The trial of three former Anglo Irish Bank directors has heard that the Financial Regulator fully supported the bank’s allegedly illegal plan to protect their share price.
Former Quinn Group CEO Liam McCaffrey told the jury Seán Quinn was forced to agree to Anglo’s plan for him to sell his control over 29.3% of the bank’s shares.
The witness agreed with defence counsel for Pat Whelan, Brendan Grehan, that Mr Quinn lost €2.4bn by betting on Anglo’s share price through Contracts for Difference (CFDs).
Dublin Circuit Criminal Court heard Mr Quinn was forced to borrow €1.975bn from Anglo in order to fund these CFDs between November 2007 and July 2008. Mr Quinn told Anglo directors in September 2007 that he controlled 24% of the shares and that this caused the bank’s CEO David Drumm and chairman Seán FitzPatrick to be very concerned.
It was yesterday revealed that Mr Quinn continued to increase his CFD stake to 29.3% over the next seven months before being forced to sell them. The witness also confirmed that Mr Quinn had to pay a record fine of around €3.5m to the Financial Regulator because of improper intercompany loans which he used to fund the CFDs.
Mr Quinn will be giving evidence on Monday when the trial resumes.
The prosecution allege that Pat Whelan, William McAteer and Seán Fitzpatrick were involved in a plan by Anglo to loan money to the Quinn family and the so called “Maple Ten” group of investors so that they could buy shares in bank and guarantee the stability of the share price.
The DPP say that this is an offence under the 1963 Companies Act and the accused, as directors, either took part in it or permitted it to go ahead.
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 July 30, 2008. Mr Whelan also faces seven charges of being privy to the fraudulent alteration of loan facility letters to seven individuals in October 2008.
Mr FitzPatrick, 65, of Greystones, Co Wicklow, Mr McAteer, 63, of Rathgar, Dublin and Mr Whelan, 51, of Malahide, Dublin have pleaded not guilty to all charges.
Yesterday, Mr McCaffrey said that in February 2008 the Financial Regulator was unhappy with certain practices by the Quinn Group designed to fund the CFDs.
During the meeting Mr Quinn “apologised sincerely for the current financial situation in Quinn Insurance Ltd” and for “the problems it was creating for the Financial Regulator”.
He told representatives from the regulator that he had been “greedy” with regard to the CFDs and “needed to be reined in”. He promised “anything told to the Financial Regulator from now on will be 100% true”. Mr McCaffrey also confirmed that the regulator was fully aware of the later, allegedly illegal, Anglo plan to have Mr Quinn sell his CFDs and for his family and other investors to buy the shares outright using Anglo funding.
This would have the effect of helping to avoid a flood of shares coming onto the market if Mr Quinn couldn’t continue to fund the CFDs’ margin calls. The court heard Anglo had loaned Mr Quinn nearly €2bn between November 2007 and July 2008 to fund the margin calls.
The margin calls increased dramatically on March 17, 2008 after the “St Patrick’s Day Massacre” when up to 30% was wiped off the Anglo share price.
Mr McCaffrey said Mr Quinn was very reluctant to sell his CFDs because he believed the share price would recover. However, he was forced to agree to the deal during Easter 2008 because he needed funding from Anglo. The deal was agreed between Anglo and Mr Quinn, with Mr McCaffrey acting as intermediary.
Mr McCaffrey agreed with counsel the deal was dependent on approval by the regulator, which was given. Mr Grehan told the court that after the unwinding of the CFD position in July and the subsequent press announcement, the price of Anglo stocks recovered and “Mr Quinn came back for another rattle”.
“Would you agree that Seán Quinn lost €2.4bn on this spectacular punt on CFDs”, Mr Grehan asked Mr McCaffrey. “He paid a very high price for investing in that bank,” he replied.
“He paid a very high price for investing in CFDs. That can’t be called investing,” counsel said. “It’s a matter of terminology,” said Mr McCaffrey.
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