Custom House queried early in 2009

THE CENTRAL Bank first raised concerns about the Dublin investment management firm Custom House Capital – to which High Court inspectors were appointed last month – in early 2009.

The firm was the subject of a Central Bank inspection in March 2009 after a whistleblower told the regulator the firm was using investors’ money to cover shortfalls on European property deals without their knowledge.

Details of the 2009 inspection were outlined in an affidavit submitted to court last month. The affidavit was posted on the website of the Central Bank last night.

Senior Central Bank regulator Noel Thompson says in the affidavit that, from early this year, they found it “increasingly difficult to obtain clear and precise information from the firm in response to requests made of the firm”.

The Central Bank found explanations provided by the firm on certain matters “contradicted explanations previously given”.

Mr Thompson and another senior regulator, George Treacy, were appointed inspectors to investigate the firm on July 15th.

The affidavit reveals the Central Bank initiated administrative sanctions procedures against the company and its chief executive, Harry Cassidy, in February.

Mr Thompson said a senior staff member at the firm met the Central Bank with a lawyer on July 11th and told them that money was taken from pooled client accounts “without appropriate authority”.

This had taken place for the last two years and may have related to 55 client accounts for amounts of about €2.5 million. He said assets in three other trusts may also have been used to cover shortfalls in property investments and the sums involved may be €13 million.

Mr Thompson said he spoke to John Anthony O’Dwyer – who had taken over as chairman of the company in late 2010 – by telephone on July 11th and that Mr O’Dwyer said he could no longer rely on information from the firm and that “his trust in the firm was gone”.

According to the affidavit, Mr O’Dwyer said that “Harry Cassidy repeatedly advised him over the weekend of 9-10 July 2011 that he had not used any investor monies for his own benefit.

“However, Mr O’Dwyer confirmed that it appeared investor monies were misused by the firm.”

The affidavit discloses that Mr Cassidy had tendered his resignation as chief executive and a director of the firm on July 11th.

In February 2009, the Central Bank was told by a whistleblower that clients’ money was being invested in a Mezzanine Bond Fund without their knowledge.

The bond was used to provide loans to fund financing shortfalls on European property transactions entered into by the firm for clients, the Central Bank was told.

Following an inspection, the Central Bank ordered the firm to cease investing in the bond and, when bridging finance for property deals was no longer required, to return the money to the clients.

The firm was told to increase its capital reserves by €5 million. Mr Thompson said that investors are owed €10.4 million from the bond.