Liam McCaffrey detailed his involvement with the group and its dealings with Anglo Irish Bank in 2007 and 2008.
He described how in September 2007, Anglo chairman Seán FitzPatrick and CEO David Drumm were concerned and surprised to find out that businessman Seán Quinn controlled 24% of the bank’s shares.
The court heard that the bank approached Mr Quinn with a plan for him to get rid of his control of the shares but that the businessman rejected it because he was sure the share price would rise again.
Mr Quinn was eventually forced to accept Anglo’s plan and get rid of the shares by having his family buy them outright. It was agreed that Anglo would fund this deal by loaning them the money to buy the shares.
The prosecution alleges this plan was illegal under the 1963 Companies Act and the Pat Whelan, William McAteer and Mr Fitzpatrick, 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.
Earlier in the day the jury of seven men and eight women heard from UCC economics lecturer Seamus Coffey who explained Contracts for Difference (CFDs).
Mr Quinn controlled the Anglo stock by using CFDs. Mr Coffey compared them to horse racing. A punter can decide to buy a share of a horse or they can decide to put a bet on the horse.
If the horse wins the punter makes a profit but does not own any of the horse. This is similar to CFDs. Mr Quinn did not own the shares but instead bet on them increasing in value.
Former Quinn Group CEO Mr McCaffery told prosecuting counsel Una Ní Raifeartaigh SC that when Mr Quinn told Mr Drumm and Mr FitzPatrick about his 24% CFD stake they were concerned.
Mr Quinn assured them that his stake was purely for investment purposes and he would sell it when the share price got better. He said he had been building it up since 2006.
The witness said that Mr Quinn continued to build up CFDs in Anglo and at one point controlled 28% of the bank.
He agreed Mr Quinn was “eternally optimistic” that the share price would recover and commented “how low can they go?”
Meanwhile he received a total of €650m in loans from Anglo in November and December to meet the falling value of his CFDs.
Mr McCaffery said that the demand for cash to meet the failing CFDs, known as the “margin calls”, became extreme in March 2008.
On March 17 American bank Bear Stearns collapsed, causing 30% to be wiped off Anglo’s shares. This became known as “the St Patrick’s Day Massacre”, the jury heard.
The witness said that following this Mr Quinn was faced with “€2m-€3m” in margin calls.
Another meeting was held in Buswells Hotel between Mr FitzPatrick, Mr Drumm, Mr Quinn and Mr McCaffery. The Anglo directors said Mr Quinn needed to convert his CFDs into real shares and have his family buy them. Anglo would fund this purchase and it would take care of 15% of the bank’s total shares. They said they would find other investors for the remaining 10%.
Mr Quinn “reluctantly agreed” and the deal was finalised.
Mr McCaffery said they were forced to comply with Anglo’s wishes because they needed funding as their cash reserves were running low and all their other sources of funding for the CFDs had dried up. Anglo was the only one willing to lend to them.
Mr McCaffery agreed with Brendan Grehan SC, defending Mr Whelan, that Mr Quinn was “enamoured” with CFDs and he liked to invest in companies which he admired.
He agreed Mr Quinn invested in Ryanair because he admired its CEO and invested in Anglo because he admired Mr Drumm at that time.
The jury has been shown a graph showing changes in the price of Anglo shares over 2008.
The graph shows a “very clear decline” in the share price from the start of 2008 to the end of the year.
In January a single share is priced at €10.72. By December 31 the price of a share has dropped to 17.1c (€0.171) The jury also heard from Aisling McCardle from the Irish Stock Exchange. She detailed the dramatic fall in Anglo’s share price after March 17, 2008.