Seán Quinn bounded towards Court 19, his small entourage of family and friends trailing behind him, passersby glancing as he passed. When he reached the door Seán FitzPatrick happened to be standing there, waiting for the courtroom to open for the day’s proceedings.
They paused. For a moment the two men seemed unsure how to react. They barely knew each other, but for years their fates had seemed locked in sync. Two self-made men, once celebrated as stars of a buccaneering Irish capitalism, Quinn and FitzPatrick had seen everything unravel in a violent tailspin and had become lead characters in the story of Ireland’s financial collapse.
Now their unlikely trajectories had aligned to deliver them here, to the marbled upper floor of the Criminal Courts of Justice in Dublin for one of the biggest trials ever held in this country. They shook hands, smiled a little awkwardly and exchanged a few polite words.
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An unusual trial
The trial of FitzPatrick and his fellow former Anglo Irish Bank directors Willie McAteer and Pat Whelan was a new experience for everyone. Dublin Circuit Court is more accustomed to robberies and assaults than it is to the rarefied world of high finance, or what Seán FitzPatrick's defence barrister, Michael O'Higgins, at one point called "the fancy stuff". Nobody had ever been prosecuted under section 60 of the Companies Act, despite its being on the statute books since 1963.
Every day brought odd juxtapositions between the cultures of business and the law, each with its own modes and language. Discussions about multibillion-euro transactions would give way to earnest arguments about legal precedents involving pirates and Frenchmen duelling in England.
It was an unusual trial, too, in that the facts were, for the most part, not in dispute. None of the three defendants denied that Project Maple, the scheme to unwind Quinn’s stake in Anglo Irish Bank by having 10 businessmen and six members of the Quinn family buy the underlying shares, took place.
Neither did they deny that Anglo lent the money for the share purchases or that they knew about that before the transaction was carried out, in July 2008.
In some ways the rigid codes and procedures of a criminal trial stripped away the background noise. The atmosphere was calm and deliberative. But behind the veneer of courtroom protocol the vignettes told an extraordinary story.
Seán Quinn quietly building up a potentially calamitous bet on Ireland’s third-largest bank from the seat of his empire, in Co Cavan.
Anglo desperately shovelling billions into the Quinn Group so as to avert mutually assured destruction.
Ten businessmen, needing no more than a phone call and a quick chat to be talked into each taking a €45 million loan.
The financial regulator, polite and unquestioning, as two of the organisations he supervised, Anglo and Quinn Insurance, contemplated collapse.
The Quinn crisis
For much of the trial the momentum appeared to be with the defence. Anglo witnesses described their horror at discovering, in September 2007, that Quinn had secretly amassed 24 per cent of the bank's stock through contracts for difference (CFDs), high-risk bets on the performance of a share. They tried to persuade him to reduce his stake. Instead he kept building it, convinced that the share price would rise.
For the bank the problem was that the rumours about Quinn’s holding were, it believed, prompting hedge funds to short-sell its shares – bet, in other words, that they were about to fall in value – thereby destabilising the share price. If there were to be a disorderly unwinding, resulting in a quarter of Anglo’s stock being dumped on to the market at once, depositors would be spooked, the share price would plummet and the consequences for Anglo and the Irish financial system would potentially be catastrophic.
For months Anglo scrambled to resolve the crisis, but every attempt failed. The situation grew increasingly desperate. In July 2008 a plan was devised that involved providing loans to 10 of the bank’s customers, known as the Maple 10, to buy just over 1 per cent each of the shares underlying the CFDs; six members of the Quinn family would buy another 15 per cent of the shares. As well as the €45 million each that the Maple 10 borrowed, the Quinns borrowed €169 million.
Witness after witness told the court that Anglo had received positive legal advice about the July 2008 transaction. The jury was told that the financial regulator was putting pressure on Anglo to sort out the problem and that the regulator’s office was comfortable with the deal that was eventually struck.
Witnesses from the investment bank Morgan Stanley told the court that they had insisted on a series of steps being taken to ensure that the unwinding of the stake was above board.
