Conor Gallagher and Declan Brennan
A solicitor hired by Anglo Irish Bank has said he never gave any legal advice in relation to the 2008 loans to the Maple Ten borrowers.
Robert Heron, formerly of Matheson Ormsby Prentice, was giving evidence ahead of the sentencing hearing of the two former Anglo executives who were convicted two weeks ago.
Former Director of Finance William McAteer (63) and former head of Irish lending, Pat Whelan (52), were convicted by a jury on April 17 last, following a 48-day trial, of providing the loans to the group known as the Maple Ten.
The witness was giving evidence today (Monday) in a Newton Hearing. This is a hearing before a judge, which sometimes takes place after a guilty verdict or plea. It occurs where there is a specific aspect of the case, which is still in contention.
In this case, the prosecution contend that the directors did not receive legal advice that the loans to the Maple Ten were permitted under company law.
Paul O'Higgins SC, prosecuting, told Judge Martin Nolan that the state's case is that claims by both directors that they believed the Maple Ten transactions were legal are “bogus”.
The issue of legal advice could be a possible avenue of mitigation for the two men when Judge Nolan considers his sentence. The judge has already indicated that he will take the approval of the Financial Regulator for the deal into account when considering a sentence.
The sentencing hearing itself is due to begin tomorrow (Tuesday) at 11am.
On April 17 last, a jury found the two men guilty on ten charges each of breaching Section 60 of the Companies Act 1963 by lending money to investors to buy shares in Anglo for a share support scheme.
The jury acquitted them on six further charges each of lending money for the same purpose to members of former billionaire businessman Sean Quinn’s family.
Their co-accused, former Anglo Chairman Sean FitzPatrick, was found not guilty on all 16 counts. The three men had denied all charges.
Mr Heron told Úna Ni Raifeartaigh SC, prosecuting, that on March 27 2008 he first learned that Cavan businessman Sean Quinn had built up a substantial shareholding in the bank through the use of Contracts for Difference (CFDs).
He said that Mr McAteer informed him that a solution to unwind the CFD position had been found and involved disposing of the shares to institutional investors.
He said he didn't recall giving any legal advice at this time. He believed that the bank's role in the transaction would be passive and that the transactions would be between the Quinn family and the investors.
He said he prepared a draft agreement to cover the unwinding of the CFD position and used "qualification language" in the letter because he was conscious there could be legal considerations around the issue of market abuse or insider trading.
Mr Heron said he was again consulted in July 2008, by Anglo head of compliance Fiachre O’Neill and was asked if it would be legal for Anglo to lend money to the Quinn family to buy shares in the bank. He said Mr O’Neill made no reference to lending to the Maple Ten.
He said he looked at the relevant section of the Companies Act. He observed that the section generally prohibited lending by a company for the purposes of buying its own shares but there was an exception if the lending was in the ordinary course of business of the bank.
He said he believed it was "not impossible" that this exception would apply in the case of the Quinn family loans.
The solicitor told the court that he believed the lending could be permitted if it satisfied “a two tier test.”
The first tier was that the lending would not reduce the banks assets. The second tier was that it was in “the ordinary course of business” in conditions such as the interest rate and loan duration were in line with normal practice.
"As far as I was concerned, the lending proposed was to the Quinn family," he said.
He said he didn't give any legal advice in relation to the lending provided to the Maple Ten borrowers.
Mr Heron said he didn’t know about lending to the Maple Ten until late July, weeks after the deal went through. He said he didn’t know the terms of that lending until late 2008 or early 2009, including that they were subject to only 25 per cent recourse.
The lending to the Quinns was at 100 per cent recourse.
Under cross examination from Brendan Grehan SC, defending Pat Whelan, Mr Heron agreed that he had no recollection of the contents of a "due diligence" conference call requested by Morgan Stanley on July 12th.
Mr Whelan put it to him that other attendees at this meeting had said they believed the legal advice given at the meeting was that the transactions were legal.
Counsel said that David Churton, a director at Morgan Stanley's legal and compliance department, had made a statement saying that "MOP think this is very clearly within the exception" to the section 60 law against loans for shares.
Asked if it is possible that he had proffered that opinion to Morgan Stanley during this call Mr Heron replied: "I think it's entirely unlikely", adding that he doesn't recall what was said by himself or anyone else during the call.
He agreed with Mr Whelan that he joined the call from his own home and that Anglo were facilitating the call. He previously told Ms Ni Raifeartaigh that he imagined the call had followed the agenda set down in advance by Morgan Stanley.
He said he had no notes of the call apart from a number of words written in his diary for that day. These notes included the terms, “Maple 13%,” and "ten ind 14.9%". He said that these notes did not show he had any knowledge of lending to the Maple Ten borrowers.