Former Anglo executives knew of ‘illegal scheme’ to buy bank’s shares

FitzPatrick, McAteer and Whelan deny unlawfully providing financial assistance

Senior Business Correspondent Tom Lyons reports on day one of the trial of former Anglo Irish Bank directors Seán FitzPatrick, William McAteer and Pat Whelan at the Criminal Courts of Justice. Video: Bryan O'Brien

Wed, Feb 5, 2014, 19:47

The trial of three former Anglo Irish Bank directors has begun with the jury hearing that the accused are alleged to have known about an illegal scheme to fund the buying of shares in the bank.

Former chairman Seán FitzPatrick and former directors William McAteer and Pat Whelan are accused of providing unlawful financial assistance to members of businessman Seán Quinn’s family and the so called “Maple Ten”, a trusted group of Anglo borrowers, for the purchase of shares in Anglo.

The prosecution say the lending was to allow these 16 investors to buy Anglo shares thereby creating the public perception of stability in the bank’s share price. They say a total of €160 million was illegally loaned to Seán Quinn’s wife and five children while €450 million was illegally loaned to the Maple Ten.

It is the state’s case that Mr Whelan was “very much involved” in the scheme while Mr McAteer was less involved but fully aware of what was happening. The prosecution allege that Mr FitzPatrick, as chairman of the board, was told about the lending, that he permitted it to happen and did nothing to stop it.

Mr FitzPatrick and Mr Whelan admit that the money was loaned for the purpose of buying shares in the bank. Counsel for Mr Whelan, Brendan Grehan SC said the lending was “in the ordinary course of business” and that both the Irish and UK financial regulators had agreed to it.

Dublin Circuit Criminal Court heard that Section 60 of the 1963 Companies Act allows for a defence of such activity if lending is “in the ordinary course” of the company’s business. The prosecution say the scale and nature of the loans show they were not given “in the ordinary course of business.”

The three men have been charged with 16 counts of providing unlawful financial assistance to 16 individuals to buy shares in the bank. Each charge relates to a specific person, who allegedly received loans between July 10th and July 30th, 2008.

Mr Whelan also faces seven charges of being privy to the fraudulent alteration of loan facility letters to seven individuals.

Mr FitzPatrick (65) of Greystones, Co Wicklow, Mr McAteer (63) of Rathgar, Dublin and Pat Whelan (51) of Malahide, Dublin have pleaded not guilty to all charges.

During his opening address to the jury, prosecuting counsel Paul O’Higgins SC gave a history of Anglo Irish Bank describing how Mr FitzPatrick became chief executive in 1986. He also mentioned its swift growth during the 1990s and 2000s and the appointment of David Drumm as chief executive in 2004, when Mr FitzPatrick moved to the chairman role.

He said that in 2007 senior staff at the bank became aware that businessman Seán Quinn controlled around 25 per cent of the bank through “contracts for difference”. Mr O’Higgins described contracts for difference as “an extraordinary form of gambling” offered to members of the investing public by “financial geniuses”.

“For a commission you go to a CFD provider. Instead of buying shares, you gambled on the future of shares. You didn’t have to buy them. You might only have to pay 10 or 20 per cent of the cost of the shares.”

He said contracts for difference allowed investors to receive much more profit if the share price goes up but also exposes them to much bigger losses if the share price drops.