Anglo trial told directors knew about 'illegal’ scheme

Three former Anglo Irish Bank directors were aware of a "choreographed" and "absolutely illegal" scheme to fund the buying of shares in the bank, the jury was told on the opening day of the bankers' trial yesterday.

Seán FitzPatrick (65), William McAteer (63) and Pat Whelan (51) are accused of providing unlawful financial assistance to members of businessman Seán Quinn's family and the so-called Maple 10, a trusted group of Anglo borrowers, to buy shares in Anglo in July 2008.

The prosecution says the transaction was designed to create the public perception of stability in the bank’s share price.

Before a jury of eight women and seven men, prosecution counsel Paul O’Higgins said it was the State’s case that Mr Whelan, who was the bank’s managing director for lending in Ireland, was “very much involved” in the transaction, while Mr McAteer, then finance director, was not as involved but “knew all about them”.

The prosecution alleges that Mr FitzPatrick, as non-executive chairman, was told about the lending and did nothing to stop it. Mr O'Higgins told the jury Anglo issued loans totalling almost €625 million to 16 people comprising members of businessman Mr Quinn's family and 10 trusted customers of the bank.

Overflow room
Almost 150 people were in court for the first day of the trial, which is being transmitted via video-link to an overflow room elsewhere in the Criminal Courts of Justice building in Dublin. The three defendants spoke only once to enter not guilty pleas. Mr FitzPatrick and Mr Whelan admit the money was lent for the purpose of buying shares in the bank. But counsel for Mr Whelan, Brendan Grehan SC, said the lending was "in the ordinary course of business" and both the Irish and British financial regulators had agreed to it.

Dublin Circuit Criminal Court heard that section 60 of the 1963 Companies Act allows for a defence of such activity if lending is “in the ordinary course” of the company’s business.

The prosecution say the scale and nature of the loans show they were not given “in the ordinary course of business”. Opening the prosecution case, Mr O’Higgins said that in 2007, senior staff at Anglo discovered Mr Quinn controlled about 25 per cent of the bank through “contracts for difference” (CFDs), a financial instrument counsel described as “an extraordinary form of gambling”. “We’re not talking about thousands here, or millions, we’re talking about tens of millions, maybe hundreds of millions,” Mr O’Higgins said.

Anglo was "not keen" that it was so exposed to one person. The bank made a series of "efforts" to deal with Mr Quinn's position. By February 2008, "at least", counsel said, the financial regulator also knew about Mr Quinn's position and was "very concerned". Anglo tried to unwind Mr Quinn's position by inviting Middle Eastern investors to buy the stocks but its efforts were unsuccessful.

Situation worsened
On March 17th, 2008, the situation worsened when the collapse of Bear Stearns Bank caused Anglo's share price to drop. From a peak of €17.00 in 2007, the share price was now down to €6.50.

Mr O’Higgins said sometime in July, 2008, Anglo “decided to do something absolutely illegal.”

Mr FitzPatrick, Greystones, Co Wicklow, Mr McAteer, Rathgar, Dublin, and Pat Whelan Malahide, Co Dublin, have pleaded not guilty to all charges.