Two former directors of Anglo Irish Bank, the rogue lender that crippled Ireland’s economy, have been found guilty of hatching a multi-million euro loans-for-shares plot months before the bank’s collapse.
A day after former chairman Sean FitzPatrick was cleared of all charges linked to the July 2008 scheme, two of his fellow board members at the time, Pat Whelan and Willie McAteer, were convicted.
The bankers were found guilty by unanimous verdict of providing €450m loans to a secret circle of trusted Anglo clients – the Maple 10 – to unravel a doomed gamble in the bank by former billionaire industrialist Sean Quinn.
But Whelan, of Malahide, Co Dublin, who turned 52 today, and McAteer, 63, of Rathgar, Dublin, were cleared of providing €169m of loans to Mr Quinn’s wife Patricia and his five children as part of the same plan to buy out his failed investment.
Whelan, head of group risk at Anglo, and McAteer, group finance director and chief risk officer at the bank, showed little emotion when the verdicts were read out.
They left the courts complex near the city’s Phoenix Park without commenting.
The 12 jurors returned the verdicts after an 11-week landmark trial and almost 17 hours of deliberation at Dublin Circuit Criminal Court – the first prosecution brought on the back of the country’s banking crisis.
It draws to a close just one aspect of complex fraud investigations focusing on the turbulent months before Anglo was nationalised in January 2009 at a cost to Irish citizens of about €30bn.
Judge Martin Nolan thanked the seven women and five men on the jury for their work and exempted them from further jury service for 10 years.
“I think you have been a credit to the jury system,” he said.
The judge said it was obvious the jurors had given their time and serious consideration to the complex case and were indispensable to the court process.
He remanded the two bankers on continuing bail to appear again before Dublin Circuit Criminal Court for a sentencing hearing on April 28.
They face a maximum of five years in jail and or a €3,000 fine on each of the 10 charges under section 60 of Ireland’s Companies Act.
Before deliberating, the jury had been warned to set aside prejudices they might hold against bankers in general and also to ignore evidence that Ireland’s financial regulator had been aware of the deal or that the bank had secured legal advice on the scheme.
The role played by investment bank Morgan Stanley was also irrelevant, they were told.
The state’s case against the bankers was that the Maple 10 and the Quinns - mother Patricia, Sean Junior, and daughters Colette, Aoife, Brenda and Ciara - were given loans totalling €619m to buy up Mr Quinn’s secret stock trades.
The tycoon, whose business interests stretched from hotels to shopping mall, to insurance and manufacturing, had tried to multiply his fortune with a share price gamble using Contracts for Difference (CfDs).
The trades, at the time unregulated, allowed him to bet that the value of Anglo would continue to rise without physically owning the shares. Ultimately it did not and the trades – on 29% of Anglo’s stock – cost him €2.4bn.
Anglo stepped in several times in late 2007 and 2008 when the bank became aware of the growing scale of the losses offering Mr Quinn hundreds of millions to cover margin calls on the contracts.
By July 2008 a scheme was prepared to lend hundreds of millions to the Maple 10 clients and the Quinn family, all of whom would use the money to convert the CfDs into ordinary shares. It was hoped it would stabilise the share price, the trial was told.
The state argued that the lending was not in the ordinary course of business.
Mr FitzPatrick had been found not guilty by the direction of the trial judge on six counts relating to the loans to the Quinns and later then acquitted by the jury on the remaining 10 counts related to the Maple investors.
The landmark Anglo Irish Bank fraud trial wasn’t quite the anticipated six month legal slog but thanks to its limited scope the public may well be forgiven for wanting more answers.
:: Where do we go from here?
Patience is a virtue. It’s only been five years since Anglo went bust. Prosecutions are pending over directors’ loans at the bank and the €7bn so-called B&B transfers between Irish Life & Permanent and Anglo in 2008. And there’s also a parliamentary banking inquiry, due to start within months, looking at the controversial bank guarantee of September 30 2008, the regulatory regime and the workings of bailed out banks. No former banker can be forced to attend. There will also be industry disciplinary hearings for Anglo directors once the small matter of criminal trials are done and dusted.
:: What are Contracts for Difference (CfD)?
Legendary investor Warren Buffett called them weapons of mass destruction. And that’s the effect the trades – a unique, unregulated trading derivative – had on Sean Quinn and Anglo. Essentially he signed deals with nine brokers taking a secret gamble with 25% of Anglo’s stock that the share price would rise. Using CfDs you never own the share but you could profit by multiples of your initial investment if the value goes up. It didn’t.
:: Why did Anglo lose so much on it?
As Quinn’s stake became known in late 2007 the bank pumped hundreds of millions his way to cover brokers’ demands to pay for losses because the share price was tanking. He also needed money as the losses were bleeding parts of his business empire dry. It totalled €2.4bn.
:: We heard lots of people knew about this deal so why was no-one else on trial?
Two Anglo directors got immunity – Matt Moran, the chief financial officer at the time. You might remember his colourful language from the Anglo tapes controversy when recorded calls at the bank were published by Independent News & Media. And Fiachre O’Neill, appointed head of compliance in 2007 despite, he said, telling his bosses he had no experience on that front. The author of the deal David Drumm is in America.
:: Did the judge have a pop at anyone?
Despite admonishing a state prosecutor for ridiculing a witness, not really. On the flip side though Judge Martin Nolan went as far as to praise the band of elite customers who agreed to take loans to help unwind Quinn’s stake – the Maple 10. He described the developers as remarkable men who wanted to help the bank and genuinely thought the deal was good for the country. The judge said Drumm was “a man who knew his own mind and a dynamic man”.
:: Did I hear talk about a sleeve and the dribble?
You sure did. Project Sleeve and the Dribble Mechanism to be precise. Two of the plays tried by Anglo in 2008 to unwind the Quinn CfDs by offering stakes to blue chip banks in Holland, sovereign wealth funds in the Middle East and venture capitalists in the US, as well as considering simply drip feeding the shares on to the market.
:: Right, and all through the trial there was an elephant in the room?
That would be chief executive Drumm. He was the author of the loans-for-shares deal and instructed his lieutenants to carry it out. He is awaiting a bankruptcy trial in the US and it’s not likely he will ever be back in Ireland to face the music, unless he gets deported.