Ex-Anglo chief David Drumm given suspended sentence over share scheme

‘One would have expected ... alarm bells would have sounded’ at financial regulator when Anglo trying to fix Quinn problem - judge

David Drumm (51)   has received a suspended 15-month sentence as “instigator” of an illegal share-buying scheme aimed at halting Anglo Irish Bank’s sliding share price in July 2008.

David Drumm (51) has received a suspended 15-month sentence as “instigator” of an illegal share-buying scheme aimed at halting Anglo Irish Bank’s sliding share price in July 2008.

 

Former Anglo Irish Bank chief executive David Drumm has received a suspended 15-month sentence as “instigator” of an illegal share-buying scheme aimed at halting the bank’s sliding share price in July 2008.

Drumm (51), who is already serving a six-year sentence for conspiracy to defraud and false accounting, pleaded guilty last month to authorising unlawful loans to 10 property developers, all long-standing borrowers at the bank, to buy shares in Anglo.

At the Dublin Circuit Criminal Court, Judge Karen O’Connor in sentencing Drumm took into account Drumm’s guilty pleas, saying he had avoided a “lengthy and complex” trial with numerous witnesses.

She noted, however, that Drumm held a senior position at Anglo and as chief executive he held “a particular position of seniority and trust.”

The former banker stood in Court 20 at the Criminal Courts of Justice as the sentence was delivered during a hearing that lasted about 20 minutes.

The Director of Public Prosecution confirmed that it would not be proceeding with the other 21 counts Drumm was facing.

His sentencing marks the end of nine years of investigations and criminal prosecutions relating to transactions dating back a decade in the run-up to the collapse and nationalisation of the bank.

The charges related to Anglo’s efforts, beginning in March 2008 and ending with the illegal scheme in July 2008, to unwind the massive investment taken in the bank by businessman Sean Quinn that left the bank “vulnerable and exposed” at a time when its share price was seen as a proxy for financial stability.

Loans of €45 million were provided to 10 high net-worth individuals, all longstanding customers of the bank, to purchase Anglo shares to unwind Mr Quinn’s investment held through contracts for difference, a form of gamble on the bank’s rising share price. It amounted to more than 28 per cent of Anglo’s share at peak.

‘Market was misled’

Judge O’Connor said that Drumm, as chief executive, should have ensured transparency and compliance with legislation in a position of trust in the bank.

She noted that the market was not told of the lending scheme and that “the market and people who access the market” are entitled to transparent information and true facts.

“In that respect, the market was misled,” she said.

In sentencing Drumm, she considered the Financial Regulator’s involvement in Anglo’s lending scheme, noting that the regulator was anxious to have the large Quinn CFD investment in the bank unwound in 2008.

It seemed clear, she said, that the regulator knew of the bank’s plan for short-term lending to the Quinn family to “go long” on 15 per cent of the shares behind Mr Quinn’s CFDs, though there was “a degree of ambiguity” about what the regulator knew of the lending to the 10 developers known as the “Maple 10” to take a further 10 per cent stake in the bank.

She said Drumm and another of his co-accused, Pat Whelan, then managing director of Anglo’s Irish business, approached the high net-worth individuals in “a very proactive way”.

The court was told that the lending was not done through conventional channels and that the bank’s documents “misrepresented the lending” to the Maple 10 suggesting that the approaches for the loans had come from the borrowers rather than from the bank.

The bank also mischaracterised the lending as for share purchases generally rather than specifically to purchase shares in Anglo. Drumm travelled to meet individuals to persuade them to become involved. The court heard that he travelled to France and Portugal to meet some of the Maple 10.

Regulator was ‘very concerned’

Judge O’Connor referred to the evidence that Drumm had told Pat Neary, the chief executive of the regulator, about the Quinn position after he and then Anglo chairman Sean FitzPatrick met Mr Quinn in September 2007 and after the bankers had learned about his large investment in the bank.

The court heard that the regulator at that time was “very concerned” about Mr Quinn’s position in Anglo and feared the “knock-on effect” to the bank and the wider financial sector.

She noted that the Domestic Standing Group, made up of the heads of the regulator and Central Bank and a Department of Finance secretary Kevin Cardiff, had the matter “on its agenda and on its radar.”

The judge referred to the evidence of Con Horan, the prudential director at the regulator, who denied knowledge of short-term lending to the Maple 10, but noted the evidence of Mr Cardiff who had a note of a conversation with Mr Horan around the time detailing some short-term lending relating to the transaction.

The judge said that the regulator was aware of the efforts being made to resolve the Quinn position and was aware of the “vulnerability and exposure” that flowed from it.

“It should have raised concerns with the Financial Regulator when the regulator was aware of a scheme to lend albeit short-term funding” to the Quinn family, she said.

The regulator was concerned about the overall strength of the banking system at the time, she said, and that these were “extreme and challenging times.”

“One would have expected that alarm bells would have sounded when the scheme was being considered in March 2008,” she said.

Judge O’Connor said the scheme that arose in relation to CFDs was “not created by Anglo” but made the bank “vulnerable and exposed” and “was created by Mr Quinn” using a number of brokers and “in secret.”

The judge referred to the transcript of the bank’s external lawyer, Robert Heron of Matheson Ormsby Prentice, and other parties to a conference call where they discussed an exception to Section 60 of the Companies Acts which meant there was “no impediment” with regard to the legality of the scheme.

The judge noted the sentencing of two former colleagues, Anglo’s former finance director Willie McAteer and Mr Whelan to 240 hours’ community service each in 2014, in lieu of two years’ imprisonment.

Community service was not available to Drumm as he was already serving time, she noted.

Taking those sentences as “my principle yard stick” the judge said she recognised that there should be a substantial reduction because of Drumm’s guilty plea.

The suspended sentence will run concurrently with his current jail term.