Strangely simple Anglo trial focused on just two deals

THE impact the collapse of Anglo Irish Bank has had on the country has been complex but the criminal trial that emerged from it was strangely simple.

Strangely simple Anglo trial focused on just two deals

Despite the litany of steps and missteps taken to salvage the banking system the court proceedings were only focused on two deals.

The three former Anglo directors in the dock were never charged with destroying the economy.

They were not charged with killing the banking system, driving unemployment north of 10% or sending another generation on the immigration express.

The national appetite demanded heads on a plate. But the courts are not a theatre to satisfy a mob.

Human error, greed or arrogance are not offences, nor is borrowing too much.

That means the story of the collapse of Anglo and its effect on the economy had no role in the court of Judge Martin Nolan.

Instead the focus was the actions of the three in the bank’s response to finding that then billionaire Seán Quinn had a hidden 25% stake via a high-risk investment vehicle called contracts for difference. He had used a legitimate scheme to gamble on the shadows of shares rather than declare a stake in the bank itself.

After officials discovered his hidden interest in Anglo it was decided it had to dilute it before hedge funds began betting against his position. Ultimately this resulted in the bank loaning money to the Quinn family so they could buy ordinary shares and shore up its stock price during a fretful 2008.

Later, the bank gathered together 10 big customers and offered to lend them €450m to buy shares. These were the Maple Ten.

The final part of the arrangement involved allegedly backdating facility letters for these 10 people so they would not be liable for 100% of the loans when things started to go array.

The prosecution said Pat Whelan had an active role to play in the steps taken to unwind the Quinn stake. His defence said he was acting on the instruction of his boss, David Drumm, who had clearance from the regulator and was not on trial.

William McAteer was said to have had a lesser involvement but was still aware of the deals. And Seán FitzPatrick was said to have had known about the deals and did nothing to stop them. His defence said Mr Drumm was responsible as he had autonomy.

All three were charged with 16 counts of providing unlawful loans to six Quinns and the Maple Ten. Whelan was charged with fraudulently altering loan letters for the Maple Ten.

Mr FitzPatrick later had the charges relating to the Quinn transaction dropped.

In the end he was acquitted and McAteer and Whelan found guilty of charges related to the Maple Ten. Whelan was cleared of the charges related to the backdating of the facility letters.

Although the judge told the jury to discount it during deliberations, a recurring feature in the case was the role of the financial regulator’s office.

The regulator himself, Patrick Neary, said he was not informed of the gravity of the situation despite his staff being aware of it.

His number two, Con Horan, said he was not aware of the Maple Ten arrangement but an account by the Department of Finance conflicted with this.

Defence said the regulator knew what it was doing and okayed it. The suggestion was if the regulator felt the arrangements were a legitimate response to a threat which could compromise the banking system, their clients should not be hauled over the coals.

On 35 days the jury listened to evidence of how the bank dealt with the Quinn position and what it told the regulators. These proceedings decided the fate of the Anglo Three.

* DAY 1

Judge Martin Nolan presided over the swearing in of the jury warning them not to investigate the case privately.

The panel included a Revenue official, a Dublin bus driver, and a hedge fund worker. Fifteen jurors sat through the case but only 12 retired to deliberate.

Seán Quinn arriving at the trial in February.

* DAY 2

The prosecution set out its case alleging that €160m was illegally loaned to Seán Quinn’s wife and five children and another €450m to the Maple Ten.

It said Whelan was very involved in the deal, McAteer was not as involved but was fully aware of the deal and Mr FitzPatrick was chairman and did nothing to stop the trade. Their defence said it was ordinary bank lending.

* DAY 3

The former chief executive of the Quinn Group, Liam McCaffery, testified that the former billionaire faced increasing margin calls to cover his investments in March 2008 and needed to find up to €300m to pay its bad bets. He said the bank told Mr Quinn he would have to convert his stake into normal shares and have his family buy them.

* DAY 4

The jury heard Mr Quinn had to borrow €1.9bn from Anglo between November 2007 and July 2008 to fund his hidden stake in contracts for difference. The former Quinn group CEO said the then regulator was fully aware of Anglo’s proposal to lend money to him so he could unwind his stake.

* DAY 5

Mr Quinn arrived into court and said he was left feeling very angry about the manner in which Anglo intervened and made him sell off his shares.

He claimed loans were provided so he could buy shares but then these were “dumped” on the market in a way which saw their value collapse. Mr Quinn said the bank knew it was in trouble since November 2007.

Joe O' Reilly: Told it was legal to accept loans.

