Regulator found out Quinn Anglo stake six months after bank

The former head of the Financial Regulator claims he did not know about the scale of Sean Quinn’s control of Anglo Irish Bank until six months after the bank found out, a trial has heard.
Pat Neary also told the trial of three former Anglo executives that he was not told in March 2008 that Anglo was planning to loan money to the Quinn family as part of a deal to unwind Mr Quinn’s stake in the bank.
A defence counsel contrasted Mr Neary’s evidence with that given yesterday by his then subordinate, Con Horan. Mr Horan said that he was told on March 21, 2008, by the CEO of the Quinn Group that Anglo would be loaning the money to buy shares in the bank.
Mr Neary said it wasn’t until June 2008 that he learned that Anglo was going to provide the money what was expected to be a short-term basis.
Former Anglo Director Sean FitzPatrick and fellow ex-directors William McAteer and Pat Whelan, are accused of providing funding for the purchase of Anglo’s own shares in contravention of the 1963 Companies Act.
The three men have been charged at Dublin Circuit Criminal Court with 16 counts of providing unlawful financial assistance to 16 individuals in July 2008 to buy shares in the bank. The 16 individuals are six members of the Quinn family and the Maple Ten group of investors.
Mr Whelan has also been charged with being privy to the fraudulent alteration of loan facility letters to seven individuals in October 2008.

Charges
Mr FitzPatrick (65) of Greystones, Co Wicklow, Mr McAteer (63) of Rathgar, Dublin and Mr Whelan (51) of Malahide, Dublin have pleaded not guilty to all charges.
Mr Neary told Brendan Grehan SC, defending Mr Whelan, that in September 2007 there were market rumours that Mr Quinn had built up a large stake in the bank through Contracts for Difference (CFDs) which are investment tools that involve betting on a share without buying it.
Mr FitzPatrick and then Anglo CEO David Drumm met Mr Quinn on September 11, 2007, to find out the truth of the rumours. Mr Quinn admitted that he controlled 24 per cent of Anglo shares.
Mr Drumm passed this information to the Anglo board who instructed him to immediately tell the Financial Regulator.
On Thursday, Mr Neary agreed with counsel that Mr Drumm came to see him on September 12. He said they discussed the rumours about the Quinn control but that Mr Drumm never disclosed that he knew it was as high as 24 per cent.

‘Chose not to tell’
He said that he believes Mr Drumm probably knew the extent of the CFD position “but he chose not to tell me.
“In fact he voiced concern that there might be more CFDs but he did not tell me the scale of it.”
Mr Neary told the court that he took no notes of this meeting because he believed it would be about “a personal matter” and that Mr Drumm wanted to keep it “low key.”
Counsel for Mr FitzPatrick, Michael O’Higgins SC, said that surely a personal matter would involve something like trouble at home or where to go on holidays.
Mr Neary replied that as far as he knew the meeting could have been about such subjects. He said it was very unusual for the CEO of a bank to want to meet with him discreetly and he had no knowledge of what the meeting would be about.
Mr Neary denied that there was a second meeting with Mr Drumm that September. He said he can only recall one meeting.
The former regulator said that the CFDs holder, Mr Quinn, also had two opportunities to tell him about the extent of his position but that he too chose not to do so.
He said that in January 2008, Mr Quinn asked could they meet informally as he was in the area. During the meeting Mr Quinn said he had built up a small about of CFDs in Anglo and Ryanair but that he did not intend to hold onto them.

Unregulated
When asked why he didn’t question Mr Quinn about the extent of his CFDs, Mr Neary replied that Mr Quinn is a private citizen and can have all the investments he wants to have.
He said that CFDs were not a regulated product and there was no obligation on Mr Quinn to divulge them.
“I respect that and didn’t feel it would be fair or appropriate to tackle a person about his own investment portfolio,” he said.
Mr Neary said it wasn’t until March 21, 2008 that he was told by Anglo executives that Mr Quinn had built up a CFD position, which by that date stood at over 28 per cent.
The witness told counsel that he did not know if there was a file kept at the Regulator’s office on the Anglo/Quinn issue.
“My best guess is there should be or probably was but I don’t know,” he said. “It wasn’t under my control.”
Mr Whelan’s counsel, Brendan Grehan, made reference to a letter Mr Neary sent to Mr Drumm on June 25, 2007. This letter stated that the Regulator was concerned about the level of Anglo’s lending to the Quinn Group, which at that point was approaching €2 billion.
Mr Grehan suggested the letter was “a posterior covering exercise” by Mr Neary as he knew that Anglo would have to continue lending to the Group because otherwise they could they could both collapse.
“You knew full well what was going on but wrote the letter to cover yourself,” counsel suggested.
Mr Neary responded that the letter reflected the views of the Regulator’s office at the time.
The trial continues on Tuesday.