‘No due diligence’ into investment

An investor in a telecommunications company developing a SIM card to cut roaming costs, lost over €1.5m as it was claimed that the company was buying cards in Florida and simply changing the sticker.

Another investor who admitted that he had done almost no due diligence investigation into Cubic Telecom lost €250,000. That investor, Adrian McNamara, a solicitor on South Mall, Cork, said yesterday: “Cubic Telecom was not a technology company, it was a system of taking a sticker off a product and putting another sticker on it. That is the most basic form of deception. I met the guy from Florida (at Dublin Airport) who told me he did it.”

Barrister Paul Christopher said that in the original business plan of Cubic Telecom, it never represented itself as being a technology company or having technologies. The barrister said that in the mid-2000s, when investments were made, it was a start-up and it was an inherently risky business.

Mr Christopher said the company was still operating and employing 30 people.

These issues in relation to Cubic Telecom emerged during a civil case at Cork Circuit Court yesterday, where the man who invested over €1.5m, Brendan O’Donoghue of The Avenue, Gleann Na Rí, Tower, Blarney, was sued for €23,000. Anthony Duncan of Beech Road, Fota Rock, Carrigtwohill, Co Cork, said he was owed that money in respect of his sale of shares in the company to Mr O’Donoghue.

Judge Donagh McDonagh decided Mr Duncan should be paid by Mr O’Donoghue and he made this order. However, he added that Mr O’Donoghue could seek an indemnity from third party, Pat Phelan of Limes Avenue, Blackrock, Cork.

Mr O’Donoghue said he was convinced to invest because of what he described as the technological genius of Pat Phelan.

Judge McDonagh said: “I am literally amazed that people can invest without any due diligence... There is little doubt there was an element of greed.

“When rumours were flying around that the company would be worth €100m, I have no doubt people were saying, ‘what wonderful fellas we are to have spotted this’. It was a bet. I have absolutely no doubt Mr O’Donoghue saw a wonderful opportunity, represented by Pat Phelan, to make a killing.”

The plaintiff in yesterday’s civil action, Mr Duncan, said he had been employed by the company to sell phone cards in Ireland to foreign nationals. Mr Duncan said he agreed to sell his shares to Mr O’Donoghue at a time when the company was seeking to attract another major investor.

Mr Duncan said the prospect of Google investing in Cubic Telecom created an excitement back in 2008: “We were excited, as middle-aged men, that it was Google being in the office.”

Google did not invest.