QUINN / ANGLO - A SIMPLE QUESTION OF INTEGRITY

Integrity – “the quality of being honest and having strong moral principles”. It is a fundamental to good business practice, and a value that most businesses and business people strive. It seems appropriate therefore, to keep the essence of integrity in mind when considering the on-going dispute that is underway between Sean Quinn, the Quinn family and Anglo Irish Bank.

Betrayed by Anglo Irish Bank and, ultimately, by the State that Quinn so heavily invested in over the years, the story has all the tragic aspects of a Shakespearean play. Quinn, recognised at a time as being one of the country’s most successful entrepreneurs, dug his fortune out of the family farm in one of the poorest areas in Ireland. He stayed loyal to his region and country by reinvesting millions back into Ireland Inc., his businesses, and, in the process, generated very significant employment. At the height of the Quinn Group’s success, Quinn had over 8,000 employees on his books. Of these, over 5,000 were in Ireland, the majority being in employment black spots of historically high unemployment levels. Quinn’s companies and employees generated an annual tax of over €300 million for the Exchequer.

All of this begs the question, why did the government through Anglo effectively shut this operation down? It is not a question easily answered, as those who know the answer appear to hide behind an intertwined political and corporate veil. Alan Dukes for example, is the former leader of Fine Gael and is now the Chairman of Anglo Irish Bank. During his tenure as leader of Fine Gael, The Taoiseach, Enda Kenny, and the Minister for Finance, Michael Noonan, reported directly to him.

It seems fair to say that Mr Dukes has questions to answer in relation to the catastrophic decision to oust Quinn. He operates at the heart of Anglo and it goes without saying that he has the ear of the government, both because the bank has been nationalised and because of his previous political career. His annual salary from Anglo is reported to be in the region of €125,000. Coupled with this, he has a €100,000 double political pension, comprising of a ministerial pension worth €45,470, and a TD's pension worth €55,019. In short, Dukes is receiving €225,000 from the State.

Anglo’s Chairman, Mike Aynsley is on a salary of €500,000. The Bank paid senior staff members €1.2 million in deferred bonus payments and other contractual fees in 2010. 22 of the 50 most senior staff who were in charge when Anglo made its disastrous lending decisions are still at the bank. Nineteen of them are receiving salaries of more than €175,000. In light of these astonishing salary figures, it seems quite clear that the last thing Anglo wants to do, is to close Anglo, however, it appears that changing the name to IRBC is enough to keep the public happy.

The explanations as furnished by the bank for ousting Quinn at the time are not standing up to any form of scrutiny now. Michael Noonan, the Minister for Finance, claimed that the Quinn Group bondholders were taking a substantial hit as a result of the takeover. We now know this to be completely inaccurate, with the Quinn Groups bondholders position actually substantially improving as a result of the takeover. Another explanation offered at the time was protection of employment in the Group, which again is laughable given that the Group is now operating effectively as a loss making entity. On RTE News, 29/04/2011 Alan Dukes stated that Anglo expects to get back less than half of the €2.8 billion disputed debt through the takeover. The writer in fact understands that no single cent has been recovered for the taxpayer and that instead any recovery is being entirely eroded with legal fees, consultancy fees and Anglo executive fee. Coupled with this, it is as certain as night follows day, that the Group is now on a fast track to mass layoffs and possible closure. Quinn said as much following the hearing of his bankruptcy in Belfast when he described the dissemination by Anglo of the Quinn Group akin to taking a sledgehammer to a child’s toy.

The manner in which Quinn was ousted from his companies can only be viewed as betrayal by the State, the bank and his former non-executive directors. It is well documented that Alan Dukes called Quinn to a meeting in Anglo HQ in Dublin under the guise of discussing a consensual approach to dealing with the Group’s debt. Quinn agreed to attend this meeting and viewed it as a positive development given that he, together with his senior executives, and Anglo had been working on a plan for over a year that would see all disputed debt paid back to the bank.

Quinn and his senior executives had attended over 30 meetings with Anglo, discussing their plan, and were led to believe that Anglo’s motives were genuine. Why would the bank have attended 30 meetings reviewing the Quinn proposal otherwise? Quinn and his executives attended Anglo HQ hopeful that the meeting with Dukes was going to finally bring clarity to the matter, and that a consensual deal could be finalised. This, as we now know, couldn’t have been further from the truth. As the meeting was underway in Anglo HQ, a covert takeover operation by the bank was underway at Quinn HQ in Derrylin. The operation, code-named “Day One” was outlined with military precision in a manual called “Day One Sequencing Memo”. The sequencing memo states, "SQ (Sean Quinn) will not be able to act sufficiently quickly to obtain injunctions to prevent the appointment of the SR (share receiver) and/or the changes to the board being made".

