimed to be a financial adviser, pleaded guilty last month to bilking 158 investors of about $50-million.
A class action suit filed today against RBC says that Mr. Jones comingled his clients' money in a single account he opened in 1981 at an RBC branch in Beaconsfield, Que., in the Montreal West Island, in the name of "Earl Jones In Trust."
It wasn't until 2001 that RBC staff first raised warning flags, the statement of claim said.
"He is using this account for business purposes as an In Trust account, however, I told him this is not a formal trust account and he could get himself in trouble because this is just a personal account in his name alone, the In Trust does not mean anything in this case," said a Nov. 7, 2001, internal RBC note filed in exhibit.
No action was taken for eight years, the statement of claim said, until a bank employee raised questions again.
This came in a Jan. 24, 2008, e-mail from a bank employee, Salvatore Micielli, to the Beaconsfield branch manager.
"Notes on the account indicate there was prior knowledge in 2001 that the client was operating business through the personal account, the client was notified and stated that he would look into it," Mr. Micielli's e-mail said.
It added: "At present time, there has been activity which is consistent with the client operating a trust business account. The information on the account however may be encoded incorrectly, since all the information on the accounts points to it being a personal account rather than a lawyer's trust account."
The 2008 concerns by bank staff lead Mr. Jones to transfer the funds to a business account, the class action lawsuit said.
Even though the RBC account said it was "In Trust," the bank had given Mr. Jones a debit card and provided him and his family with credit cards that could withdraw from the account, the class-action suit said.
According to an agreed statement of facts read when he pled guilty last month, Mr. Jones never invested his clients' money and dipped into it to finance his family's lavish lifestyle.
A bankruptcy trustee who investigated Mr. Jones' finances said last year that the money was used for items such cars, condos and private schooling for his children.
In a sworn deposition she made in bankruptcy proceedings, Mr. Jones' wife, Maxine, said that her husband regularly cut her cheques from the "Earl Jones In Trust" account, which she used to buy his Montreal Canadiens season tickets, for mortgage payments on a Mont Tremblant getaway and to cover the couple's membership at the Boca Raton Resort and Club in Florida.
"The respondent was willfully blind to the fraudulent operation of the account by Earl Jones," the statement of claim said.
Mr. Jones' scheme collapsed last July when money ran out and regulators were alerted.
He is to be sentenced Feb. 15, with both prosecution and defence suggesting a prison term of 11 years.