TWO investors, who had placed around £650,000 with the missing broker Mr Tony Taylor, asked the Department of the Enterprise and Employment to make the provisions, of the former tax amnesty available to them in return for their going "on the record" about their investments.

The two investors, through a former senior executive of the Taylor companies, Mr Eddie Hobbs, also asked the Department to indemnify them against any loss of capital. The requests, which were not acceded to, were made during a meeting between Mr Hobbs and Department officials on August 2nd.

At the time the Department was seeking to have complainants confirm allegations which they knew were being made against Mr Taylor.

The two investors eventually, on August 28th, went "on the record" to the Department's authorised officer, the Minister of State at the Department of Enterprise and Employment, Mr Pat Rabbitte, told the Select Committee on Enterprise and Economic Strategy yesterday. It was the first day of an enquiry into issues arising from the Taylor affair.

On July 22nd, the Department was made aware that Fidelity Investments was investigating a complaint against Mr Taylor. Fidelity failed to provide any written statement in respect of its concerns, "a matter which did not facilitate the Department's examination". At the time the Department received legal advice that "precipitate action" would not be appropriate.

It was following contacts with Mr Taylor and because the "desired level of co operation" was not forthcoming, that the authorised officer was, on August 9th, provided with formal terms of reference.

The Minister denied that the Investment Intermediaries Act 1995 had failed in respect of Mr Taylor. "Mr Taylor was apparently able to use his position to manipulate a number of firms within the Taylor group to siphon off funds entrusted to him for investment," Mr Rabbitte said. "Many of these funds would not have gone through the normal books and accounts. "The nature of the fraud allegedly perpetrated by Mr Taylor was such that it would have required a very extensive audit regime to have detected it and even this can not be assumed."

Mr Rabbitte said the State cannot protect investors from poor investment decisions, nor could it abolish fraud.

"The fall makes sin a fact of life and there will always be people who fall to temptation," he said.

Officials in the Department are looking at ways in which the existing "unsatisfactory" compensation system could be improved, Mr Rabbitte said.

The Minister cautioned against unrealistic expectations. A high level of compensation would make investment products more expensive and could drive out of business smaller intermediaries who provide a valuable service.

His Department was investigating whether self regulation was, adequate. Meanwhile, he was putting in place a detailed agreement with the Irish Brokers Association "setting out clearly their responsibilities as an approved representative body".

Ms O'Rourke said the Taylor affair raised fundamental questions. "Nothing was detected anywhere along the line until it was too late," she said.

There was a need for "pro active regulation of investment intermediaries", she said. The committee would now have to establish how the legislation could be improved. If the money invested with Mr Taylor was, as reported, "hot money", this raised serious questions, Ms O'Rourke added.

The meeting adjourned. It will resume next week, on a date to be decided.