DCC case raises questions for stock exchange

Business Opinion: The revelations concerning the Irish Stock Exchange (ISE) and DCC, which emerged from the Supreme Court some weeks ago, raised a number of disturbing questions that seem set to have been left hanging for some time.

The key issue is whether the ISE, as regulator, acted with sufficient independence and robustness when it found itself confronted by a possible case of insider dealing concerning a trade worth €106 million.

The board of the exchange is heavy with members who are stockbrokers and a note revealed during the Supreme Court case referred to DCC's advisers' view that it might be able to make better progress with the ISE's board rather than its executive, "given the personalities and the vested interests involved". At the time a report had been filed to the Director of Public Prosecutions by the exchange.

The Supreme Court case concerned a dispute over discovery that was linked to the ongoing Fyffes/DCC insider-dealing case in the High Court. That case seems set to run until the summer, if not beyond. Comment from the exchange is not likely before the case has been ruled on.

The Supreme Court has ruled on the discovery issue but while making only the briefest of comments on the approach to the ISE. Mr Justice Fennelly said DCC's objective in approaching the ISE was to influence the ISE so it might persuade the DPP not to proceed with the criminal inquiry into possible insider dealings by DCC. He said it was not the court's function to comment on the general desirability of such behaviour.

An issue that emerged from the DCC papers which were referred to during the Supreme Court case was a suggestion that expert reports would be furnished to the exchange by DCC and, if the exchange thought they would be useful to DCC's position, they would be passed on to the DPP. If the exchange thought they they would not be useful, they would be sent back to DCC.

Mr Justice McCracken, in his judgement, said this vetting suggestion seemed "oddly enough" to have originally come from Mr Tom Healy, chief executive of the ISE. However, he pointed out, the arrangement was not put into effect and Mr Healy, in a later letter to DCC, made it clear that the exchange would not be prepared to keep information confidential from the DPP.

DCC argued it was within its rights to make the approach it did and, in fact, had a duty to do so. It believed the exchange had reported to the DPP while not being in possession of all the facts and that DCC was entitled to bring new information to the attention of the exchange. Mr Justice McCracken found that DCC was justified in complaining that the exchange had reported to the DPP without giving DCC an adequate opportunity to respond to what was being alleged. He also found it was justified in giving further information to the exchange, after the exchange had forwarded its initial report. (The system is now changed and the exchange does give parties a right to respond before a report is completed.)

Mr Peter Crowley of Investment Bank of Ireland, and Mr Donal O'Connor, of PricewaterhouseCoopers, who were working as advisers to DCC, had contact with Mr Healy. They said they'd been engaged to give independent expert opinion on the issue of price sensitivity, and had concluded that the information available to DCC at the time of its trades was not price sensitive. In a note they said: "Tom gave the opinion that he would be happy to 'see the whole issue go away'." The note also records that: "Tom confirmed that if he received information from DCC which now led him to the view that the information was not price sensitive, he would pass this conclusion to the DPP."

The ongoing High Court clash between DCC and Fyffes will hear five expert witnesses for each side, with diametrically opposed opinions being expressed.

It was stated during the Supreme Court hearings that Mr Jim Flavin, of DCC, prepared a memo that reported on a telephone call made a week earlier between Mr Healy and Mr Brian Davy, chairman of Davy Stockbrokers and deputy chairman of the exchange. Mr Davy was seeking Mr Healy's opinion of the expert reports he'd been given, according to the memo. Mr Healy also discussed the views of the DPP towards the case, according to the memo.

Two months later Mr Davy called Mr Flavin and told him of another conversation he'd had with Mr Healy. A memo of the conversation recorded Mr Flavin being told that Mr Healy had said that if asked by the DPP, he would say he'd been very impressed by the expert reports.

DCC may have been within its rights to argue its case with the exchange, but the response of the exchange remains an issue. On the face of the documents so far released, the information flow from the exchange to the company being inquired into, appears odd. We do not know if the DPP and the Garda was being kept informed as to these contacts, but this is presumably a point that can be cleared up once the insider dealing case has been decided.

Changes to the regime under way will give ultimate regulatory responsibility in this area to IFSRA, but the exchange will remain involved in the investigative process, so the overall issue remains a concern.