DPP secures stay on €50m Anglo action against former auditors

Stay granted pending outcome of separate proceedings against Sean Fitzpatrick

The Director of Public Prosecutions has secured a stay on any public hearings of pre-trial matters in the IBRC’s (the former Anglo Irish Bank) action claiming more than €50 million damages against the bank’s former auditors Ernst & Young over an alleged failure to uncover alleged “improper” loan transactions.

The stay was granted today by Mr Justice Brian Cregan pending the outcome of separate forthcoming proceedings against former Anglo chairman Sean Fitzpatrick.

The now bankrupt businessman, with an address at Greystones, Co Wicklow, is facing trial at Dublin Circuit Criminal Court in October on 12 charges in connection with alleged financial irregularities at Anglo over a six-year period.

The charges, brought under Section 197 of the Companies Act 1990, allege he failed to disclose to Ernst & Young the true value of loans given to him or people connected to him, by Irish Nationwide Building Society.

It is alleged, as an officer of the bank, he knowingly, or recklessly, made false, misleading or deceptive statements to Anglo’s auditors from 2002 to 2007.

Today, Paul Anthony McDermott BL, for the DPP, sought a stay on any public hearings of matters in the separate Commercial Court action by Irish Bank Resolution Corporation, Anglo’s successor in title, against Ernst & Young.

Counsel made the application as the judge was about to deal with discovery and other matters in those proceedings.

The stay does not affect the exchange of materials between the sides in preparation for the case which will be mentioned before the court again in late July.

IBRC is suing Ernst & Young over losses allegedly resulting from what the court was previously told was the firm’s alleged “repeated failure” to uncover alleged “highly unusual and improper” loan transactions, known as “bed and breakfast” transactions, of Mr Fitzpatrick.

It is claimed the auditors were in breach of contract in failing to uncover an alleged practice where, for brief periods around the end of Anglo’s financial year, it is claimed Mr Fitzpatrick repaid his large Anglo loans with monies borrowed from Irish Nationwide Building Society but reversed those transactions days later.

The net result was large loans otherwise due from Mr Fitzpatrick were moved from Anglo’s balance sheet, creating the impression he owed less than he actually did, the bank claims.

It is alleged the failure to uncover the alleged practice significantly increased Anglo’s exposure to Mr Fitzpatrick after the end of the 2006 financial year.

Before the alleged 2006 transactions, Anglo had loaned some €69 million to Mr Fitzpatrick and, after the 2006 annual financial statements were signed on December 5th 2006, it loaned him another €58 million.

All of Mr Fitzpatrick’s loans have been classified impaired, he has been adjudicated bankrupt and the bank claims it expects to suffer losses of “well over €50 million” on the loans, it said.

Solicitors for E&Y wrote to the bank’s solicitors in January 2011 saying the firm had considered the issue of disclosure of directors’ loans and obtained information from the bank and individual directors on which it relied.