RBC Dominion Securities paying $500,000 penalty for lapses in Earl Jones’ massive Ponzi scheme

The brokerage arm of the Royal Bank of Canada will pay a $500,000 regulatory penalty for lapses by its employees that helped convicted swindler Earl Jones operate his massive Ponzi scheme.

The Canadian Press reports RBC Dominion Securities and two individuals have admitted to allowing Jones, an unregistered financial adviser in Montreal, to have authorization to trade on behalf of a number of unrelated clients.

They also admitted to failing to question withdrawals he made on certain accounts.

RBC Dominion brokers Jean-Pierre Menard and Serge Leclaire also will pay $100,000 each in fines and have their broker registrations suspended for six months.

The Royal Bank earlier this year agreed to pay $17 million to settle a lawsuit by Jones' victims.

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The Investment Industry Regulatory Organization of Canada announced the fines last month.

Jones is serving an 11-year prison term for stealing $30 million to $40 million from 158 clients, QMI Agency reported previously.

Many of those who entrusted their money to Jones were elderly, often relatives and friends, as well as people who heard about him through word of mouth.

The Canadian Press said Jones recruited investors by falsely promising returns of 10 to 12 per cent on their money. But it was a classic Ponzi scheme, where early investors were paid using capital from later clients.

The Royal Bank and RBC Dominion were pulled into the fraud because much of the money lost by Jones' clients was held at a suburban Montreal RBC branch.

A settlement agreement released last month said Menard and Leclaire admitted they "failed to adequately perform their roles as gatekeepers to the capital markets," the National Post reported.

They admitted breaking the investment agency's regulations by allowing Jones to hold multiple trading authorizations for multiple clients unrelated to him, and by not questioning some withdrawals from accounts for which Jones had trading authorization.

Menard and Leclaire "were unaware of and not complicit" in the fraud, the settlement agreement says.

Jones was jailed in 2010 after pleading guilty to two fraud charges.