The 10-minute chat that rocked Independent News & Media to its core
INM controversy involves data, a radio station, ‘success fees’ and possible market abuse
Denis O’Brien: alleged influence he wielded over INM lies at the heart of the ODCE’s investigation. Photograph: Dara Mac Donaill
Conversations on Dublin’s Talbot Street typically concern its bargain clothes and mobile phone shops. One day in May 2015, however, an unusual chat took place between two men on the north-inner-city street, court documents reveal.
Their 10-minute conversation planted the seed for what has become a growing controversy engulfing Ireland’s largest media company Independent News & Media in damning allegations by the State’s corporate watchdog and triggering a court battle over a bid to appoint High Court inspectors to investigate further.
The controversy has drawn in a large cast of characters, from one of the State’s richest men, Denis O’Brien, and his long-time ally and INM’s former chairman, Leslie Buckley, to a Government Minister, some of the State’s best-known journalists and mysterious IT specialists who mine data from computer systems.
But on Talbot Street that day almost three years ago, it started with one man.
Gerry Wilde was worried about something that had happened some seven months earlier.
INM’s director of IT, a long-time employee of the company, was so concerned that he asked then chief executive Robert Pitt if they could discuss the matter by taking a walk on the street rather than talking in INM’s offices.
Pitt, then just seven months in the company, later disclosed the “shocking” information Wilde shared with him as part of a series of protected whistleblower disclosures to the Office of the Director of Corporate Enforcement, disclosures that would spark a year-long investigation into INM.
What the two men discussed is contained in an affidavit by the Director of Corporate Enforcement, Ian Drennan, submitted to the High Court as part of an application to have inspectors appointed.
Pitt says that, during their 10-minute walk on Talbot Street, Wilde told him that in 2014, when Pitt had already taken up office as chief executive, Buckley instructed him to facilitate access to INM’s IT servers by a third-party company. Wilde told him, according to Pitt’s later account, that Buckley had instructed that the matter was not to be shared with Pitt, notwithstanding that Pitt was the chief executive at the time.
According to Pitt, Wilde told him that “the purpose of the work was to come into INM, remove large indiscriminate quantities of data (particularly emails and records) which would be reconstituted elsewhere. That data was then to be examined.”
Drennan later discovered that two invoices of €46,260 and €14,944 for work on the data interrogation by third parties outside the State were discharged by Blaydon, an Isle of Man company beneficially owned by O’Brien, INM’s biggest shareholder with a 29.9 per cent stake.
Pitt claims that Wilde told him that the data of interest concerned former directors, employees and possibly legal advisers, and that Wilde named former INM chief executive Gavin O’Reilly and Karl Brophy, another former executive. Pitt believes the legal adviser was solicitor Simon McAleese.
Among other “persons of interest” listed in the search of the data were INM journalists Maeve Sheehan and Brendan O’Connor, and former INM journalist Sam Smyth, who had written extensively about O’Brien.
Pitt told the ODCE in August 2017 that the information relayed by Wilde was “shocking if it was true”. He said that he told Wilde that the events were “very serious for both him and the company”.
“Mr Wilde was very clear to me that he had only allowed these events to happen because he was under severe pressure, having been directed by Leslie Buckley, the chairman,” Pitt said.
“I could see he took his role very seriously and was troubled by the matter.”
Wilde’s account of the conversation differed slightly. He told the ODCE in September 2017 that he “did not believe it was Mr Buckley’s intention that I was never to tell Mr Pitt”, and that he believed the data search related to a search for an INM contract with McAleese.
Also, Pitt had told the ODCE that Wilde had said that “interrogation” of the data was to find information that would benefit a third party, but Wilde did not refer to this in his own statement to the ODCE.
The corporate enforcer has cited the conflict of evidence between them as one reason why court-appointed inspectors with powers to take statements under oath should be appointed to investigate further.
Further disclosures by Pitt to the ODCE raised various other issues, leading Drennan to tell the court that “the range of potentially unlawful conduct that may have taken place within INM is extensive”.
