A former investor with stockbrokers MMI has been told by the liquidator to apply to the Investor Compensation Fund for recompense.

The investor paid MMI £10,000 (€12,700) for shares early last year and received a nominee account statement, according to documentation seen by The Irish Times. However, the liquidator has now confirmed that the shares do not exist.

The shares are entirely separate from the margin trading problem in exploration stocks which caused the company's downfall.

It is not clear whether the problem is a once-off error or part of any wider pattern at MMI. Sources familiar with the company say its affairs are in a mess with many records not kept as they should have been.

A letter from the liquidator's office to the investor says: "According to the information available to me you requested in April 1998 that 27,500 Dunloe shares be purchased through MMI. I note that you paid an amount of £10,054 for this transaction. However, according to the books and records of MMI these shares are not held for you."

It also says that the matter is under investigation.

The investor said she was quite shocked that she appeared to have paid over money for something that may never have been purchased.

"I should have insisted on receiving a share certificate but nominee accounts are a normal market practice. I only realised something was wrong when I tried to move these stocks to another broker."

The case is the first indication that the problems at MMI could be more extensive and date back further than had been thought.

It also raises questions about the Central Bank's supervision of the company. Last week, a spokesman for the Central Bank said it had no knowledge of the case and, after checking, added that as far as it could ascertain it did not happen.

Meanwhile, former MMI clients who bought shares in overseas companies are slightly closer to a resolution of their problems.

MMI used US investment firm Prudential Bache as overseas brokers. The company held shares in trust accounts; some were fully paid for and 50 per cent of the price of others had been paid.

When MMI began running into trouble, Prudential Bache liquidated some of the stock to cover unauthorised margin tradings. The Irish company attempted to buy back some of the stock but did not manage to complete this before it was put into liquidation and a deficit of about £300,000 remains.

The liquidator has now been given permission by the High Court to ask for legal opinion on challenging Prudential Bache's procedures.

A spokesperson for Prudential Bache said that MMI had a corporate account and it was handled as the company would handle any other corporate account. The company did not have any record of any individual MMI clients, she added.

Some MMI customers may also be able to get access to monies held in its client account. This account, which is effectively in trust for the clients and cannot be used by the liquidator, contains as much as £2 million.

The costs of the liquidation are also mounting substantially. Each issue has to be argued separately and all depositors who owe the company money - for shares bought on their behalf but not paid for - pursued through the courts.

The liquidation is the first action under the 1995 Stockbroking Act and is being seen as a test case.

A spokesman for MMI was unavailable for comment.