Credit union claims Davy made €5.3m secret profit

Waterford Credit Union has claimed a stockbroking firm made a secret profit on €5.3m it gave to the firm to invest.

The credit union is suing J&E Davy over the investment which was put into an AIB Step-up Perpetual bond, a Barclays Bank Step-up Perpetual bond, a Jyske Bank bond, and a Nordea Bank AB bond, between January 2005 and August 2006.

The High Court action followed an investigation by the Irish Stock Exchange which, in 2009, found breaches of business rules by Davy Stockbrokers.

The ISE found the breaches related to the completeness of disclosure of certain information to the credit unions about certain bonds and in relation to ensuring the bonds were in full compliance with the Trustee (Authorised Investment) Order, 1998.

As a result, Davy commenced a process with the credit unions involved, in which most of the credit unions accepted a negotiated settlement to deal with loss of value of the bonds.

It cost Davy over €35m, said the ISE.

Waterford Credit Union issued proceedings in 2011 claiming the bonds it put its money into were not authorised investments, did not guarantee the capital sum, and did not provide a definite maturity date.

Davy denies it acted as a principal in the sale of the bonds or that it made a profit from the sales.

It denies it was engaged as an investment adviser by the credit union.

It claims that, if the credit union is correct in its allegations, any loss or damage was caused or contributed to by its own negligence and it had failed to mitigate its loss.

The case was before the High Court following applications from both sides for discovery of documents in advance of the hearing.