MMI Stockbrokers' directors refute liquidator's fraud claims


Seven directors of MMI Stockbrokers Limited (MMI) have strongly refuted allegations of fraud levied against them by the official liquidator to the company. They also complained their reputations had been greatly damaged by the extensive publicity given to the claims.

In an affidavit read to the High Court yesterday, a solicitor for director Mr Oisin Fanning said the liquidator had launched fraud proceedings against the directors "which are entirely misconceived and in circumstances where the liquidator has no prospect of being able to prove the unfounded allegations he has made".

Seven directors - Mr Fanning, Mr John Curran, Mr Paul Boucher, Mr Colm O'Reilly, Mr Tim Murphy, Mr Cian Kealy and Mr Peter O'Byrne - are opposing an application by liquidator Mr Tom Kavanagh for an adjournment of forthcoming proceedings taken against them alleging fraud, breach of fiduciary duty and misfeasance. The action is listed for March 21st. The directors say they want the action to proceed in order to vindicate their good names and reputations.

The proceedings arise out of Mr Kavanagh's claim that some £1.9 million (€2.4 million) was debited from the account of Jersey-based Cater Allen Nominees Limited, a client of MMI, and allegedly credited without authorisation to the benefit of two directors - Mr Fanning and Mr Curran - and some 20 others associated with these. Mr Kavanagh has claimed these monies were debited at a time when Cater Allen had insufficient funds to meet the transaction and that the company owes some £430,000.

Cater Allen has rejected the liquidator's claim that it has undergone a "mystifying" change of attitude regarding the £1.9 million transaction. It has said it is satisfied with the principal transactions referred to by the liquidator. Cater Allen has also not acknowledged any £430,000 debt.

The liquidator is seeking the adjournment so he may institute proceedings against Cater Allen for recovery of the £430,000 allegedly due; seek discovery of documents against Cater Allen; seek an examination of Mr Adrian Lynch, a bookmaker of Kilkee, Co Clare, under Section 245 of the Companies Act and also seek an examination under the same section, of a Mr Sam Nolan, an Irish resident based in Jersey who was allegedly dealing with the Cater Allen account.

In an affidavit by Mr William O'Grady, solicitor for Mr Fanning, Mr O'Grady said his client was utterly opposed to the adjournment application for which there was no reasonable basis.

Mr O'Grady said it was noticeable that, in correspondence last year between the liquidator and Cater Allen, the Jersey company was not asked whether it was aware, as the liquidator had alleged, that the MMI directors had "arranged for client funds to be diverted to themselves and other individuals". No reference was made to the alleged beneficiaries of the impugned transactions and nor was Cater Allen invited to take its own action against those alleged to have defrauded it or told of the liquidator's intention to take proceedings.

Cater Allen was crucially not asked to confirm that it was making a claim against MMI in respect of the transactions nor asked for its co-operation in the preparation of a claim against the directors nor to confirm it would give evidence against the directors at any proposed hearing. Despite this, the liquidator had taken proceedings against the directors on October 22nd last. Mr Fanning had issued a defence which was a complete denial of all the allegations made by the liquidator.

Mr O'Grady said a number of conclusions may be drawn from the facts of the case to date. These were that Mr Kavanagh did not apprise Cater Allen prior to the institution of the proceedings that he intended to sue the MMI directors, did not appear to have given Cater Allen written details of the impugned transactions until November 5th, 1999, at the earliest, and never took any steps before mounting a case based solely on fraud to ensure he would have full or any co-operation from the party alleged to have been defrauded.

Mr Paul Boucher, in an affidavit on behalf of himself, Mr Curran and Mr O'Byrne, alleged bad faith by the liquidator. He said the liquidator had misled the court and misrepresented the true position of the facts relating to MMI. The liquidator had been "incompetent and indecisive" in the way he approached the action and had alleged fraud when there was no basis for such a claim and where the victim of the alleged fraud had itself said this was so.

Mr Boucher said he would welcome a chance to state in person and in public his views about the liquidator and the allegations made against the defendants. The only way it had been possible for the defendants to continue to trade was through emphasising their innocence and assuring clients and staff the liquidator's claims would be shown to be groundless at an early trial. If the case was put off, it might prove impossible to keep staff or clients loyal for a further period of time, their professional reputations would be damaged beyond repair and the ongoing strain on themselves and their families would be difficult to bear.

He said the liquidator was seeking an adjournment to see whether the £430,000 could be recovered from Cater Allen when the liquidator knew well he had sufficient security in shares held by him to discharge any monies owed to him by Cater Allen.

Far from being in debit at the time of the transactions referred to by the liquidator, he believed the Cater Allen account was substantially in credit and remained so after the transactions. Mr Boucher added the Central Bank had inspected MMI's books and records after the suspension of trading by MMI in September 1998 and expressed no concerns about MMI's solvency.

Director Mr Tim Murphy said in an affidavit the only effective way he had of demonstrating there was no truth in the liquidator's allegations against him was to meet the claims and defeat them at the trial of the action. There were no good reasons for an adjournment.

Mr Murphy said he had made it perfectly clear at all stages he had signed certain cheques but said he did so for the purpose of balancing funds between MMI accounts. He said that MMI was also solvent at the date the payments referred to by the liquidator were made.

In another affidavit, director Mr Colm O'Reilly said there was no merit in Mr Kavanagh's claim that there was a change of position on the part of Cater Allen towards the £1.9 million transactions. Mr Kavanagh had no evidence to support his claim of fraudulent misappropriation of Cater Allen monies and should withdraw the proceedings. In the only meeting he had had with Mr Kavanagh, Mr O'Reilly said the liquidator had never intimated or alleged that client funds were fraudulently misappropriated.

The hearing continues today.