The operation kicked off at dawn. Key personnel, including Paul O'Brien and Pat O'Neill, both non-executive directors on the Quinn Group's board, were instructed to show up on 'Day One' at a location near Dublin Airport at 5.45am. They were to be transported by bus to a secret location, where they would await the appointment of a receiver, before swooping on the Quinn Group's head office in Derrylin, Co Fermanagh. Secure pay-as-you-go mobile phones were purchased for the new bosses-in-waiting, O'Brien and O'Neill, with O'Neill poised to replace Quinn as chairman.

At 9.50am, back at Anglo's headquarters in Dublin, Quinn and his executives were informed of the takeover by Dukes. By then, O'Neill and O'Brien, who were about to replace Quinn, were on their way to Derrylin with droves of security guards who took control of the head office in military fashion. By lunchtime, press releases heralding the end of Quinn's reign had gone out and six of his key executives had been dismissed; Sean Quinn's nephew, Peter; Liam McCaffrey; Sinead Geoghegan, Dara O'Reilly , Kevin Lunney, and Quinn’s brother former GAA President Peter.

A question and answer sheet was prepared for the new Quinn Group bosses, posing questions that might be raised by the media, such as "The bank can sit there and castigate Sean Quinn but surely, the very bank that lent him the money, the very bank he invested so heavily in, is hugely responsible for what happened?". The supplied answer was: "The exceptionally serious problem which faces the Quinn Group has been caused by the recklessness of the owners. Sean Quinn's actions have ultimately destabilised the business and as a result put at direct risk the livelihoods of more than 2,700 people."

The above supplied answer justifies further analysis in the context as to what came out in evidence in the Commercial Court hearing of the preliminary issue as to whether or not the Quinn family can plead breach of market abuse regulations by the bank. The court heard evidence on 2^nd February 2012 that ANGLO unlawfully tried to prop up its share price by “shovelling” €2.34 billion in loans to Seán Quinn after discovering in 2007 his stake in Anglo could collapse the bank. Counsel on behalf of the Quinn Family, Brian O Moore SC alleged the bank engaged in “very serious illegal activity” on a “persistent, on-going basis” involving an “egregious” and “almost deliberate” breach of laws carrying penalties of €10 million and up to 10 years in prison. Mr O’Moore SC said that loans provided on guarantees and share pledges given by the family were tainted with illegality. “Illegality was central to this, there would have been no loans without a desire to manipulate the market.”

Anglo, for example, provided about €300 million over three days around St Patrick’s Day in March 2008 to meet margin calls when its share price plummeted. Mr O’Moore SC said, “No one in the bank seems to have stood back and asked “why are we shovelling all this money into our own shareholding?”. Mr O’Moore outlined to the Court that Mr Quinn told Mr Drumm and Anglo chairman Seán Fitzpatrick at a meeting in the Ardboyne Hotel in Navan on September 11th, 2007, that the Quinns held a 24 per cent stake in Anglo. From then on, the bank put “systems” in place to ensure that this did not come to the knowledge of the public or stock market.

Up to September 2007, about €750 million of Quinn money went into the 24 per cent stake. Afterwards, as Anglo’s share price fell, the bank “shovelled” €2.34 billion of its money in an ultimately unsuccessful effort to prop up its share price and avert “catastrophic” consequences.

From December 2007, Anglo managed the CFD margin calls in a process which became “stream-lined”. Certain Anglo personnel would be told by Quinn group personnel what funds were needed and the money would be advanced.

Mr O’Moore SC said, Anglo was “paying for the show” and was “keeping the show on the road”.

What is abundantly clear from the preliminary hearing is that the advanced money in dispute was provided for an illegal purpose in furtherance of the banks objective of maintaining its own share price. Whether or not the Quinn family is allowed to rely on this illegal activity in the hearing of the main action will be ruled on by Mr Justice Charleton on 29^th February 2012. It is highly questionable but crystal clear that the government bank is doing everything in its power to stop the hearing progressing by denying the family the opportunity to plead illegality under the market abuse regulations. In submissions to Justice Charleton at the closing of the preliminary hearing on 08/02/2012 ANGLO clearly illustrated their link to the government by claiming that international markets will be plunged into “drastic uncertainty” and “havoc” if the Irish courts uphold the claims of the Quinn’s family.

