Drumm still facing huge debts as Anglo objects to bankruptcy discharge

EFFORTS BY former Anglo Irish Bank chief executive David Drumm to walk away from debts of nearly $12 million to his former employer have been put on hold after Anglo objected to him being discharged in bankruptcy proceedings in the United States.

The US Bankruptcy Court in Boston had been expected to discharge Mr Drumm from the bulk of his debts shortly, after a deadline for objections passed yesterday. However, Anglo filed two complaints ahead of the deadline arguing that the former bank chief should not be discharged.

In affidavits setting out its objections to the court discharging Mr Drumm from his debt, the bank alleges that its former chief executive’s “well-established pattern of concealment, deception, manipulation, falsehood, and intentionally fraudulent behaviour – both during his tenure as chief executive and his Chapter 7 [bankruptcy] case – contravenes the intent and spirit of bankruptcy to provide fresh start relief to the ‘honest but unfortunate debtor’ and fully merits an exception from discharge as to Anglo Irish Bank’s debts”.

The bank alleges that Mr Drumm deliberately concealed information from non-executive members of the bank board “and fraudulently removed or caused to be altered personal recourse loan provisions for several loans extended to himself, fellow executive directors, and certain hand-picked high net worth customers”.

This refers to the “Maple 10” investors to whom the bank turned to take up a 10 per cent stake in the bank from Seán Quinn, using loans provided by the bank. Anglo says Mr Drumm did this in “a desperate attempt to avoid serious financial risk to himself, the other directors, and the favoured investors” arising from the bank’s sharply declining share value.

Anglo dismisses as “patently absurd” Mr Drumm’s contention that he did not realise the loans were non-recourse because he had failed to read the documentation.

“The idea that Drumm – a sophisticated and experienced lender and chartered accountant, and the CEO of the very bank making his loan pursuant to a facility letter that he attested to having read and understood – had, in fact, never read or had no idea of the fraudulent documentation, is absurd,” the bank’s affidavit contends.

“Coincidence, mistake, inadvertence or negligence cannot explain the remarkable timing and consistent response of Drumm to the liquidity crisis and the bank’s declining share price: to remove or alter the personal recourse term for each and every loan owed by himself, other executive directors of the bank, and the Maple 10 investors.”

The bank separately alleges that Drumm failed to notify non-executive directors at the bank of the extensive loan “warehousing” arrangement of bank chairman Seán FitzPatrick despite knowing of them.

The bank states that Mr Drumm must have known the damage that would result from the eventual disclosure of Mr FitzPatrick’s loan arrangements and that €98 million in new loans to Mr FitzPatrick would never have been made between 2005 and 2008 if Mr Drumm alerted the board to the arrangements “when he found out about such practice in 2005”.

The affidavits also allege that Mr Drumm, realising that “his pattern of deception and wrongdoing as Anglo’s CEO would inevitably be exposed”, transferred cash from his account at the bank to accounts held jointly with his wife or solely in her name.

These transfers totalled about $1 million, the bank alleges, adding that Mr Drumm failed to disclose them in his dealings with the bankruptcy court until after Anglo’s counsel and the bankruptcy trustee Kathleen Dwyer “had already exposed the fraudulent transfers”.

It also notes that the groundwork for the visa which he used to enter the US in June 2009 had been initiated in early 2008, shortly after he took the allegedly fraudulent non-recourse loan.

The bank also accuses Mr Drumm of testifying falsely in the proceedings.

“Despite the generous time granted by the trustee to make a full and complete disclosure, Drumm remains unco-operative and far short of candid in disclosing the actual value of certain of his assets,” the affidavits claim.

“ Drumm has chosen to play fast and loose with his statutorily required disclosures and open dealings with his creditors, with his acts of concealment and fraud on his creditors extending now almost a year into his Chapter 7 case.”