A trial, not an error

The 47-day Anglo Irish Bank trial wasn’t about vengeance for the banking collapse. It was about subtle legal points: the ‘good-faith defence’ and ‘the ordinary course of business’. Some feared such white-collar concepts would be beyond a jury. They were wrong

Sat, Apr 19, 2014, 01:00

Seán Quinn bounded towards Court 19, his small entourage of family and friends trailing behind him, passersby glancing as he passed. When he reached the door Seán FitzPatrick happened to be standing there, waiting for the courtroom to open for the day’s proceedings.

They paused. For a moment the two men seemed unsure how to react. They barely knew each other, but for years their fates had seemed locked in sync. Two self-made men, once celebrated as stars of a buccaneering Irish capitalism, Quinn and FitzPatrick had seen everything unravel in a violent tailspin and had become lead characters in the story of Ireland’s financial collapse.

Now their unlikely trajectories had aligned to deliver them here, to the marbled upper floor of the Criminal Courts of Justice in Dublin for one of the biggest trials ever held in this country. They shook hands, smiled a little awkwardly and exchanged a few polite words.

An unusual trial
The trial of FitzPatrick and his fellow former Anglo Irish Bank directors Willie McAteer and Pat Whelan was a new experience for everyone. Dublin Circuit Court is more accustomed to robberies and assaults than it is to the rarefied world of high finance, or what Seán FitzPatrick’s defence barrister, Michael O’Higgins, at one point called “the fancy stuff”. Nobody had ever been prosecuted under section 60 of the Companies Act, despite its being on the statute books since 1963.

Every day brought odd juxtapositions between the cultures of business and the law, each with its own modes and language. Discussions about multibillion-euro transactions would give way to earnest arguments about legal precedents involving pirates and Frenchmen duelling in England.

It was an unusual trial, too, in that the facts were, for the most part, not in dispute. None of the three defendants denied that Project Maple, the scheme to unwind Quinn’s stake in Anglo Irish Bank by having 10 businessmen and six members of the Quinn family buy the underlying shares, took place.

Neither did they deny that Anglo lent the money for the share purchases or that they knew about that before the transaction was carried out, in July 2008.

In some ways the rigid codes and procedures of a criminal trial stripped away the background noise. The atmosphere was calm and deliberative. But behind the veneer of courtroom protocol the vignettes told an extraordinary story.

Seán Quinn quietly building up a potentially calamitous bet on Ireland’s third-largest bank from the seat of his empire, in Co Cavan.

Anglo desperately shovelling billions into the Quinn Group so as to avert mutually assured destruction.

Ten businessmen, needing no more than a phone call and a quick chat to be talked into each taking a €45 million loan.

The financial regulator, polite and unquestioning, as two of the organisations he supervised, Anglo and Quinn Insurance, contemplated collapse.

The Quinn crisis
For much of the trial the momentum appeared to be with the defence. Anglo witnesses described their horror at discovering, in September 2007, that Quinn had secretly amassed 24 per cent of the bank’s stock through contracts for difference (CFDs), high-risk bets on the performance of a share. They tried to persuade him to reduce his stake. Instead he kept building it, convinced that the share price would rise.

For the bank the problem was that the rumours about Quinn’s holding were, it believed, prompting hedge funds to short-sell its shares – bet, in other words, that they were about to fall in value – thereby destabilising the share price. If there were to be a disorderly unwinding, resulting in a quarter of Anglo’s stock being dumped on to the market at once, depositors would be spooked, the share price would plummet and the consequences for Anglo and the Irish financial system would potentially be catastrophic.

For months Anglo scrambled to resolve the crisis, but every attempt failed. The situation grew increasingly desperate. In July 2008 a plan was devised that involved providing loans to 10 of the bank’s customers, known as the Maple 10, to buy just over 1 per cent each of the shares underlying the CFDs; six members of the Quinn family would buy another 15 per cent of the shares. As well as the €45 million each that the Maple 10 borrowed, the Quinns borrowed €169 million.

Witness after witness told the court that Anglo had received positive legal advice about the July 2008 transaction. The jury was told that the financial regulator was putting pressure on Anglo to sort out the problem and that the regulator’s office was comfortable with the deal that was eventually struck.

Witnesses from the investment bank Morgan Stanley told the court that they had insisted on a series of steps being taken to ensure that the unwinding of the stake was above board.

The f inancial r egulator’s role
The performances in the witness box of the two most senior figures in the regulator’s office, Patrick Neary and Con Horan, didn’t appear to advance the prosecution case. The overall impression left by Neary’s evidence was of a regulator who appeared at best deferential to the powerful men who controlled the institutions he was supposed to be supervising.

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