One of the most crucial points that is not generally discussed in the analysis of the case thus far, is that the loans have always been disputed by Sean Quinn. The Primetime report on the matter, which aired on 3^rd November 2011, portrayed the facts incorrectly, and the writer understands is currently being investigated by the Broadcasting Authority of Ireland on the grounds that it defamed the Quinn Family, and that its content attempted to predetermine the outcome of the family’s legal case before the Commercial Court through the programme’s assertion that Sean Quinn had acknowledged that the debt is owed to the taxpayer. This couldn’t be further from the truth. The programme incorrectly relied on the following statement made by Quinn in an interview broadcast on RTE more than a year previously, “We as a family don’t want to owe anybody anything. We want to pay the taxpayer back 100% of his money.”

The quote was taken entirely out of context. At the time Quinn made this statement, Anglo were working in conjunction with him on a joint proposal to save Quinn Insurance. Quinn was explaining that the benefit of the consensual proposal was that all the disputed debt would be paid.

The fact of the matter is Anglo was always aware that the validity of the loans would be challenged if a consensual deal could not be achieved. The writer understands that in 2009 Quinn both verbally and in writing advised the Bank that if a consensual deal was not reached, then the loans would be disputed. In 2010 it is understood Quinn again verbally and in writing advised the new administration of the bank that Quinn was happy to take on the burden of the disputed debt if a consensual approach was adopted by the bank, but if not, legal proceedings were imminent. The proposal of Quinn now seems entirely reasonable when one considers it in the context of the revelations made by Mr O’Moore SC in the commercial court when he advised the Court in no uncertain terms that the disputed debt is tainted with illegality.

Another point that appears to be missed thus far, is that Anglo themselves initially had no security in place for the loans. Indeed why would Anglo need security when it was effectively lending itself the money to prop up its own share price. Mr. Quinn has always maintained that the bank initially sought no security over the advanced funds. Of crucial significance is the fact that the share pledges in Quinn Group (the family’s ownership rights of Quinn Group) were only required by Anglo following the departure of Sean Fitzpatrick and David Drumm from the bank in December 2008.

In respect of the family’s personal guarantees, Anglo has always been aware that they are of limited legal effect given that they were signed by members of the family without the benefit of independent legal advice. Indeed, no member of Quinn’s family ever met or spoke with an executive from Anglo during the course of the entire business relationship between Quinn and the bank.

It is very concerning and telling that the bank tried to strengthen their position in respect of their security by asking the family to obtain "retrospective" legal advice on the guarantees in late 2009, eighteen months after the last of the share support money had been advanced. The writer understands the family's solicitor wrote to Anglo's legal firm in 2010 stating that it would be inappropriate for him to provide independent legal advice relating to transactions that have long since taken place. Both Anglo and the Quinn’s have declined to comment publicly on this crucial issue thus far but no doubt it will form a central part of the main action.

One thing seems certain that the move to oust Quinn has been a mistake of enormous proportions. Quinn’s businesses which generated hundreds of millions for the exchequer on an annual basis are now being ripped asunder by the bank and it is quickly becoming apparent to all that there will be no recovery for the taxpayer.

Quinn has continuously maintained that it is a personal vendetta against him by the bank and that he is being used as a scapegoat to cover the illegality and huge deficiencies in the financial regulation of this country at the time. The bank has repeatedly denied this allegation however such denials appear to be weakening on a daily basis given the recent revelations in the Commercial Court. In addition, it is very telling that the imminent Senior Counsel, Mr Ross Maguire SC who is entirely independent of the whole affair stated on George Lee’s RTE programme “The Business” 06/02/2012 that the banks appeal of Quinn’s Northern Ireland bankruptcy petition could only be viewed as vindictive.

The irony here is that Quinn was never advanced a penny from the Irish taxpayer. Had the bank not been nationalised, Anglo would have no link to the Irish taxpayer. In any event, it is a tenuous link at best. The bank that brought the country to its knees is now championing itself as the defender of the Irish people. It is concerning to say the least but curiously it seems to pass over the Irish public. It appears if the establishment throws enough money at portraying an issue in a certain light, people eventually accept it. The problem with this approach is that when the truth comes out, as it always does, the people with the red faces will be made to account for themselves. As the lies continue to pile on top of the lies, the explanations will be harder to conjure up.

The State and the Bank are clearly focused on ruining the Quinn family’s integrity to justify an appalling decision, and in the process, have thrown their own integrity to one side.