Firm 'misused' €56m of clients money


The High Court has appointed a liquidator to investment fund management company Custom House Capital Ltd after two Central Bank inspectors found “a systemic and deliberate misuse” of more than €56million of client assets and cash.

Mr Justice Gerard Hogan also directed that the inspectors’ report be referred to the Director of Public Prosecutions.

In their report, the inspectors said the misuse of client’s assets was deliberately disguised by the firm through the use of false accounting entries and the issue of false and misleading statements to clients.

Custom House Capital “deliberately adopted and pursued processes, policies and procedures that facilitated misconduct,” the inspectors found.

The Central Bank sought the appointment of inspectors Noel Thompson and George
Treacy last July to conduct an investigation into the affairs of the firm, which has some 1,400 clients.

Mr Justice Hogan today directed the inspectors’ report, which he said described “a sort of Irish ponzi scheme” could be published. He also directed copies of the report be given to the Minister for Justice, DPP, Director of Corporate Enforcement and the Garda.

He also granted an application by David Barniville SC, for the Central Bank, to confirm Kieran Wallace of accountancy firm KPMG, as liquidator and administrator of Custom House Capital Limited.

The firm was insolvent and unable to pay its debts and the appointment of a liquidator was sought to protect the interests of its clients, counsel said.

In their report, the inspectors said the firm’s board of directors and senior management “failed in their duties to clients and allowed the company operate with inadequate controls over a significant period of time”.

Significant failures of the board included a lack of ethical and responsible decision making, providing false and misleading information to the Central Bank, misrepresenting client holdings on client statements, disregarding the interests of clients and failing to maintain appropriate standards of corporate governance.

There was inadequate control at board level of all business operations of Custom House Capital, the report stated.

While an exact figure could not be placed on the amount of client monies taken directly and indirectly and placed into property investments without a detailed examination of clients holdings, it was clear more than €56m was used in this manner, it said.

The company began promoting property investments to its clients in 2004, and acquired a reputation in Europe as being a good partner for such transactions, the inspectors said.

Custom House Capital committed itself to a number of projects where it placed deposits in advance of securing the required equity from investors. Following the property crisis in 2007, it found expected investments from prospective investors were not forthcoming.

With the lack of fresh investment, Custom House Capital, fearing the loss of deposits and damage to its reputation, sought to cover up its shortfalls through the creation of products such as a mezzanine bond and, eventually, through misuse of client holdings.

Some of the money was used by Custom House Capital as payments to meet cash demands of other clients, loans to or other investments in property projects, commission to third parties, commission and day to day bills of property projects.

The inspectors said it would take some time and significant resources to resolve all issues regarding Custom House Capital clients and warned a full reconciliation might prove difficult if not impossible due to lack of proper legal documentation covering various transactions by CHC. Some client money will be lost, they added.

In a statement following publication, the Central Bank said its key priority was to ensure the position of client investments was established and it had agreed with the liquidator the assessment of client investments should be concluded urgently.

Clients of the firm will be contacted directly by the liquidator to advise them of the process in relation to their investments. They will also be contacted by the Investor Compensation Company (ICCL) by 4th November concerning claims for compensation under the Investor Compensation Scheme.

Investments covered by the Investor Compensation Scheme may be eligible for up to 90 per cent of any amount lost up to a maximum of €20,000.