The trial of three former Anglo Irish Bank directors has heard that the Financial Regulator supported the bank's allegedly illegal plan to protect its share price.
Former Quinn Group chief executive Liam McCaffrey continued his evidence, telling the jury that Sean Quinn was forced to agree to Anglo's plan for him to sell his control over 29.3 per cent of the bank's shares.
The witness agreed with defence counsel for Pat Whelan, Brendan Grehan SC, that Mr Quinn lost a total of €2.4 billion by betting on Anglo's share price through Contracts for Difference (CFDs).
Dublin Circuit Criminal Court heard that Mr Quinn was forced to borrow €1.975 billion from Anglo in order to fund these CFDs between November 2007 and July 2008.
Mr Quinn told Anglo directors in September 2007 that he controlled 24 per cent of the shares and that this caused the bank's chief executive David Drumm and chairman Seán FitzPatrick to be very concerned.
It today emerged that Mr Quinn continued to increase his CFD stake to 29.3 per cent over the next seven months before being forced to sell them.
The witness also confirmed that Mr Quinn had to pay a record fine of around €3.5 million to the Financial Regulator because of improper intercompany loans which he used to fund the CFDs.
During a meeting with the Regulator, Mr Quinn admitted that he had been greedy and, speaking in the third person, said: “Seán Quinn needed to be reigned in.”
Four witnesses have now given evidence out of an expected 103.
Mr Quinn will be giving evidence on Monday morning when the trial resumes. Counsel expects his evidence to a considerable amount of time.
The prosecution allege that the accused, Pat Whelan, William McAteer and Seán Fitzpatrick were involved in a plan by Anglo to loan money to the Quinn family and the so called “Maple Ten” group of investors so that they could buy shares in bank and guarantee the stability of the share price.
The DPP say that this is an offence under the 1963 Companies Act and the accused, as directors, either took part in it or permitted it to go ahead.
The three men have been charged with 16 counts of providing unlawful financial assistance to 16 individuals to buy shares in the bank. Each charge relates to a specific person, who allegedly received loans between July 10th and July 30th, 2008.
Mr Whelan also faces seven charges of being privy to the fraudulent alteration of loan facility letters to seven individuals in October 2008.
Mr FitzPatrick (65) of Greystones, Co Wicklow, Mr McAteer (63) of Rathgar, Dublin and Mr Whelan (51) of Malahide, Dublin have pleaded not guilty to all charges.
Today, Mr McCaffrey said that in February 2008 the Financial Regulator was unhappy with certain practices by the Quinn Group designed to fund the CFDs.
During the meeting, Mr Quinn "apologised sincerely for the current financial situation in Quinn Insurance Ltd" and for "the problems it was creating for the Financial Regulator".
The businessman told representatives from the regulator that he had been “greedy” with regard to the CFDs and “needed to be reined in.”
He also promised that “anything told to the Financial Regulator from now on will be 100 per cent true.”
Mr McCaffrey also confirmed that the Financial Regulator was fully aware of the later, allegedly illegal, Anglo plan to have Mr Quinn sell his CFDs and for his family and other investors to buy the shares outright using Anglo funding.
This would have the effect of helping to avoid a flood of shares coming onto the market if Mr Quinn couldn’t continue to fund the CFDs’ margin calls. The court heard Anglo had loaned Mr Quinn nearly €2 billion between November 2007 and July 2008 to fund the margin calls.
The margin calls increased dramatically on March 17th, 2008 after the “St Patricks Day Massacre”, when up to 30 per cent was wiped off Anglo’s share price.
Mr McCaffrey said that Mr Quinn was very reluctant to sell his CFDs because he believed the price would recover. However, he was forced to agree to the deal during Easter 2008 because he needed funding from Anglo Irish Bank.
The deal was agreed between Anglo and Mr Quinn, with Mr McCaffrey acting as intermediary.
Mr McCaffrey agreed with counsel that the deal was dependent on approval by the Financial Regulator, which was given.
He agreed that the regulator was “four square” behind the deal and fully aware that Anglo was providing the funding for the purchase of the shares.
Mr McCaffrey also agreed that, to his knowledge, Anglo received legal advice from the "very well know and respected" solicitor's firm Matheson Ormsby Prentice.
He agreed the practicalities of the plan were being handled by Morgan Stanley which was very experienced in such deals. Mr McCaffrey said nobody, including the Regulator, raised any issue about deal's legality.
Mr Grehan told the court that after the unwinding of the CFD position in July and the subsequent press announcement, the price of Anglo stocks recovered and "Mr Quinn came back for another rattle."
Counsel exhibited a letter from Seán Quinn to David Drumm from July 26th, 2008.
In this letter, Mr Quinn wrote: “I’m not sure we were treated fairly. We were in effect forced to sell the shares regardless of market price on the downside while the purchasers were given a maximum price.”
“There seemed to be a degree of panic driving the process.”
He went to complain about the “aggressive” approach of Anglo and of not having his calls returned or being allowed to address the bank’s board.
Mr McCaffrey’s evidence finished with a disagreement with Mr Grehan over where the blame for the demise of the Quinn Group could be laid.
“Would you agree that Sean Quinn lost €2.4 billion on this spectacular punt on CFDs”, Mr Grehan asked Mr McCaffrey.
“He paid a very high price for investing in that bank,” replied Mr McCaffrey.
“He paid a very high price for investing in CFDs. That can’t be called investing,” counsel said.
“It’s a matter of terminology,” Mr McCaffrey replied.