They transcend “various regulatory regimes”, he claimed in his affidavit, from company law to stock market rules to protected disclosures legislation and to potential breaches of data protection law.
THE FOUR MAIN ISSUES IN THE INVESTIGATION
The unfurling row at INM first broke in November 2016 over Newstalk. It emerged that chief executive Robert Pitt and chairman Leslie Buckley fell out over the price for an aborted bid by INM, of which Denis O’Brien owns a 29.9 per cent stake, for the radio station, majority-owned by O’Brien’s Communicorp.
Behind the scenes, the row had been rumbling on for months, with Pitt unprepared to meet the €35 million valuation allegedly sought by Communicorp. He believed the loss-making station was worth less than half that.
INM’s board investigated Pitt’s complaints and found “no issue of concern”. Tensions ratcheted in October. Pitt made a protected disclosure, first to INM, then the ODCE.
After it became public, INM appointed independent reviewers, who were unable to resolve the central issue – the allegation by Pitt, and also by chief financial officer Ryan Preston, that Buckley pressured them to pay a higher price.
Drennan alleges this incident was an example of how the interests of the company and other shareholders were subjugated to O’Brien’s interests.
The ‘data interrogation’
This alleged incident occurred prior to the Newstalk row, but did not emerge as a major issue until much later, during the ODCE’s investigation in 2017. It is perhaps the most explosive set of allegations in the whole saga.
In October 2014, while INM was waiting for Pitt to come on board as chief executive, it is alleged that Buckley organised for the back-up tapes of the IT system to be removed by cybersecurity experts. The tapes were taken to the UK, where they were allegedly “interrogated” for data on named individuals, including INM journalists, which Drennan alleges is a major data breach.
Blaydon, a company controlled by O’Brien, allegedly paid the bill. In August 2017, Pitt made this alleged data breach the focus of his second protected disclosure to the ODCE.
Fees surrounding the APN deal
In March 2015, six months after Pitt joined INM, the company sold its stake in Australian media group APN for more than €121 million. It is alleged in court papers that Island Capital, O’Brien’s in-house corporate finance outfit, sought a “success fee” of 0.9 per cent of the proceeds.
Pitt is said to have queried whether this fee should be paid. He alleged that he could not ascertain what work it had done to justify it. A later independent review found that Island Capital had done “substantial” work. Ultimately, the fee was not paid.
Pitt also resisted “success fees” allegedly claimed by a series of individuals over the APN deal, including one by O’Brien’s INM board nominee, Paul Connolly, who also sat on APN’s board. Connolly is O’Brien’s only remaining nominee on the INM board. Drennan’s affidavit outlines several of Pitt’s concerns.
Possible infringements of ‘market abuse’ rules
As part of his year-long probe into INM, sparked by the Newstalk and data issues, Drennan used his statutory powers to obtain a slew of communications between Buckley and O’Brien
The watchdog raises concerns in his affidavit over several messages from the then chairman to O’Brien. These include nine specific instances where he alleges Buckley sent him information that could potentially breach regulations around the distribution of market-sensitive data.
A strand of this issue dominated the news agenda in recent days. One of the nine messages included the revelation that an INM lobbyist was told by Ministers for Communications Denis Naughten of his “likely” intentions regarding oversight of an INM acquisition.
MAIN PEOPLE INVOLVED IN THE INM-ODCE SAGA
The veteran Cork restructuring expert made his name as a turnaround consultant at companies such as Irish Steel. More than 20 years ago, he helped O’Brien float Esat and worked for a period as an executive in his telecoms empire. He has been closely associated with the billionaire ever since.
Buckley serves as vice-chairman of O’Brien’s Digicel telco, and also runs a charity in Haiti where Digicel is among the most prominent companies.
He was appointed as INM chairman in 2012, serving until last January, when he resigned in the midst of the ODCE’s investigation into the company. His alleged actions as chairman, including a claim by Pitt that he pressured him to pay a higher price for Newstalk, are central to the investigation.
