Morrogh collapse could result in overhaul of investor compensation law

THE fallout from the plundering of more than €5 million from the clients of failed stockbrokers W&R Morrogh is expected to result in a massive overhaul of investor compensation law in Ireland.

The biggest losers from the closure of the Cork firm will be Irish Stockbrokers who have to fund more than €10 million in compensation to be paid out to clients of the failed firm through the Central Bank’s Investor Compensation Company Limited (ICCL).

Morrogh clients will have the bulk of their losses covered in compensation payments and from the funds and shares recovered by the receiver Tom Grace of PricewaterhouseCoopers.

The ICCL has to make up a large portion of the €5.7m losses suffered by clients as a result of the embezzlement by Morrogh partner Stephen Pearson.

However, the ICCL will also have to recompense investors for the monies taken from their accounts on the order of the High Court to pay the fees and expenses, the receiver and legal teams. Coincidentally, clients of failed stockbrokers & are to get their hands on two-thirds of the €10m in shares held by the firm in the coming weeks.

However, Morrogh clients with close to €8m in cash lodged with the hammered stockbrokers will have to wait up to three years to get their money back, and even then they are expected to receive between 30 cents to 35 cents in the €1. The High Court appointed receiver/manager Tom Grace is expected to commence the process of returning shares to beleaguered clients today, more than four years after the collapse of the company on April 26, 2001.

A major overhaul of the legislative and compensatory environment in which the Irish stockbroking industry operates is to be considered by Finance Minister Brian Cowen.

Two working groups established by the Department of Finance to examine the collapse of stockbroking firm W&R Morrogh have completed their deliberations.

A spokesperson for the Department of Finance said the secretariat to the working groups is at present drafting a report outlining the key issues identified in relation to the funding of the Investor Compensation Scheme and the implications for the financial regulatory and legislative framework.

It is expected that the working groups will recommend significant legislative initiatives and changes to the method and financing of compensating clients of financial services companies which default.