The role that Morgan Stanley and the law firm Matheson played in the ‘Maple Ten’ share transaction will form a key part of the case taken by the DPP against former Anglo Irish Bank chairman Sean FitzPatrick and two directors.
The stakes are high for Morgan Stanley, in particular. The US investment bank was the broker to Anglo Irish Bank at the time of the share transaction. It is believed it was not retained by Anglo in an advisory role in the Maple Ten deal — it was hired on an execute-only basis.
However, if it knew or suspected that the Maple Ten share purchase transaction was some form of market abuse or share price manipulation, then it was legally obliged to inform the Irish Financial Regulator as well as the UK’s Financial Services Authority, and the Securities and Exchange Commission in New York, as Anglo was listed in both countries.
There is no evidence that Morgan Stanley had knowledge that Anglo Irish Bank was conducting a potentially illegal share transaction.
The background to the case is the attempt by former chairman Sean FitzPatrick, former chief executive David Drumm, and other directors of Anglo Irish Bank to unwind Sean Quinn’s 28% stake in Anglo Irish Bank, held through very high-risk contracts for difference.
Between March and July of 2008, Mr Fitzpatrick and Mr Drumm organised that 10 of Anglo’s biggest clients take out loans of €45m each on a non-recourse basis to buy shares in the bank at the same time Mr Quinn was unwinding his position.
Mr FitzPatrick and former Anglo directors Willie McAteer and Pat Whelan will stand trial in the Dublin Circuit Criminal Court in 2013 on charges of financial irregularities and unlawfully providing financial assistance to a group of investors — known as the Maple Ten — to buy shares in Anglo Irish Bank. The three face other charges as well.
According to existing legislation in this country, the DPP cannot take legal proceedings against advisers or brokers. The DPP can only pursue the directors of a company who were responsible for the alleged wrongdoing.
The onus would be on the Irish Bank Resolution Corporation, which is responsible for running down the operations of Anglo Irish Bank, to instigate legal proceedings against either Morgan Stanley or Matheson if it formed the view that the role either party played was negligent.
The IBRC yesterday declined to comment.
Last week IBRC took action against Anglo’s auditors Ernst & Young for accounts it prepared in the years leading up to 2006.
The main thrust of the DPP’s case against Mr FitzPatrick will be that the Maple Ten transaction was a form of share price manipulation on the basis that sensitive information was withheld from shareholders. Under Irish law, it is up to the directors of the company to disclose this information to shareholders.
But if Morgan Stanley suspected that the transaction contravened the Market Abuse Directive then it would be legally obliged to report this to the regulatory authorities.
The role Matheson played as legal adviser to the Anglo Irish Bank directors at the time of the share transaction will be crucial to the defence case, particularly in terms of what disclosures were required.
How much the Irish Financial Regulator knew about this transaction will also play a key role in the defence case.
Contacted by the Irish Examiner, Morgan Stanley declined to comment. Matheson also declined.