MPs say North fund's operation broke all seven principles of public life

The husband of a senior board member in a former Northern Ireland small business agency was yesterday accused by a committee of MPs at Westminster of insider trading.

In a scathing report, the Public Accounts Committee said the operation of a fund established by the Local Enterprise Development Unite (Ledu) to provide loans to new businesses was one of the worst cases of conflict of interest and impropriety it had encountered, breaking all seven recognised principles of public life.

The report detailed several conflicts of interest involving the agency's deputy chair, Teresa Townsley, who also served on the board of the Emerging Business Trust (EBT), which provided the loans. But it also accused officials at the Department of Enterprise, Trade and Investment in Belfast of plumbing new depths in the way they failed to ensure basic principles of proper conduct were followed in the fund's management.

Among the concerns the committee raised was the appointment of the accountancy practice Mrs Townsley ran with her husband Michael to manage the fund without any proper tendering process. The Townsleys' Belfast-based firm MTF received £1.4 million in fees between 1997 and 2005.

The committee was especially concerned that funds were given to a number of firms with a pre-existing relationship with MTF, including two, Arcom and Fusion, in which her husband was a shareholder. In the case of Arcom, a company for which MTF had been acting as consultants and accountants at various times between 1995 and 1998, a £20,000 (€29,493) loan was approved in November 1999 - three months after Michael Townsley was offered a 10 per cent share in the company that he asked to be put on hold.

In April 2000 the EBT Venture Fund Board approved in principle an equity investment in the company. Seven months later, Mr Townsley was appointed to Arcom's board and purchased 10 per cent of its shares for £2,500, at £1.08 a share. Within three weeks, the EBT Venture Fund agreed to purchase 10 per cent of ordinary shares for £50,000, at a value of £19.49 a share. It also secured £20,000 of preference shares.

The Public Accounts Committee said: "In our view Mr Townsley's actions amount to insider trading."

Two years later, Mrs Townsley recommended in December 2002 an additional fast-track loan of £25,000 to Arcom even though draft financial statements and management accounts from the company showed it was in difficulties. In February 2003, the loan was paid under the Department of Trade and Industry's Small Firms Guarantee Scheme but Arcom went into liquidation in September 2003, with a potential loss to the EBT of £100,000.

The report said: "This is a case where every one of Lord Nolan's seven principles of public life have been breached - selflessness, integrity, objectivity, accountability, openness, honesty and leadership. Mrs Townsley had accepted a number of positions of responsibility where a commitment to the principles of public service was essential."

"Mrs Townsley's detailed comments, which were appended to the Northern Ireland Audit Office Report, fall far short of an adequate explanation for what was a disgraceful conflict of public interests... Moreover, the timing and pricing of Mr Townsley's share purchase is profoundly disturbing and amounts to insider trading."

Mr and Mrs Townsley were unavailable for comment. - (PA).