What the judge said

Judge Martin Nolan’s comments at the sentence hearing of William McAteer and Pat Whelan

Wed, Apr 30, 2014, 14:12

Good afternoon. Mr McAteer and Mr Whelan, after a long trial, have been found guilty by a jury of their peers of 10 counts of breaches of section 60. So, they stand before you now to be sentenced on these counts. First of all may I thank Superintendent Keogh for a very fine rendition of the facts this morning. I feel I don’t need to say much about the facts. They have been gone into in huge detail on a number of occasions. So, I’m grateful to Mr O’Higgins for leading Superintendent Keogh through the facts in a very good way.

The two defendants have been found guilty of the offence of contravening section 60. Now, section 60 is a particular type of offence and in the course of the trial I’ve had to interpret what is the true purpose or one of the true purposes of section 60. I have come to the view that one of the purposes of section 60 is to prevent a company, in this case Anglo Irish Bank, investing or buying their own shares literally or affording finance to third parties to buy their own shares.

In this case, for particular reasons, the bank afforded approximately €430 million to 10 third parties to buy their shares. The explicit purpose of these loans were to stabilise the share price of Anglo Irish Bank. It was feared within the bank that if the share price was not stabilised the bank could literally go down, and I also think there was a certain fear among the bank higher executives, and probably the Regulator, that this would have a disastrous effect on the overall financial health of the banking system of Ireland. But it seems to me from the facts as disclosed this was a blatant affront to section 60, no matter what the motivation was and no matter what the necessity was perceived.

Now, it seems to me that both men were directors of the bank, executive directors. They had an obligation to make sure that the bank behaved in a lawful manner. This they signally failed to do. It seems to me both of the defendants knew of the situation and it seems to me they had a duty to stop the scheme. The scheme, as I indicated previously, in my view was an affront to section 60 and it seems to me it should have been stopped.

To deal with both defendants justly I’ve had to come to certain conclusions of why they did not act in this case. It seems to me I must make certain findings of fact in relation to the matter and I’ve come to the following findings of fact. I have come to the first finding of fact I’ve come to is that the serious problem that the scheme in question sought to remedy was not caused by the defendants, or indeed by Anglo Irish Bank, but by Seán Quinn’s “Investment strategy” in Anglo. I’ve also come to the conclusion that David Drumm was the instigator and author of the scheme in question, that is the lending to the 10 individuals, and it seems to me that both of the defendants in this case played their part in the execution of the scheme.

Mr Whelan was intimately involved for it seems to me he knew all of the proposed borrowers and he introduced these borrowers to Mr Drumm and he obviously brought the paperwork with him. Now, Mr McAteer was also aware of the scheme. It seems he briefed both Mr Moran and Mr Fiachre O’Neill, two people responsible to him, and directed them to assist in the execution of this scheme. So, both of them knew of the scheme and both of them played their part in the execution of the scheme.

Now, the third issue I’ve had to come to some conclusion on is the role of the Regulator. I’ve heard evidence from Mr Horan and Mr Neary. I must say that Mr Horan did his best. He was candid with the Court I think and his memory was reasonably good. It seems to me Mr Horan was there to do the duty of the State and it seems to me the situation that Anglo found themselves in frightened and probably disturbed Mr Horan and it seems to me that he was very anxious that Anglo sort the situation out. I have come to the conclusion that particularly Mr David Drumm kept the Regulator in general he kept them informed of the general situations in relation to the problems, and it seems to me I can accept that Mr Drumm was also in contact with Mr Neary. Mr Neary seems to have limited recall. He seems to have difficulty in recalling vital events but it seems he knew of the general situation and I have no doubt betrayed to Mr Drumm his anxiousness about the situation and his hope that the Quinn situation would be resolved.

It seems to me that in a general way Mr Horan and the Regulator must have known, from the March agreement at least, that it was intended at some stage that Anglo Irish Bank would lend to parties to buy shares to relieve the CFD position. It seems to me incredible at that stage that the Regulator did not take some advice from their colleagues in other State agencies as to the legality of this course. I find it incredible that basically what was proposed in the March agreement was that, at least in a short term basis, Anglo Irish Bank would loan a large sum of money to the Quinn family to buy Anglo shares. I find it incredible that red lights didn’t go off some place in the Regulator’s office and the appropriate legal advice was not sought. But it seems that Mr Horan and Mr Neary were more anxious to solve the problem than comply with the technicalities of the law, but nonetheless the law. I think the Regulator felt that their overarching purpose was to save this bank and save the financial system. I think they apprehended dire consequences if the Quinn position was allowed to fester and Anglo became totally embroiled with it.

Now, it seems to me that by not taking action and not warning the bank, Anglo, they gave a green light to lending for the purposes of buying shares. It seems to me that anybody in the bank, Anglo Irish Bank, could have, and probably did, come to the conclusion that there was no legal bar to the bank lending for the purposes of acquiring shares, their own shares, and it seems to me from looking at the case I’m totally surprised that the Regulator did not give some warning to Anglo Irish Bank. That’s it became apparent that there was going to be huge lending to the Quinn family to buy shares of Anglo Irish Bank in March and it was envisaged but it seems that agreement could not be continued with because of -- the 10 % couldn’t be sold to any willing party and probably Mr Seán Quinn wasn’t also willing.