* DAY 6

The jury heard the first accounts from the Maple Ten. Developers Joe O’Reilly and Sean Reilly said they agreed to accept loans to buy shares in the bank and were told it was legal and had the approval of the regulator.

Separately, a former associate director at Anglo, Lorcan McCluskey, said he had refused to sign a letter retrospectively altering the loan conditions for the Maple Ten. He said Whelan and another bank official signed them instead.

* DAY 7

An Anglo official responsible for maintaining the bank’s relationship with Mr Quinn during better times said he was shocked when the regulator’s office suggested the Quinn Group be released from a €250m security guarantee. He said six days earlier the Quinn Group had asked to be released from the guarantee in order to allow its 2007 accounts to be signed.

* DAY 8

One of the Maple Ten, Gerry Gannon, said he agreed to draw down a loan and join the share buying scheme after a 20-minute chat with the bank’s then CEO David Drumm.

Mr Gannon said he asked if the deal was legal and if the Central Bank had approved and he was given assurances.

* DAY 9

Elma Kinane, who was a manager in the Anglo’s lending division gave evidence and said there was nothing underhanded about the manner in which the loan documents for the Maple Ten were drawn up.

One of the group, developer John McCabe, said he was told the deal was “totally legal”.

Brian Gillespie, then head of compliance with Anglo, said he was present for a phonecall with Con Horan from the financial regulator’s office who he said was “very, very positive about the transaction”.

* DAY 10

A former non-executive director at Anglo told the trial that as far as he was concerned the board was never told about the Maple Ten deal.

Michael Jacob said there was black cloud hanging over the bank since it emerged Mr Quinn had held such a vast stake.

Separately another Maple Ten member Brian O’Farrell said David Drumm told him he would not make any money from the deal but he would be a friend of a bank that needed to get out of a hole.

* DAY 11

The bank’s former chief financial officer Matt Moran took the stand and sensationally informed the jury he had been granted immunity from prosecution.

He had reported to one of the accused, McAteer, and gave an account of how the Maple Ten deal was arrived and he was told the financial regulator’s office had given it the thumbs up.

* DAY 12

With the benefit of immunity Mr Moran said during a conference call with an official from the regulator, Con Horan, the proposal to loan money to the Quinns and the Maple Ten was aired. But, a month later, a letter from the regulator’s office said it had not given approval and did not have enough information to do so.

Former Anglo Irish Bank chief financial officer Matt Moran.

* DAY 13

Mr Moran responded to evidence that concerns were raised about the legality of the Maple Ten deal four months before it was acted on.

He also spoke about a rival plan, drawn up by Morgan Stanley, that was trialled in May 2008 which involved Mr Quinn’s stake being dripped onto the market every day at low enough rates so as not to attract a run on shares.

* DAY 14

Mr Moran recalled how the regulator had put “extreme pressure” on the bank to sort out the Quinn problem.

Initially a written plan was drawn up in March 2008, which included a line that the regulator approved of it. But this was removed at the regulator’s request.

Mr Moran agreed this appeared to be designed to give the regulator’s office the room for “plausible deniability” at a later stage.

* DAY 15

The jury was sent away to allow for legal discussions.

* DAY 16

The trial returned after a week of legal argument to focus on the Quinn transaction. The former financial planning director at Quinn Insurance, Shane Morrison, described the collapse of Mr Quinn’s investments and the need to borrow to fund his Anglo stake.

In the afternoon former Anglo board member Anne Heraty said the board did not know about the Maple Ten transaction.

She said at a meeting with the bank in April 2008, Mr Neary, asked Anglo, without explicitly saying so, to help resolve a situation with the Quinn Group’s accounts.

* DAY 17

Judge Nolan tells the jury that, after a long break for legal argument, he has ruled that any legal advice obtained by Anglo before the deals should be ignored.

The trial also heard from Donal O’Connor, who replaced Mr FitzPatrick as chairman in December 2008. He said he only learned afterwards that the Maple Ten had been stripped of the need to personally guarantee all of their borrowing. He said this decision was taken by Whelan with the agreement of the then CEO David Drumm.

* DAY 18

Anglo’s former head of compliance, Fiachre O’Neill, testified that he had helped draw up an agreement between the bank and Mr Quinn that would allow him to unwind his hidden stake.

He said he was told the deal had been approved by the regulator but any reference to this had to be removed from the text.

Morgan Stanley acted as intermediaries.

* DAY 19

Morgan Stanley acted as intermediaries in the Quinn family loans and Maple Ten deal. A former house lawyer with the company, Harry Eddis, said there were no red flags from a legal perspective.

* DAY 20

Mr Horan got to give his version of events. He said he had been told the Maple Ten were rich people getting their finance independently and not from Anglo and that another bank was supposed to be lined up to help unwind the Quinn stake.

