Businessman claims Davy made €25m from selling bonds on his behalf

A businessman has claimed J & E Davy stockbrokers made a windfall profit of some €25 million from bonds it sold on his behalf after he was allegedly fraudulently misled by senior executives in the firm.

In Commercial Court proceedings, Patrick Kearney says he learned about the alleged concealment after Davy was recently fined a record €4.1 million by the Central Bank because of the manner in which the stockbrokers sold his bonds.

Davy, while acting as his agent in the sale to what he was assured was a third party, had in fact sold them to the “O’Connell Partnership” which was controlled by Davy, he claims.

Davy acted for Mr Kearney, of Bedford Street, Belfast, and Kilmona Holdings in the 2014 sale bond sale for 27.6 million Anglo Irish Bank Corp Euro Callable Subordinated Floating Rate Notes due in 2016 and 2017.

Affidavit

Mr Kearney, in an affidavit, says a year later he sued Davy claiming the bonds had been sold to the partnership at an undervalue. Those proceedings were settled in 2016.

Mr Kearney says, had he known then what he knows now, he would have refused to compromise that case.

He says Davy, which was paid €207,000 for the work it did on the sale for him and Kilmona, had assured him the O’Connell Partnership was an independent client of the stockbrokers.

He says that at the time of the sale he pressed Davy’s chief executive, Tony Garry, and its senior bond dealer, Barry Nangle, to provide him with details of the partnership but they “pointedly refused” on the basis of confidentiality.

Mr Kearney says he specifically asked if either of them (Garry and Nangle) had any interest in or control in the partnership and they assured him they had no involvement whatsoever.

It is understood, however, that Arthur Cox, acting for Davy, states in a letter to Mr Kearney legal’s team at Clark Hill solicitors that Mr Kearney was aware at the time of the settlement that employees of Davy were members of the O’Connell partnership. A separate letter from one of Mr Kearney’s advisers at the time of the deal allegedly specifically confirms knowledge of the involvement of Davy employees.

Davy’s legal team also argues in papers open before the court that Mr Kearney nor Kilmona “did not seek, and were not given, the assurances alleged in your correspondence” on the two men’s interest in or control of the O’Connell Partnership.

Both men were named earlier this year as members of the partnership.

Declarations

In his action, Mr Kearney seeks a declaration that the O’Connell Partnership was at all material times under the control of Davy in breach of loyalty and duty to him and his company.

He also seeks declarations including that Mr Garry and Mr Nangle fraudulently represented that they had no interest in the partnership and that both Davy and the partnership should account for the secret profit which was not disclosed prior to the bond sale.

He further seeks orders including for damages/reimbursement and setting aside the settlement of the previous proceedings in 2016.

Mr Kearney says Davy’s actions in the sale in 2014 not only deprived him and the company of the best price for the bonds but led to the stockbroker securing a financial windfall which his side estimate is of the order of €25 million.

On Monday, Mr Justice David Barniville admitted the Kearney/Kilmona proceedings into the fast track Commercial Court list on consent between the parties. Martin Hayden SC, for Mr Kearney/Kilmona, said it was their intention to join certain Davy executives in the proceedings.

The judge adjourned the matter to next week.