Drumm faces uphill battle in appeal against bankruptcy ruling

On day two of David Drumm's bankruptcy trial last year, the former Anglo Irish Bank chief executive testified that he and his lawyer, Stewart Grossman, had many conversations about the bank.

“I explained what was going on, that there was litigation, that there was potential for settlement, that there was also potential that they would never settle, the political nature of it,” Drumm told the court.

This week, the former Anglo Irish Bank, now Irish Bank Resolution Corporation, is due to file a reply to Drumm's brief appealing Judge Frank Bailey's ruling blocking a write-off of €10 million in debts.

The politics of the Anglo saga barely figured in the trial but it is likely to feature more in court should there be any attempt to extradite him to Ireland to face criminal charges over financial transactions carried out in 2008 as the bank was heading towards collapse.

Damning ruling

First, the 48-year-old is seeking to overturn Judge Bailey’s damning ruling in January in which he found Drumm to be a liar and fraudster.

Given that Judge Bailey found 30 reasons for Drumm to be denied a discharge when just one was enough, he faces an uphill battle.

Drumm argued last month that the Massachusetts judge erred in denying him a discharge by ruling that he knowingly and fraudulently concealed more than €1 million in transfers of cash and property to his wife from September 2008.

He blamed his lawyers, Grossman's firm Looney & Grossman in Boston, for failing to disclose the transfers in his official bankruptcy statements to court. They made the decisions and provided the advice that the judge found to be fraudulent on Drumm's part, his new lawyer argued, and neither they nor Drumm intended to defraud anybody.

“In order to deny Mr Drumm a discharge, the bankruptcy court erroneously found that, in certain circumstances, Mr Drumm, an accountant but not a lawyer, knew or should have known bankruptcy law and procedure better than his counsel,” said his lawyer.

There are parallels between Drumm’s argument and that of former colleagues at Anglo who, at trial, referred to the positive legal advice received for the €600 million Maple 10 transaction that propped up the bank’s share price in 2008 as the lender was attempting to avoid a messy unwinding of businessman Sean Quinn’s gamble.

The judge in last year’s criminal trial about the transaction, which a jury ultimately ruled was illegal, decided that legal advice was irrelevant to the guilt or innocence of the accused bankers at trial given that ignorance of the law was no defence. Two of them were later convicted.

Massachusetts district court judge Leo Sorokin must decide whether Drumm is right to blame legal advice in his own appeal.

Once IBRC lawyers file their response, Drumm has 14 days to lodge his reply. Judge Sorokin can rule on the papers or hold a brief hearing to consider oral arguments. If it doesn't go Drumm's way, he can appeal to a higher court.

Drumm has hired a well-known white-collar criminal defence lawyer, Tracy Miner, of Boston firm Demeo, the fourth law firm to represent the former banker since he filed for bankruptcy in 2010. The hiring of such a prominent lawyer suggests that Drumm is perhaps "lawyering up" to resist any extradition attempt.

‘Instigator’

The Irish State has begun the process of trying to extradite Drumm and a file outlining the charges he would face in Ireland is being considered by the US Department of Justice. It is unclear when or whether those officials will act on the case. Should it proceed, the case will first go to a magistrate judge and then to a district court judge.

A source close to Drumm described him as determined to fight any criminal charges and ready to argue that Judge Martin Nolan’s description of him as “the instigator and the author” of the illegal Maple 10 share scheme during the trial is an example of a pre-judged outcome against him.

Drumm is said to have been dismayed at the refusal of the Department of Finance to permit IBRC to settle the legal action with him when both sides were in negotiations in 2010 and later in 2013, given the money he was offering and the cost of their litigation.

Given Drumm’s bottle for a fight, his challenge against any extradition could take years. One only has to look at US extradition cases involving IRA members in the 1980s to see how long it could last.

Like in those cases, Drumm’s lawyers will undoubtedly argue about the “political nature” of it all, should he face that fight in the same US district court he has lodged his bankruptcy appeal.