Drumm email shows regulator was aware of ‘unlawful loans’ – Quinns

An email from Anglo Irish Bank chief executive David Drumm under the subject "regulator squared" is among documents being relied on by Sean Quinn's family to support their claims the financial regulator and Department of Finance were well aware the bank advanced unlawful loans during 2008 to shore up its share price.

A series of emails between Mr Drumm and Declan Quilligan of Anglo on July 9th, 2008 began with an email from Mr Drumm with no text in the body but the words "regulator squared" in the subject field to which Mr Quilligan replied: "Excellent! I hope he was grateful!", Aoife Quinn said.

Mr Drumm replied: “Excited I would say – I think he is lying awake at night like the rest of us.”

Ms Quinn said these and other documents discovered by IBRC (formerly Anglo), plus various reports and Dáil debates, show the then regulator Patrick Neary and Department of Finance knew Anglo was advancing unlawful loans to Quinn companies during 2008.

It was “simply inconceivable” the Minister for Finance was not fully aware of the actions of Anglo, in conjunction with the regulator, to unwind Quinn Contract for Difference positions in Anglo shares, she said in an affidavit.

The Quinns claim the Department was actively involved in Anglo’s affairs throughout 2008 and its conduct in January 2009 was effectively attempting to cover up its knowledge and involvement in matters from September 2007.

Ms Quinn's affidavit grounds her family's application to have the Central Bank and Department of Finance joined as co-defendants with IBRC in the family's action denying liability for some €2.34 billion loans by Anglo to Quinn companies on grounds they were allegedly advanced for the unlawful purpose of supporting the bank's plummeting share price.

Not only did the regulator and Minister for Finance know of the unlawful transactions complained of by the Quinns but they facilitated them and are therefore liable for damages, the family claim.

The alleged wrongs were compounded by the special liquidation of IBRC with the potential effect of causing assets, which the Quinns claim to be entitled to, to be transferred to NAMA, it is claimed.

The full action has been parked pending conclusion of criminal proceedings against four former Anglo executives but the joinder application will be heard on June 17th.

Shane Murphy SC, for the Central Bank and Department, told Mr Justice Peter Kelly this week they would contend the family’s application to join his clients comes too late and raises a “totally different cause of action”.

In her affidavit, Aoife Quinn said a document concerning an Anglo board meeting of March 19th, 2008 recorded: "DD confirmed he had spoken to John Hurley & Pat Neary in relation to SQ CFD position..".

Referring to the July 2008 emails between Mr Drumm and Mr Quilligan, Ms Quinn said she believed the apparent apprehension of the regulator and Anglo was that the bank was running out of time in terms of the funding it could continue to provide to meet margin calls in support of its own shares. It was around then that the “infamous Maple 10 consortium” was put in place and one Anglo email referred to them as the “10 disciples”, she said.

An email of July 14th, 2008 between Morgan Stanley and Anglo stated both the Irish and English regulators were aware of the proposed transaction and had not raised any objections, she said. The regulator actively participated in design and execution of the transactions, she claimed.

Another Anglo email of July 2008 stated “FR”, which Ms Quinn said meant Financial Regulator, “was putting us under huge pressure. Said they are threatening to treat most recent increase in lending (to allow family go long c170m) in a very penal manner and that it may have disclosure implications”.

In July 2008, Anglo was “perilously close” to the regulatory rules limiting large exposures of any one bank to 25 per cent of its own funds, Ms Quinn said. In that month, the Quinn CFD positions were some 28.41 per cent of Anglo’s share capital, she noted.

On September 17th, 2008, an internal Anglo document recorded: “The Financial Regulator’s position was not to provide any more finance and it was agreed to tell SQ that our hands were tied,” she added.

Former minister for finance Brian Cowen and his successor Brian Lenihan were aware of the alleged Anglo funding of margin calls, she claimed. Reports of meetings of the Domestic Standing Group, established to strengthen inter-agency co-operation on financial matters, were circulated, among others, to Kevin Cardiff, former secretary general of the Department, and to the then Tánaiste and the department was represented at each DSG meeting, she said.