Trial of former Anglo chairman and directors begins
The trial of three former Anglo Irish Bank directors has begun with the jury hearing that the accused are alleged to have played a role in an illegal scheme to fund the buying of shares in the bank.
Former chairman Seán FitzPatrick and former directors William McAteer and Pat Whelan are accused of providing unlawful financial assistance to members of businessman Seán Quinn’s family and the so-called Maple Ten, a trusted group of Anglo borrowers, for the purchase of shares in Anglo
The prosecution says lending was to allow these 16 investors to buy Anglo shares, thereby creating the public perception of stability in the bank’s share price.
The prosecution claims a total of €160m was illegally loaned to Mr Quinn’s wife and five children while €450m, was illegally loaned to the Maple Ten.
It is the State’s case that Mr Whelan was “very much involved” in the scheme, while Mr McAteer was less involved but fully aware of what was happening.
The prosecution alleges that Mr FitzPatrick, as chairman of the board, was told about the lending, that he permitted it to happen, and did nothing to stop it.
Mr FitzPatrick and Mr Whelan admit the money was loaned for the purpose of buying shares in the bank.
Brendan Grehan, defending Mr Whelan, said the lending was “in the ordinary course of business” and that both Irish and UK financial regulators had agreed to it.
Dublin Circuit Criminal Court heard that section 60 of the 1963 Companies Act allows for a defence of such activity if lending is “in the ordinary course” of the company’s business.
The prosecution says the scale and nature of the loans show they were not given “in the ordinary course of business”.
The three men have been charged with 16 counts of providing unlawful financial assistance to 16 individuals to buy shares in the bank. Each charge relates to a specific person, who allegedly received loans between July 10 and 30, 2008.
Mr Whelan also faces seven charges of being privy to the fraudulent alteration of loan facility letters to seven individuals.
Mr FitzPatrick, aged 65, of Greystones, Co Wicklow; Mr McAteer, aged 63, of Rathgar, Dublin; and Pat Whelan, aged 51, of Malahide, Dublin, have pleaded not guilty to all charges.
During his opening address, Paul O’Higgins, prosecuting, said that in 2007, senior staff at Anglo Irish Bank became aware that Mr Quinn controlled around 25% of the bank through “contracts for difference” (CfDs).
He called these “an extraordinary form of gambling” offered to members of the investing public by “financial geniuses”.
“For a commission you go to a CfD provider. Instead of buying shares, you gambled on the future of shares. You didn’t have to buy them. You might only have to pay 10% or 20% of the cost of the shares.”
He said CfDs allow investors to receive much more profit if the share price goes up, but also exposes them to much bigger losses if the share price drops.
“At the end of a fixed period there is a closing off and the bookie pays you or you pay the bookie. You may own €1,000 or you may lose €1,000. If you lose the €1,000 you have to top up the amount you have with the CfD provider. Or you can close off the position which means the shares are sold and you have to pay what you owe.”
Mr Quinn controlled around €2bn of Anglo stock through CfDs. Counsel said this made Anglo nervous because if his fortunes changed it could seriously affect the bank.
The financial regulator also became concerned.
Anglo tried to unwind Mr Quinn’s position by inviting Middle Eastern governments and other investors to buy the stocks, but nobody was interested.
On March 17, 2008, the situation worsened when the collapse of Bear Stearns Bank caused Anglo’s share price to drop from €17 to €6.50. It would fall a lot more later, counsel said.
Mr O’Higgins said Anglo then “decided to do something absolutely illegal”.
It wanted to swap Mr Quinn’s CfDs for ordinary shares and bring in other investors to dilute his control of the bank, it was alleged.
The prosecution said a plan was formed to allow Mr Quinn’s wife and five children to “go long” on the stock, meaning they would buy it outright once the CfD position was unwound.
A statement was released saying the Quinns had bought the shares outright and the CfD situation was resolved. However, according to the prosecution, the public were not told that the situation was a lot more complex.
The bank had approached 10 other “trusted borrowers” with “supposedly high net worth” and asked them to buy 10% of the bank’s shares. Anglo would loan them €45m each to allow them to do this.
As part of the deal the investors would only be personally liable for a maximum of 25% of this loan.
Counsel said Anglo staff approached these 10 people with the deal. One was approached while on holidays in France while another was approached in Portugal.
Mr O’Higgins said “if a lot of people, when on their holiday, saw their banker approaching in the distance, they would head for the nearest sand dune”. However, the deals were concluded and the shares bought.
He said Anglo told them “not to worry about the details” and that they’d “take care of the paperwork”.
Counsel told the jury that the actions of the bank were “absolutely illegal”.
The case continues.
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