Compensation bill for Morrogh set to top €10m

The final bill for compensating investors in failed Cork stockbroker W&R Morrogh is expected to top €10 million. The money will come from other financial institutions via the Investor Compensation Company (ICC).

The chairwoman of the ICC, Ms Caitríona Murphy, said yesterday that the current figure was twice the organisation's original estimate. She said this reflected the length and cost of the Morrogh receivership process and the ruling by the courts that the receiver, Mr Tom Grace, could access client funds to pay for the costs of the receivership.

This in turn pushed up the losses incurred by the 2,500 clients of the broker, which will in turn have to be made up by the ICC, subject to a cap of €20,000.

Ms Murphy said that just over half of the total estimated cost related to money that will be paid to former clients to compensate them for assets that had been used to fund the receivership.

When the latest estimate of the cost of the Morrogh collapse is taken into account, the ICC only has €385,000 left in the fund set aside for compensating clients of banks, stockbrokers and other investment firms. Ms Murphy said she was hopeful that the ICC would not have to make a further call on its members for funds this year.

Other stockbroking firms have already made substantial top-up payments in respect of Morrogh, the third of which (€1.7 million) was made this year.

Members had already started paying their contributions for the 2004-2005 year and Ms Murphy said that barring another call on the fund, it should be in the black to the tune of €2 million by the middle of next year.

Morrogh went bust in 2001 with liabilities estimated at €12 million. The collapse came after the junior partner in the firm, Mr Stephen Pearson, lost millions trading financial futures. He has subsequently been charged with fraud.

Mr Grace told the High Court this summer that his costs at that stage amounted to €5.7 million of which fees and expenses were €3.26 million. The remainder of the costs were legal fees.

He said that they would have to be met by selling some 35 per cent of shares held by the firm on behalf of clients.

Mr Grace said Morrogh's only assets (as distinct from client assets) were €85,000 in AIB and computers and equipment worth about €1,000.

He told the court that in the circumstances, it was clear the firm's assets would not be sufficient to discharge the level of costs incurred in the receivership. In order to meet ongoing costs, fees and expenses of the receivership, it was necessary to sell a proportion of the shares held by the firm, Mr Grace said.

In an affidavit, Mr Grace said the clients' assets (other than cash amounting to €7.416 million) held by the firm were valued at about €11.19 million on May 31st last. The value of claims made against the firm were about €12.5 million. He said he was concerned to ensure that shares held by the firm should be transferred to clients as soon as possible.