ANGLO IRISH Bank unlawfully tried to prop up its share price by “shovelling” €2.34 billion in loans to Seán Quinn after discovering in 2007 his “towering” stake in Anglo could collapse the bank, his family claimed in court.
David Drumm, chief executive of Anglo, told Mr Quinn in December 2007 that the bank would provide €500 million in loans to “tidy up matters”, the court was told.
Mr Drumm made the offer after Mr Quinn asked for a €400 million loan to repay inter-company loans in the Quinn Group to avoid disclosing in his group accounts his vast stake in Anglo through contracts for difference (CFDs).
Brian O’Moore SC, counsel for Mr Quinn’s wife and five adult children, said Mr Drumm’s statement could be understood “in no other way than to tidy up issues concerning CFDs and Anglo’s shares”.
Anglo sought to have the loans disguised as property finance and other loans but knew they were to fund margin calls on Mr Quinn’s Anglo CFDs through a Madeira company, Bazzely, so as to avoid a 24 per cent stake becoming public.
The bank engaged in “very serious illegal activity” on a “persistent, ongoing basis” involving an “egregious” and “almost deliberate” breach of laws carrying penalties of €10 million and up to 10 years in prison, said Mr O’Moore.
Anglo, now Irish Bank Resolution Corporation, was not entitled to recover €2.34 billion from Mr Quinn’s wife Patricia Quinn or her children, who owned but did not manage Bazzely, he said.
He said that loans provided on guarantees and share pledges given by the family were tainted with illegality, he said. “Illegality was central to this – there would have been no loans without a desire to manipulate the market.”
Anglo, for example, provided about €300 million over three days around St Patrick’s Day in March 2008 to meet margin calls when its share price plummeted.
“No one in the bank seems to have stood back and asked why are we shovelling all this money into our own shareholding,” he said.
IBRC is seeking recovery of the loans from the Quinns and have joined Mr Quinn and two former Quinn executives, Liam McCaffrey and Dara O’Reilly, in the action.
Mr Justice Peter Charleton has been asked to decide whether the family have legal standing to make claims of breaches by Anglo of EU market abuse regulations and company law to claim that the loans are invalid and unenforceable.
In opening the hearing of this issue, Mr O’Moore outlined his side’s account of events from September 2007. Mr Quinn told Mr Drumm and Anglo chairman Seán Fitzpatrick at a meeting in the Ardboyne Hotel in Navan on September 11th, 2007, that the Quinns held a 24 per cent stake in Anglo.
From then on, the bank put “systems” in place to ensure that this did not come to the knowledge of the public or stock market.
Up to September 2007, about €750 million of Quinn money went into the 24 per cent stake
Afterwards, as Anglo’s share price fell, the bank “shovelled” €2.34 billion of its money in an ultimately unsuccessful effort to prop up its share price and avert “catastrophic” consequences.
From December 2007, Anglo managed the CFD margin calls in a process which became “stream-lined”. Certain Anglo personnel would be told by Quinn group personnel what funds were need and the money would be advanced.
Anglo was “paying for the show” and was “keeping the show on the road”, said Mr O’Moore.
Over three days around St Patrick’s Day in 2008, there was an “unforgettable development” as the share price collapsed.
On March 17th, Quinn executive Liam McCaffrey was told that Anglo would continue to fund the margin calls on the Quinn CFDs.
Anglo loaned more than a third of a billion euro over four days. Some €20 million was advanced to a Quinn catering company in the UK on March 17th as it was a public holiday in Ireland.
An emerging theme from September 2007 and into 2008 was a “lack of candour” by the bank about why it was advancing loans.
The preliminary hearing is expected to last at least three days
:quality(70)/cloudfront-eu-central-1.images.arcpublishing.com/irishtimes/VR3765MFOBH2NMV2QNICYDF67M.png)