The f
inancial r
egulator's role
The performances in the witness box of the two most senior figures in the regulator's office, Patrick Neary and Con Horan, didn't appear to advance the prosecution case. The overall impression left by Neary's evidence was of a regulator who appeared at best deferential to the powerful men who controlled the institutions he was supposed to be supervising.
When Neary met Quinn in early 2008, at a time when rumours were rife that Quinn had a big CFD stake in Anglo, the regulator said he didn’t ask Quinn about the size of his holding because he didn’t think it would be “fair or appropriate” to tackle the tycoon about his investments.
Yet this was no ordinary visitor to Neary’s office, and his were no ordinary investments. Quinn was Ireland’s richest man. His insurance company was regulated by Neary’s outfit, as was the bank in which he was rumoured to have built up a stake.
If it was true that Quinn had a huge CFD holding in Anglo, the wider banking system was potentially at risk. Yet Neary, showing a remarkable lack of curiosity, didn’t even ask the question.
In the witness box Neary was implicitly criticised by defence lawyers for not taking notes of several key meetings. His recollections were also tested. By this reporter’s count, in two days in the box, Neary said “I don’t recall” 30 times; “I don’t know” 23 times; “I can’t recall” 12 times; “I can’t remember”, “I cannot remember” or “I don’t remember” 12 times; “I’ve absolutely no recollection” four times; and “that’s a complete blank to me” once.
A picture emerged of the regulator’s office working side by side with Anglo, encouraging the bank’s efforts to resolve the CFD crisis but ever alert to the exigencies of what Brendan Grehan SC, defending Pat Whelan, Anglo’s former head of lending in Ireland, called “posterior-covering.”
The court was told that when Anglo executives were in the Middle East, struggling to persuade sovereign wealth funds to invest in the bank’s shares, they kept Neary informed of progress by phone. (Neary didn’t remember that phone call.)
The jury was told that when Anglo's chief executive, David Drumm, was sounding out investors at a conference in London, he again kept the regulator's office in the loop.
But, on paper at least, Dame Street always maintained a discreet distance. In March 2008, when an agreement was drafted between Anglo and Quinn on a plan to unwind the CFD stake, the regulator’s office asked for the removal from the draft of a reference to the deal’s being approved by the regulator.
Con Horan denied he was “cheerleading” for a deal between Anglo and the Quinn Group but said he was “positively disposed” towards transactions planned between the parties in March and July 2008. The jury heard that on July 8th Horan and David Drumm met to discuss the crisis. In a briefing note prepared after the meeting, Horan referred to “some discussion as to . . . other alternative such as approach HNW [high-net-worth] individuals.” Asked during his cross-examination who had raised this idea, Horan said he “may have raised it” but could not recall.
Towards the end of the trial, in the absence of the jury, Judge Martin Nolan said he believed the regulator acted in a way that suited him. The regulator was "substantially aware of what Anglo were doing" and cannot but have been aware that Anglo intended to use its funds to buy the shares behind Quinn's CFDs, the judge said.
The longer the court spent listening to accounts of the interactions between Anglo, the regulator, Morgan Stanley and the Matheson Ormsby Prentice law firm, the better it was for the defence.
It helped, too, that the defence was adept at extracting memorable lines from witnesses – many of whom portrayed the regulator’s office in a poor light. Whether by accident or design, these inevitably made it into newspaper headlines, helping to create an atmosphere that served the defendants well.
The 'acting in good faith' defence
One of the turning points in the trial came on day 19, when, after three days of legal argument marked by a strong performance by the prosecuting counsel Úna Ní Raifeartaigh SC, Judge Nolan ruled that there could be no further mention of legal advice. "Ignorance of the law is not a defence," he said, and there was no defence of having acted in good faith.
The ruling gave the prosecution valuable space to assemble its case – the fruit of one of the most laborious investigations ever carried out here. There wasn't much by way of a paper trail to show how and when the July 2008 scheme was devised. But two former Anglo employees, Matt Moran and Fiachre O'Neill, both of whom were granted immunity by the Director of Public Prosecutions, testified that Pat Whelan and Willie McAteer were aware of it before it was put into action.
