Firm ‘deliberately’ misused assets of clients

CUSTOM House Capital not only “systematically and deliberately” misused assets and cash belonging to clients but even issued false and misleading statements to clients to cover up its activities.

In their assessment of CHC’s activities over the last seven years, the High Court-appointed inspectors, George Treacy and Noel Thompson, said the origin and rationale behind the misuse of client funds would appear to have been “relatively straightforward”.

The company’s foray into promoting property investment to its clients in 2004 initially proved successful and spurred its management on to become involved in more and more sizeable property projects.

However, as its involvement in the area grew, in order to finance that involvement it began placing deposits in advance of securing the required equity from prospective investors.

“When the property crisis emerged in 2007, CHC found that expected investment from prospective investors was not forthcoming,” the inspectors said.

“As the flow of fresh investment into property projects ceased, in fear of loss of the initial deposit and damage to its reputation, CHC sought to cover the investment shortfalls through the creation of products such as the Mezzanine Bond and eventually through the misuse of client holdings.”

They said CHC issued a portfolio valuation to a client which, on September 30, 2010, purported to show the commodity bond as still held for that client.

“The proceeds of that sale, €7,366,016.03 were used to meet various cash demands, ranging from meeting unrelated redemption requests of other clients to the placement of a deposit with a German private bank as security against a loan to CHC which was used to finance the CHC Allemanic Fund.”

The inspectors identified €56 million of client holdings that were improperly transferred, with the majority of the money representing transfers to syndicated property investments.

They said it would take several months to work out the extent to which all of CHC’s clients were affected and forecast it would be “difficult if not impossible” to work out “full recon-ciliations” when proper documentation and a proper cash trail could not be established.

They appear sure that many people will lose significant amounts of money.

As well as significant systemic failures the inspectors direct a number of more serious criticisms against the people at the CHC:

*A disregard for the interests of clients and the trust placed by clients in CHC.

*A disregard for the property rights of clients whose assets CHC were managing and inadequate controls over the safeguarding of these assets from loss, damage or misappropriation.

*A failure to maintain appropriate standards of corporate governance and a failure to address the dominance and significant influence with which the chief executive (Harry Cassidy) managed the business.

*A lack of ethical and responsible decision-making.

*Provision of false and misleading information to the Central Bank.

*Concealment of information from the Central Bank.

*Misrepresentation of client holdings on client statements issued.