Anglo Irish Bank unlawfully tried to prop up its share price by “shovelling” about €2.34 billion loans into companies in the Sean Quinn group, the Commercial Court was told today.
Sean Quinn’s wife and children claimed in the court today that the reason the bank did this was it had learned in September 2007 of a “towering” Quinn shareholding in the bank which threatened to collapse it.
The then Anglo Irish chief executive David Drumm, when told by Sean Quinn senior in December 2007 that a €400 million loan was needed to pay off Quinn companies’ loans to avoid having to disclose the extent of the shareholding, said the bank would provide €500 million “to tidy up matters”, Brian O’Moore SC, for the family, told the court today.
That could be understood “in no other way than up tidy up issues concerning CfDs [Contracts for Difference] and Anglo’s shares”.
The bank sought to have the loans disguised as property and other loans but knew they were to fund margin calls on CfD positions taken out in Anglo by Sean Quinn senior via a Madeira-registered company Bazzely so as to avoid the 24 per cent Quinn shareholding being made public knowledge, Mr O’Moore said.
The bank engaged in “very serious illegal activity” on a “persistent, ongoing basis” involving an “egregious” and “almost deliberate” breach of laws carrying penalties of €10 million and/or a maximum ten-year jail sentence, it was claimed.
Anglo (now Irish Bank Resolution Corporation) was not entitled to recover €2.34 billion from Mrs Patricia Quinn or her children, who owned but did not manage Bazzely, under various guarantees and share pledges provided by them over loans tainted with illegality, Mr O’Moore said.
“Illegality was central to this - there would have been no loans without a desire to manipulate the market.”
The bank, for example, provided about €300 million over three days around St Patrick’s Day in March 2008 to meet margin calls when its share price plummeted, counsel said.
Reflecting on the bank’s “wild willingness” to do this, the knowledge of the purpose of those loans was “striking”. “No one in the bank seems to have stood back and asked why are we shovelling all this money into our own shareholding”.
In opening the hearing of a preliminary issue in the action by the family to avoid liability for the loans, Mr O’Moore outlined to Mr Justice Peter Charleton his side’s account of events from September 2007.
Sean Quinn Senior told David Drumm and Anglo Chairman Sean Fitzpatrick at a meeting in the Ardboyne Hotel in Navan on September 11th, 2007, the Quinns held a 24 per cent stake in Anglo, he said.
From then on, the bank put “systems” in place to ensure that did not come to the knowledge of the public or stock market.
The court was told that from December 2007 on, the bank controlled and managed the CfD calls in a process which became “stream-lined”.
An emerging theme from September 2007 and into 2008 was a “lack of candour” by the bank about the circumstances in which it was advancing loans to Quinn companies and the stated purpose of those.
The bank had insisted the loan requests should falsely state they were for purposes including developments in Russia and India.
In their proceedings, the family claim the loans were illegal under Irish and European law and therefore the bank cannot seek repayment of them under guarantees and share pledges which, they allege, the bank insisted must be provided by Mr Quinn’s wife and her five adult children; Ciara, Colette, Brenda Aoife and Sean Quinn Jnr.
They also claim the bank was not entitled to appoint Kieran Wallace as receiver over the shareholdings in various Quinn companies last year.
The family claim they knew nothing about the CfD positions and were never advised about the nature of the documents they signed.
Mr Justice Charleton has been asked to decide a key preliminary issue - whether the family have the required legal standing to make claims of breaches by Anglo of the European Market Abuse Regulations (MAR) and Section 60 of the Companies Act in support of their claims the loans are invalid and unenforceable.
Anglo denies the family are not liable and has joined Sean Quinn Senior and two senior executives in the Quinn group - Dara O’Reilly, chief executive of Quinn Group (NI) Ltd, and Liam McCaffrey, former Quinn group finance director - as third parties.
If the family succeeds, Anglo says it is entitled to indemnities from the three on grounds they were central to the management of the Quinn group and an alleged strategy to make investments to fund CfD positions in Anglo prior before the end of 2007.