What went unspoken for weeks was how the ruling on legal advice affected the evidence about the regulator and Morgan Stanley being on board. This was finally settled as the trial was in its closing stages.
In his address to the jury Judge Nolan told them any legal advice was irrelevant. So too were the attitude or actions of the regulator and the involvement of Morgan Stanley. It did not matter whether the three men believed the share-purchase scheme was legal or illegal. “This might seem totally unfair . . . but that is the case as I’m directing you as a matter of law,” the judge said.
The regulator’s involvement may have provided a defence, but the issue didn’t go away. For the defence it spoke to a persistent sense of unfairness about the whole thing; after all, here was one arm of the State prosecuting three men for doing something another arm of the State had encouraged them to do.
In his closing speech Michael O'Higgins drew an analogy. Cars bringing expectant mothers to maternity hospitals or dignitaries to EU summits are sometimes waved through red lights by gardaí, he said. "It's still crashing a red light. No amount of officialdom can turn it green. But if you are prosecuted for it you might regard it as being absurd."
Ordinary course of business
With the good-faith defence closed off to the defendants, one of the key battlegrounds – the meaning of the term "ordinary course of business" – became even more important. Section 60 of the Companies Act prohibits firms from giving financial assistance for the purchase of their own shares. But the Act makes an exception for a company that is lending "in the ordinary course of its business".
In his closing speech to the jury Judge Nolan made his view on this point clear. It was “very difficult to see how these monies [loans] could ever be in the ordinary course of business, since the main purpose of the share purchase was to stabilise the share price”, he said. The jury was free to disregard his observation. And it appears to have done just that.
The recourse issue
The loans to the Maple 10 businessmen were given at 25 per cent recourse, which meant that if the Anglo share price fell to zero the bank could only ever recoup a quarter of the value of the loans.
In evidence, a banking expert called by the prosecution – the former Ulster Bank director Tom Reid – zoned in on this limited recourse as an extraordinary feature of personal loans such as these.
Under cross-examination, however, Reid agreed that, conceptually, he didn’t have a difficulty with lending money to clients provided that the loan was on commercial terms – meaning 100 per cent recourse.
The prosecution argued that several other features of the lending brought it outside the course of ordinary business. But if recourse was a key factor in the minds of the jurors, as it was for Reid, then that would have helped FitzPatrick greatly.
After all, the evidence was that he wasn’t told that there was limited recourse. Indeed, the recourse was the key difference between the lending to the Maple 10 and that to the six Quinn family members, whose loans were at 100 per cent. That may well explain why the jury found Pat Whelan and Willie McAteer guilty on the charges of unlawful lending to the Maples but not guilty in relation to the lending to the Quinns.
Notable absences
One of the most striking aspects of the trial was what, and who, were missing.
The jury was never told about the extent of knowledge at the highest levels of Government about this high-stakes effort to unwind Quinn’s CFDs. Barristers tiptoed around David Drumm, the absent protagonist whose shadow loomed over proceedings every day.
But the biggest absence of all was the backdrop, the big picture: the crisis that has so profoundly shaken the country over the past six years. For the trial to work, everyone – the legal teams, the jurors, the media – had to buy into the idea that Project Maple took place in a vacuum, that Anglo was just another bank.
It was Grehan who broached the issue first, on day 42 of the trial, when he remarked that there was nobody who had been unaffected in some way by the collapse of the banks in Ireland. He spoke of wage cuts, the loss of increments, and cuts to special-needs assistants or home-help services.
Grehan asked the jurors to divorce themselves from the kind of thinking that suggested they were there to “satisfy the baying for blood of a mob” who saw the trial as a way of getting vengeance.
The nuanced verdicts would suggest the jury saw it as nothing of the sort. With their diligence and professionalism, they may well also have given lie to the assumption that juries can’t be trusted to grapple with complex, white-collar cases. And that may be one of the most enduring legacies of the past 11 weeks.