We come to the events that give rise to these charges. This is around July of starting off on the 7th to the end of July. Various parties were involved. I think the Regulator knew that there was some deal at hand. I’m not sure the Regulator knew precisely that there was going to be lending to the Maple 10 but I couldn’t be sure of that but at a certain stage he certainly knew that the Quinn family were going to be lent money for them to buy shares on at least a short term basis. I think Credit Suisse and probably Lehman Brothers were hoped or it was hoped would come in later and refinance this transaction. But again the Regulator, it seems to me, in the guise of Mr Horan, and I assume Mr Neary was informed of the situation, knew that there was going to be some lending in relation to this scheme, overall scheme. I am very much aware that these two gentlemen have been found guilty only in relation to the Maple 10 and not the Quinn transactions but nonetheless the principle is the same. The principle was there and it seems that the Regulator didn’t realise that it was a breach of section 60 or chose to disregard it. I cannot be sure which was the case. I’m going to give the Regulator the benefit of the doubt in this case but I’m surprised that after March legal advice or advice was not taken by the Regulator in relation to this matter.

Now, in relation to the legal advice actually sought from Matheson Ormsby Prentice. I’ve had the benefit of the evidence of many parties in relation to this issue. I have also had the benefit of Mr Robert Heron’s evidence yesterday, and I have come to the view in the case, and for the purpose of coming to the important conclusion in relation to this matter it’s not necessary for me to make up my mind on what advice Robert Heron actually gave or what advice he felt he gave, I think the vital issue is what both Mr McAteer and Mr Whelan thought. It seems from the evidence of both Mr Moran and Mr O’Neill and other witnesses, they perceived they had been given a green light by MOP, Matheson Ormsby Prentice, and Mr Heron. They perceived that they could escape through the portal of ordinary business. They perceived that that was the situation and I have come to the conclusion that both Mr McAteer and Mr Whelan were of that view and were given that view.

So, it seems to me that I cannot be certain that either Mr McAteer or Mr Whelan knew that what they were doing was contrary to section 60 but it seems to me that nonetheless it was a blatant breach of section 60 and it seems to me that the Regulator had an obligation and certainly I’m surprised that a more definite warning wasn’t given by Mr Heron but nonetheless what’s important for me as the sentencing judge is what I believe that both Mr Whelan and Mr McAteer believed.

Now, the next conclusion I’ve come to is that I do not believe there was any venal motive, either on behalf of Mr Whelan or Mr McAteer or indeed Anglo Irish Bank, for executing this scheme. The motivation was not avarice or greed or the pursuit of profit. It seems to me that it was a genuine, if misguided, attempt to save their bank as they perceived it was in danger but nonetheless it was a breach of the law and necessity does not give parties the right or privilege of breaking the law. But I, as a sentencing judge, in sentencing both Mr Whelan and Mr McAteer must be just to them and in sentencing both of these gentlemen I have to take into account all of the factors and in sentencing them I have to take into account what I believe they knew and believed on the dates that are material. It seems to me it would be incredibly unjust for a court of the State to impose custodial sentences on these two gentlemen in the circumstances as I find them. I find that explicit warning should have been given in this case, both by a State agency and by the solicitors involved. It seems to me they were not given and I think it would be unjust of this court to impose on either on Mr Whelan or Mr McAteer a prison sentence in these circumstances, and I’m left in a situation where I feel there has been a serious crime committed because it seems to me, let’s say, the market in shares depends on transparency and it depends on people’s belief that there’s an open and fair market.

In July of 2007 there was not an open and fair market in Anglo shares. Anglo Irish Bank had intruded on the market for their own purposes and therefore people who bought Anglo Irish shares around that time I think were misled and could have lost as a result of that. So, therefore it’s not a victimless crime. But nonetheless I feel that Mr McAteer and Mr Whelan are not deserving of prison sentences for the reasons and the findings of fact I have made but they are deserving of some type of punishment and I think the appropriate punishment in this case is that I’m going to adjourn the matter and I’m going to ask the Probation Services to assess their suitability for community service and if there is I’m going to impose an appropriate period of community service on both of them because they failed in their duty to protect the bank from illegality. Anglo Irish Bank certainly did breach the law in a grievous manner but I find that it would be an unjust action on behalf of the Court to imprison either Mr McAteer or Mr Whelan. If I found that there was a venal motive such as avarice or greed I’d have no great difficulty in imprisoning them. If I found and I believed that they knew that they were contravening the law I’d have no great difficulty imprisoning them and I must say that the attitude and the behaviour of the Regulator certainly has complicated the issue considerably in the sentencing and it seems to me that it would be most unjust for this court to imprison these two gentlemen when it seems to me a State agency has led them into error and into illegality. Thank you. So I’ll adjourn the matter until the last the 31st of July for the Probation Service to assess both Mr McAteer and Mr Whelan as to suitability as to community service. Obviously I have taken into account their personal circumstances. They have no record and they’ve led blameless lives and very productive lives, if I may say so, up until now. Does everybody understand what I’ve done?