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'The market was misled': Suspended sentence for Drumm for role in illegal loan scheme

Drumm pleaded guilty last month to authorising unlawful loans to a group of developers and businessmen in 2008.

Former Anglo Irish bank chief executive David Drumm.
Former Anglo Irish bank chief executive David Drumm.
Image: Leah Farrell via RollingNews.ie

Updated Jul 10th 2018, 10:38 PM

DAVID DRUMM, THE former CEO of Anglo Irish Bank, has received a fully suspended sentence of 15 months for his role in an illegal loans for shares scheme ten years ago.

Drumm (51) of Skerries, Co Dublin pleaded guilty last month at Dublin Circuit Criminal Court to ten counts of authorising or permitting Anglo Irish Bank to give unlawful financial assistance for the purchase of bank shares to the so-called Maple Ten group of developers and businessmen between 10 and 17 July, 2008.

The loans were part of a scheme designed to unwind a secret 28% stake that Cavan businessman Sean Quinn had built up in the bank using financial instruments called contracts for difference (CFDs).

The CFDs were described as a gamble or speculation on which way the share price would go with the potential for the holder to make large gains if the share price rose.

The large position held by Quinn and through the Quinn Group began to destabilise the bank’s share price and the Financial Regulator and the bank’s management were anxious to address this, the court heard.

Drumm is currently serving a six-year prison term imposed last month after a jury convicted him of false accounting and conspiring to carry out a €7.2bn fraudulent loan scheme in 2008 and Judge Karen O’Connor ordered that both sentences would run concurrently, meaning no time will be added to his prison term.

She also ordered that he be given credit for time spent in custody in the US, when he was contesting extradition proceedings to Ireland to face charges. Judge O’Connor had imposed the six year sentence on Drumm last month after a lengthy trial.

As an automatic consequence of this conviction for a breach of the Companies Act, Drumm is disqualified for acting as a company director for five years.

She said that Drumm was the CEO of the bank and it was up to him to ensure transparency and compliance with the law. He was the instigator of the scheme which could have resulted in financial loss to people who bought shares in the bank.

“The market was misled,” she said. She said the situation was created by Sean Quinn where he amassed a CFD position linked to 28% of the bank’s shares, destabilising the shares.

Judge O’Connor said Quinn built this position up in secret transactions which used a number of different brokers.

The court heard previously that from late 2007 the Quinn Group had its own liquidity problems and was haemorrhaging money in order to pay out on the monthly CFD margin calls.

The bank’s share price peaked at around €17 in May 2007 and began gradually falling from then, meaning that Quinn had to pay out on his CFD positions.

‘Entirely of the creation of Sean Quinn’

During a sentence hearing on Monday, Brendan Grehan SC, defending, asked the judge to consider that the offences arose as a result of the growing financial speculation by Ireland’s then richest man, Quinn, on Anglo shares using CFDs.

“This was a problem entirely of the creation of Sean Quinn,” he said. Grehan said the building up of the large CFD position was done in secret using different brokers. He said the bank was being placed in an incredibly vulnerable position at the worst time in the context of a growing global financial crisis.

Judge O’Connor said there was evidence that the Financial Regulator knew and was concerned of the Quinn CFD position and wanted it dealt with.

She said that the Domestic Standing Group, a body that included the Financial Regulator, the Governor of the Central Bank and Secretary of the Department of Finance Kevin Cardiff, had the Quinn CFD issue on its agenda and on its radar.

She said there was a degree of ambiguity around what the regulator knew about the Maple Ten lending but that the regulator knew about a scheme in March 2007 to lend short term loans to the Quinn family to buy some of Anglo shares linked to the CFDs.

She said the regulator was concerned with the overall health of the banking system but this proposed scheme should have caused alarm bells to sound. The March 2007 plan never went ahead because Anglo was unable to find a buyer for the rest of Quinn CFD shareholding.

Judge O’Connor noted also evidence of a conference call allegedly involving Robert Heron, a then partner and corporate lawyer at the firm Matheson Ormsby Prentice, in which other parties to the call testified that they were told there was no legal impediment to the loans and the scheme came under an exception to the relevant Company Law.

Jail term

Pat Whelan (56) of Malahide, Dublin and Anglo’s former Director of Finance and William McAteer (67) of Greenrath, Tipperary town, Co. Tipperary were convicted in 2014, after a three month trial, of the same ten charges. They were each ordered to carry out 240 hours of community service.

Drumm was jailed last month after a jury returned unanimous verdicts of guilty on a charge of conspiracy to defraud and false accounting, following an 87-day trial.

Drumm was transferred from Mountjoy Prison this afternoon for the short sentencing by Judge Karen O’Connor.

Dressed in a green “North Face” top over a while polo shirt and light coloured t-shirt, the former banking executive appeared relaxed, smiling and greeting some his legal team before the sentencing began.

After sentencing he spoke briefly to his legal team of four barristers and solicitor Michael Staines before prison officers led him back into custody.

There were some members of public and a number of journalists in court to for the sentencing, which brings to an end all investigations and prosecutions arising out of the collapse of Anglo Irish Bank in 2008.

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Declan Brennan

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