The wealthiest and most successful Irish businessman of his generation, the Dubliner is also one of the most controversial. His actions as founder of Esat were scrutinised by the Moriarty payments-to-politicians tribunal. It concluded he made payments to a government minister.
The alleged influence wielded over the company by its 29.9 per cent shareholder lies at the heart of the ODCE’s investigation into INM. Buckley was his board nominee, and the investigation touches on whether some of the former chairman’s actions in the role favoured O’Brien over other investors.
The ODCE affidavit alleges that an O’Brien company paid €60,000 for the “data interrogation” that has emerged as the most eye-catching allegation to have surfaced from the investigation to date.
The most prominent INM whistleblower. When he joined in 2014, it was the Dubliner’s first chief executive role. Previously, he worked in the retail industry in eastern Europe and as a tax adviser.
Pitt had a reputation at INM as a tough but competent manager. He remained aloof from editorial staff, and was more comfortable in the commercial department.
He became concerned about corporate governance standards at INM. Tensions developed with Buckley over a range of issues including acquisitions and editorial independence, according to the ODCE affidavit.
Between 2016 and 2017, he made three protected disclosures under whistleblower legislation – one internally and two to the ODCE – which formed the basis of much of the investigation. INM’s chief financial officer, Ryan Preston, backed him with a similar internal complaint.
The Director of Corporate Enforcement is the State watchdog whose office conducted a year-long investigation into INM. His 220-page affidavit filed last month in a bid to have court inspectors appointed has gained huge attention, and contains many allegations.
He has worked in State roles for most of his career. He joined the ODCE upon its establishment in 2001, but later left to head up the Irish Auditing and Accounting Supervisory Authority. He returned as the director of the ODCE six years ago.
The INM investigation is considered critical to his, and the ODCE’s, future. The agency was heavily criticised by a judge over its handling of certain matters in the Anglo Irish Bank investigation. O’Brien has threatened to sue him personally over alleged leaking, which he denies.
The IT Guys
Derek Mizak is a Polish-born cybersecurity executive and college lecturer who, Drennan’s affidavit alleges, was centrally involved in removing INM’s back-up IT tapes for an alleged data “interrogation”. He has made no public comment since the INM story broke.
Buckley told the High Court he was introduced to Mizak by John Henry, a former Army member who has provided security services to Buckley for many years, most notably in Haiti. Buckley says Henry also provides him with IT security services. Drennan alleges Henry “ran” the interrogation.
Drennan’s affidavit also names UK-based security consultants Ron Cole and Robert Breen of TDS, and Dublin security consultants Keith Duggan and Shane Henry (John’s son) as having allegedly played a role.
Some details of the INM saga emerged 18 months ago, while the ODCE’s involvement has been known for a year. Until this week, Denis Naughten, Minister for Communications, did not figure in the story at all.
That all changed on Wednesday morning, when The Irish Times revealed that an exchange he had with an INM lobbyist was recounted in Drennan’s affidavit.
Text messages in the affidavit reveal that the Roscommon Independent politician told lobbyist Eoghan O’Neachtain that he intended to refer an INM acquisition for further examination. This news was relayed to O’Brien, which Drennan alleges may have constituted insider information.
Opposition politicians called for Naughten to resign, but he has held firm, although he says he “sincerely regrets” the phone call.
The INM 19
The ODCE alleges a list of 19 prominent individuals had their private data “interrogated” in a suspected data breach. The bill for this was allegedly paid for by Isle of Man company, Blaydon, which is controlled by O’Brien.
The list includes some current and former INM journalists, such as Sam Smyth, Brendan O’Connor and Maeve Sheehan. It also includes former Moriarty tribunal lawyers, including Jerry Healy.
It additionally includes Karl Brophy, a former INM journalist and executive who is aligned with the O’Reilly family. His PR firm, Red Flag, is being sued by O’Brien in a separate action. INM has written to the INM 19 blaming Buckley for the suspected breach of their data, including emails.