‘Deliberate dishonesty by Anglo’ in US hotels deal

THE “cavalier” ethos and attitude displayed by Anglo Irish Bank in promoting and managing an investment fund for two hotels in New York’s Manhattan district “readily explains how Anglo single-handedly brought this country to the position it finds itself in“, the Commercial Court was told.

A “Black Brochure” given to 50 high net-worth Irish individuals in September 2006 aimed at encouraging them to invest in the hotels fund failed to disclose key risks involved and amounted to “conscious and deliberate dishonesty”, one of those investors, Gerard McCaughey has claimed.

The brochure estimated the hotels’ renovation costs at some $25 million (€18.3m) but these turned out to be $103m (€75.4m) which was well beyond the fund and led to works being halted, it is claimed.

Martin Hayden SC, for Mr McCaughey, handed in a copy of that brochure to Mr Justice George Birmingham.

He was opening Mr McCaughey’s action against Anglo Irish Bank and the Anglo-owned Mainland Ventures Corporation (MVC) in Delaware over the Anglo Irish New York Hotel Fund, a private equity investment in which 50 people invested an average $1m each in 2006.

The action by Mr McCaughey, with addresses at Sandymount, Dublin and Manhattan Beach, California, is regarded as a test or “pathfinder” action for cases by 23 other investors.

Both defendants are being sued for $23m (€16.8m) over alleged fraudulent and/or reckless concealment and/or misrepresentation concerning the fund, set up to purchase and renovate the Beekman Tower Hotel and Eastgate Tower Hotel in Manhattan.

The claims are denied.

Yesterday, Mr Hayden said the issue was the manner with which Anglo brought this project to the investors and how the project was arranged by Anglo Irish Private Banking with its New York office.

MVC was formed by Anglo to hold its interest in the fund in a “very sophisticated manner” to avoid any regulatory supervision of the brochure, counsel said. Anglo accepted Irish law applies to the case, he added.

In 2006, Anglo was perceived as a “quality” institution with unparalleled expertise in a position to especially help individuals with wealth management, counsel said.

The brochure provided for an interest rate capping strategy but Anglo had instead carried out an interest swap which had the effect of costing the investors $7m (€5.1m), counsel said.

Persistent attempts by Mr McCaughey from December 2008 on to get information from Anglo proved unsuccessful. Mr McCaughey believed he was being lied to “barefaced” and Anglo had portrayed him as a difficult person.