Kingspan founder settles case against Merrill Lynch bank

KINGSPAN GROUP founder Eugene Murtagh has settled his legal action against a leading international bank over its alleged failure to disclose the “utterly unsuitable” nature of a €24.8 million investment which resulted in a loss of €3.8 million for him.

Mr Murtagh, Kingscourt, Cavan, had sued Merrill Lynch International Bank Ltd, Treasury Buildings, Lower Grand Street, Dublin, claiming breaches of various regulatory duties imposed on the bank under investment legislation. He also claimed losses of €3.87 million over alleged breach of contract and negligent misrepresentation.

The bank had denied the claims.

The proceedings were due before Ms Justice Mary Finlay Geoghegan at the Commercial Court this week but the judge was told that the case had settled and could be struck out with no order. No details were revealed.

In an affidavit, Mr Murtagh said he had in February 2007 bought 5,000 “five-year non-interest bearing outperformance certificates” for a purchase price of €24.875 million, including a €375,000 investment fee. The certificates were issued by Merrill Lynch SA (Luxembourg) on behalf of the bank’s Dublin branch.

He chose that product on the basis of representations made primarily by Merrill London’s “relationship manager” James Meenan to his son Paul, who manages his father’s Washington office, and to Edward Grant, who runs Mr Murtagh’s Dublin offices. The purchase was financed by a €22.7 million loan, also from Merrill Lynch, acting through its London branch.

Mr Murtagh claimed, before he entered into the investment, that the bank failed to disclose its true nature and inherent risks and other features which meant the transaction “was utterly unsuitable”. Mr Murtagh said he suffered losses of €2.45 million as a result of having sold back to the bank the entire investment in tranches between January and July 2008. He suffered another €1.41 million loss in interest costs on the money he borrowed from Merrill to fund the investment.

Mediation efforts to resolve the dispute over those alleged losses took place last October but failed. The court proceedings were initiated after lawyers for Merrill told Mr Murtagh they did not propose compensating him for his losses.

In an April 2008 letter to John Thain, the New York-based chief executive of Merrill Lynch and Co, Mr Murtagh’s son Paul appealed to Mr Thain to resolve the dispute.

Mr Murtagh, who worked with Merrill Lynch’s New York and Sydney branches between 1996 and 2001, wrote that it was because of his own work with the company he had recommended to his father to put a “modest amount” – 2 per cent of his father’s net worth – into Merrill in London.

Following “numerous overtures” from the London branch, and in particular from Mr Meenan, Mr Murtagh wrote, it was decided to enter into what was promoted as a “highly leveraged” product with a principal selling point of a strong record of outperformance and an “excellent hedge against a potential equity market downturn.”

It became evident there was a complete lack of understanding of this product by Merrill’s London’s agents who only began to understand the intricacies of it because of the Murtagh side’s “constant requests” for additional information and background, he claimed.

Paul Murtagh wrote that if he was still working for Merrill, he would immediately recommend it reassess the selling of these types of products.