* DAY 21

Mr Horan said the regulator feared the Quinn position could affect the stability of the Irish banking system. He said the regulator had sought legal advice on the loans Mr Quinn was originally drawing down to fund his margin calls.

Documents also emerged that showed the National Pension Reserve Fund, Bank of Ireland, and AIB were considered as alternative funders to support the bank’s share price.

This was discussed at a secretive meeting with officials from the Department of Finance, the Central Bank, and the regulator in July 2008 — before the Maple Ten deal was arranged.

One juror dropped out as they believed they might know somebody connected to the case.

* DAY 22

Mr Horan recounted how the financial regulator was concerned that hedge funds were attacking Anglo and this fear was shared with counterparts in London.

He was asked why no notes were taken at a key meeting he had on July 8, 2008, with the then Anglo CEO David Drumm.

Mr Horan denied that he was told about the Anglo deal during the meeting or in the course of the phone call on July 12.

Later Kevin Cardiff, who after the collapse of the banking sector became the secretary general at the Department of Finance, gave his record of the events in July 2008. He said the department was made aware there may be some lending by Anglo to buy its shares but that this was supposed to be short term.

* DAY 23

Mr Neary gave evidence of his role in the oversight of Anglo during the period.

He claimed he was not told about the extent of Mr Quinn’s position for six months after Anglo discovered it. Then, in June 2008, he was told the bank was going to be giving money to the Quinn Group to buy shares on a short-term basis.

* DAY 24

Mr Neary denied knowing about the scale of Mr Quinn’s stake arising from a meeting he had with David Drumm in September 2007.

Even though there were internal emails within the regulator’s office about the Quinn position Mr Neary said he himself was not made aware of it until later.

Under cross examination he denied he “practiced the art of not being told difficult things”.

Gary McGann: One of three former directors who said they told David Drumm to tell the regulator about Seán Quinn's stake.

* DAY 25

Three former directors of Anglo gave evidence that in September 2007 they had told Mr Drumm, to tell the regulator about Seán Quinn’s 25% hidden stake.

Two of those directors, Gary McGann and Lar Bradshaw, said in July 2008 they were told about the Maple Ten deal but not that the bank was providing loans to fund it.

* DAY 26

The Quinn Group’s former finance director Dara Reilly said the firm was doing what Anglo told it.

* DAY 27

Det Sgt Brian Mahon of the Garda fraud squad testified about his interview with Whelan.

During it Whelan said there had been a hotline to the regulator’s office regarding the Maple Ten deal; this was previously denied by Patrick Neary and Con Horan.

Whelan had handed gardaí a copy of a report given to the Anglo board in 2009 which repeatedly said the regulator was kept fully informed by Mr Drumm.

* DAY 28

More evidence of Whelan’s interview was given. In it he said it was an “error of judgement” to alter the loan letters given to the Maple Ten to remove their 100% personal guarantee. He said he was acting on the orders of Mr Drumm.

* DAY 29

The trial heard about the interview McAteer gave to gardaí. He admitted to being involved in the Maple Ten transaction but rejected the suggestion that he was instrumental in it. He said Mr Drumm had picked the members of the Maple Ten.

One of the 10, Seamus Ross, said he was delighted to help out the bank as it helped him earlier in life.

* DAY 30

The trial heard an account of the Garda interview with Mr FitzPatrick.

He said he had been assured by Mr Drumm that the deal was kosher and he had assumed the regulator was properly briefed.

Mr FitzPatrick said he was never told the identity of the Maple Ten.

Seán FitzPatrick: Acquitted of all charges.

* DAY 31

A second day was taken up with an account of Mr FitzPatrick’s interviews with gardaí. During that he said he had met with Mr Quinn after the Maple Ten deal in a bid to “mend fences”.

This happened because Mr Drumm and Mr Quinn had fallen out and legal action against the bank had been threatened.

* DAY 32

The jury was told the trial was drawing to a close.

* DAY 33

A banking expert from Ulster Bank gave an assessment of the Maple Ten deal and said it was unusual in a number of respects.

He said the fact the recourse due was reduced to 25% was strange because it meant if Anglo’s share price fell the investors would only have to repay €12.5m from a loan of €45m.

He said it was also abnormal that the bank had approached the members rather than the other way.

* DAY 34

The Garda fraud squad gave evidence of the scale of the Anglo probe.

* DAY 35

The prosecution closed its case having heard a statement from Mr Quinn’s daughter, Aoife, that she had been loaned €10m by Anglo to buy shares but she was not aware about why this was being done.

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