The 100-year-old Cork stockbroking firm of W & R Morrogh was wound up by the High Court yesterday with losses of £5.5 million (€7 million), despite an injection of £2.4 million by the partners. Ms Justice Carroll also made an order for the dissolution of the firm, which had 9,300 clients.

A Dublin accountant, Mr Tom Grace, who is receiver over the affairs of Morrogh, said he had visited Mr Stephen Pearson, the junior partner in the firm, in St Patrick's Hospital, Dublin. He said Mr Pearson had told him he had become involved in "gambling futures and options which resulted in him fraudulently embezzling funds from clients to meet losses".

Mr Grace said it would take considerable time to establish whether all potential creditors of the firm had been identified and to agree all the liabilities of the firm. He had had discussions with the Central Bank, the Irish and London Stock Exchanges and the Garda fraud squad.

Mr Pearson had said he was involved in the activity on his own and no other partner or staff members was involved or aware of what he was doing.

Mr Grace, who was appointed receiver on the Central Bank's application to the court on April 27th, added no new investors had been found.

A preliminary draft balance sheet showed a deficiency on client accounts (before providing for any costs associated with the receivership) of about £5.5 million. This was after an injection of £2.4 million by the partners immediately before the receivership.

The firm had two partners, Mr Alexander Morrogh (with a 60 per cent holding) and Mr Pearson (with a 40 per cent stake).

In an affidavit to yesterday's hearing, the deputy head of securities and exchanges supervision at the Central Bank, Mr Con Horan, said the Bank had been told since the collapse that Stephen Pearson also incurred trading losses in 1993 when using client monies and stocks without client authorisation in circumstances which appeared to be similar to those which had given rise to the firm's present difficulties.

Mr Horan said both partners had told him that, when the matters were discovered by other partners, the 1993 losses were made good by Mr Peter Pearson. However, no report was made at the time to the Stock Exchange or to the Central Bank when the firm, under the newly introduced Stock Exchange Act 1995, was authorised to act as stockbrokers.

The Bank was gravely concerned that such a serious matter would not have been disclosed to it in the context of the authorisation process generally and particularly in response to the Bank's request to the firm for confirmation that there was no information relating to the firm (otherwise than that disclosed) which might affect the Bank's decision to grant or refuse authorisation.

Two Cork clients along with the Stock Exchange said they were supporting the winding up petition. Ms Justice Carroll refused an application by a Dublin solicitor, Mr Michael Hanahoe, acting for Mr Pearson, to adjourn the proceedings for a week. Mr Hanahoe said his client was hospitalised and his family were dealing with the matter on his behalf. The family had been in negotiation with prospective investors in the partnership but none of those negotiations had been fruitful as yet.

Ms Marie O'Mullane, of Tivoli, Cork, said that, despite all her efforts, she had no information about the status of her investments. Mr Patrick O'Callaghan, acting for a Morrogh client, Ms Eleanor O'Byrne, of Shanakiel, Cork, said his client was asking that safeguards be put in place to ensure that losses did not exceed those which currently existed. When the "shutters came down" on the firm, Mr Pearson was still in his office taking money from Ms O'Byrne, counsel said.

Mr O'Callaghan said the Friday before the Central Bank stepped in appeared to be one of the four days each year when futures contracts terminated. The same would occur again in July, where losses on futures contracts could be similar. To date, they had no estimation of exposure to losses. No investor was going to touch a firm like this where losses had not been quantified. Clients were going to run from the firm in Cork and surrounding counties.

Mr Michael Collins SC, who petitioned on behalf of the Central Bank for the winding up order, said one of the instructions the Bank gave to the firm when the Bank stepped in was to direct the debiting of £2.4 million from the LSE be lodged into the clients' account. He understood all futures of which the receiver was aware had been "closed out" but there might be others of which Mr Grace was yet unaware.