David Drumm’s mistakes did not add up, says trustee

It was only hours before David Drumm filed his so-called schedules and statement of financial affairs, or Sofa, to a US court giving the court-appointed trustee overseeing his bankruptcy what was supposed to be a full picture of his finances.

He had been working on a draft statement with his bankruptcy advisers at the Massachusetts law firm of Looney & Grossman but was unhappy with the draft's description of two vehicles that he had owned and surrendered on October 21st, 2010, a week after he filed for bankruptcy,

“Automobiles – I’m still not happy!” he said in an email to Heather Zelevinsky sent at 10.42pm on Thursday, October 28th, the night before the documents were filed. “Can you remove the ‘MB’ reference as they have been surrendered and just leave it as ‘Sedan’ and ‘SUV’: if the trustee doesn’t care, she won’t ask and the media can go fish.”

Mr Drumm’s concern about “MB” was a reference to Mercedes Benz and the impression that the reference might leave with anyone looking at the form.

The stripped-down description of the vehicles as a “2010 Sedan” and “2011 SUV” in the eventual Sofa form he filed on October 29th, 2010 contained no mention of the prestigious motor marque. The values assigned to the vehicles – $47,000 (€34,300) and $64,000 (€46,700) respectively – were the only giveaway as to the brand of car.

Media interest

The court was told that this was an example of David Drumm actively deciding what was to be included or excluded from his bankruptcy statements.

It wasn't the only time that the former Anglo Irish Bank chief executive's concern about the media's interest in his financial affairs surfaced during his five-day bankruptcy trial in Boston which ran this week and last. Three days before he filed for bankruptcy, Mr Drumm told Ms Zelevinsky in an email that it would be good to file his financial statements early.

“Let the media get it out of their system this week while things are relatively calm and the fizz has gone out of the bankruptcy a bit,” he wrote.

The cat-and-mouse relations between the media and the Drumms featured several times during testimony at the trial. David Drumm told the court that the couple used his wife's maiden name, Lorraine Farrell, to buy a new family home in Wellesley outside Boston in January 2010 "because she was afraid of media attention".

The couple had “visitations” from the “tabloids” at their house on Cape Cod, he told the court, while Ms Drumm, in response to questions from her husband’s lawyer, David Mack, said she had been “ambushed” when she went out of the court building to get a sandwich on Wednesday.

Financial arrangement

“If my name appeared on it,” said Ms Drumm in testimony on Wednesday, referring to the Drumm name appearing on the title deeds of the Wellesley house, “the first thing that would happen is that the media would be on my doorstep yet again”.

The former Anglo Irish Bank, now Irish Bank Resolution Corporation, and Mr Drumm's bankruptcy trustee claim that the financial arrangement agreed between the couple on the purchase of the Wellesley property was another example of a series of cash and property transfers that he failed to disclose in his original sworn bankruptcy statements in October 2010.

They argue he should not be entitled to have all of his debts prior to that date wiped clean with a discharge from bankruptcy because, they claim, he defrauded his creditors by making these transfers and because he made false oaths in his bankruptcy statements by omitting those transfers.

He has denied that he deliberated excluded cash transfers from his Sofa form, believing at the time that he had only had to list property transfers. (This is despite him listing the transfer of a half-share in a $2 million investment property in Cape Cod, south of Boston, in an amended Sofa form filed in May 2011 that he had not included in his October 2010 disclosures.)

During Ms Drumm’s testimony on Wednesday, the bank’s attorney Ken Leonetti put it to her that her husband transferred a total of about €2 million in cash and property to her. These transfers took place since the deepening crisis at Anglo in 2008 forced her to seek money of her own in the event that her husband was to “drop dead of a heart attack”, as she told the court.

She said she thought that the total was close to €1 million and admitted that she had no idea that he had transferred almost all of his cash to her.

Ms Drumm told the court that a separate property agreement signed by the Drumms stating that a $831,000 cash deposit used to buy the Wellesley house in January 2010 was drafted to show that this was her money and that it would be returned to her in the event that the house was sold.

Worthless shares

The agreement said that Mr Drumm had no “past, present or future right or interest” in the money, though Ms Drumm acknowledged that her money had come from her husband’s earnings at Anglo, where he had made $18 million between 2004 to 2009 as the bank’s chief executive. (He owes the bank €8.5 million mostly from loans drawn to buy now worthless Anglo shares.)

Lorraine Drumm appears to have been as concerned about protecting her own money as she was about protecting her own privacy from the media.

Peter Covo, a conveyancing lawyer who was retained by the Drumms to buy the Wellesley property, told the court that at the meeting in his office after the closing of the Wellesley purchase, Ms Drumm kept saying “over and over and over” that the money was hers. “She kept saying: ‘It is my money, it is my money, it is my money,” he said.

The alleged Wellesley transfer still didn’t appear in the amended bankruptcy statement Drumm filed in May 2011, seven months after his original statement, which he admitted in court contained “a lot of errors”.

He claimed he was “in a state of panic” when he learned at a creditors’ meeting on April 1st, 2011, that cash transfers should have been included in the original statements.

His bankruptcy lawyer Stewart Grossman testified last Friday that he had warned Mr Drumm – before he filed for bankruptcy – that he could get in criminal and civil trouble if he didn’t disclose everything in a process that he described to Mr Drumm as “like getting naked in public”.

Mr Drumm's trustee believed these mistakes didn't add up. It was "very unusual" for someone of his background – a banker, an accountant and a businessman – to have made such mistakes in his filings, said Boston lawyer Kathleen Dwyer. Drumm's errors took months to a fix and she felt like he was trying to "wear you out" by "dragging" her back into successive creditors' meetings in order to seek further disclosures, she said.

‘Honest debtor’

“If you are an honest debtor and make an honest mistake, you fix it – there is no working on it or ‘we will have it done by next month’. That is what was going on this case,” said Ms Dwyer, who has administered 15,000 bankruptcies in a career spanning back to the mid-1980s.

Judge Frank Bailey will hear closing arguments from both sides in the case next Wednesday. His ruling is expected some time over the coming months. If he grants Mr Drumm a discharge, the 47-year-old former banker will walk away debt free from bankruptcy to start again financially.

If he doesn’t, Mr Drumm could face what Grossman warned him before he voluntarily chose to “get naked in public” in Massachusetts: a potential clawback of about €2 million in cash and property transfers to his wife.