Anglo Irish Bank is being sued by 21 “high net worth” Irish-based private investors for $23 million dollars over their investment in a fund to buy and renovate two hotels in New York, the Commercial Court heard today.
The investors are seeking recovery of their money and damages, alleging fraudulent and/or reckless concealment and/or misrepresentation concerning the hotels fund.
Anglo rejects the claims and has accused certain investors, particularly businessman Gerard McCaughey, of engaging in conduct not in the best interest of the fund.
It claims Mr McCaughey, since early 2009, engaged in a pattern of “hostile and threatening conduct” towards Anglo Irish Bank Private Banking and also said meetings had been held in Dublin attended by the general partner in the fund, Peninsula Real Estate Fund (PREF), caused Anglo serious concerns.
Anglo claims the hotels, managed by separate specialist hotel management companies, remain “attractive and well positioned assets” but noted it was recently informed both hotels had availed of interest reserve funding.
Anglo said it is concerned PREF paid itself $200,000 for the month of September 2009 out of the hotels’ revenues and was providing for additional payments of $550,00 for October and November. This was irreconcilable with the fact Anglo understood from PREF the hotels are no longer able to meet their financial obligations and were drawing on interest reserves.
On the application of Brian O’Moore SC, for Anglo, Ms Justice Mary Finlay Geoghegan yesterday admitted proceedings by Gerard McCaughey against Anglo and Mainland Ventures Corporation (MVC), a Delaware-based corporation wholly owned by Anglo, to the court’s list.
Mr O’Moore said the Bank would be fighting the claims against it “tooth and nail” and wanted the case transferred to the Commercial Court because it wanted such claims “seen for what they are”.
Some 21 summonses had been received by the Bank from investors to date and it had been agreed two cases, in the names of Mr McCaughey and Sean Johnston, would go forward as “pathfinder” actions, he said.
The case arises from investments in the Anglo Irish New York Hotel Fund, a private equity investment in which some 50 high net worth Irish based individuals invested an average $ 1 million each in 2006. Mr McCaughey invested $978,580 in September
2006.
In an affidavit, Michael McGee of Anglo Irish Bank Private Banking, said the objective of the fund, marketed and sold by Anglo Private to the 50 individuals, was to purchase and renovate the Beekman Tower Hotel and Eastgate Tower Hotel in
Manhattan. Many of the investors are clients of Anglo Private and/or commercial lending customers of the Bank and a number financed their investment with credit facilities provided by Anglo.
Mr McGee said difficulties had arisen with the general partner of the Fund, PREF, particularly relating to renovation costs for the hotels. PREF had proposed to “dramatically increase” the renovation budgets for both hotels from a $31.2 million
dollar figure in mid-2006 to $102.3 million in May last but this was “way beyond” the resources of the fund.
PREF also in June last sent a letter to all the investors and to Anglo making “a large number of false accusations, allegations and disparaging comments” about Anglo which the bank denied, Mr McGee said.
Steps were then taken to procure the removal of PREF, he said. In arbitration proceedings, PREF initially agreed to allow hospitality consultancy firm Interstate Hotels and Resorts “unfettered access” to the hotels but later sought to impose conditions on that access. The result was Interstate would have to draw up its own renovation proposals with no meaningful assistance from PREF, he said.
Anglo believed, once the final Interstate report was to hand, there should be verification of the scope and cost of renovating the hotels, Mr McGee said. PREF had on October 19th last also written to investors stating it was modifying its renovation plans with a view to achieving costs savings, representing PREF’s first acknowledgement expenditure needed to be reduced.
Anglo was also concerned a small number of investors had assisted PREF making “baseless” allegations against it, Mr McGee added. The Bank appreciated there was frustration and concern amongst investors but every effort had been made to address those concerns. Anglo had to date resisted seeking further equity from investors and instead made proposals for structuring new debt into the fund in a way that should allow the hotels development be progressed while preserving, as far as possible, the investors existing equity.
