Anglo trial, week one
February 08, 2014
This sketch was the first of 11 weeks' reportage from "the Anglo trial", a case taken by the Irish state against three former employees of the nationalized Anglo Irish Bank. The trial was described by the Guardian's Henry McDonald as "one of the longest and most complex in European financial criminal history". I filed a "court diary" for the Sunday Business Post for 47 days of hearings.
People stood in lines at the back of court 19. Members of the press, Irish and international, grappled with a system of blue passes taped to benches, every one of which was filled to capacity. Note-taking elbows knocked into one another.
Shortly after noon, Paul O'Higgins, for the prosecution, began his opening remarks. "I may very well tell you a lot of things which you already know about," the barrister said, asking for forgiveness if he erred on the side of patronizing.
In the dock to his left, the accused: Willie McAteer, Pat Whelan, and Sean FitzPatrick. The men, very similar in stature, sat expressionless and very still, resembling schoolboys.
O'Higgins, with his back to the men, explained to the jury why the burden of proof rested with the prosecution, ran through the balance of probability, spoke about the function of the trial judge. It was six minutes to one o'clock, lunchtime, when he first said the words "Anglo Irish Bank".
After lunch, he outlined some of the counts, and went into detail about Section 60 of the Companies Act. Suddenly, a more strident statement. "There won't be a dispute between the defence and the prosecution in this case," said O'Higgins. "It was lending in very extraordinary circumstances which had nothing whatsoever to do with the ordinary course of the bank's business."
He spoke about the history of Anglo Irish Bank, starting at 1986 and working his way forward to the years on which the trial pivots, 2007 and 2008. Shortly before reaching 2008, O'Higgins said: "No doubt you have all heard of Sean Quinn, and the Quinn family and the Quinn enterprises. At some time in 2007 it began to be rumored that Mr Quinn had some kind of interest in Anglo Irish Bank. Normally speaking, it would be known if somebody had an interest in a bank or not.
"We come to a thing that has been heavily criticised," he said slowly, "and many wish was never experienced. At some time, financial geniuses of some description offered an extraordinary form of gambling to the investing public. It was called a contract for difference. Members of the Quinn family had gone into CFDs and done very well at the beginning. Then the tide turned and they began to lose."
O'Higgins was at his most animated towards the end. "The whole financial world was jittery," he said. "Anglo decided to put together a scheme where the Quinns and others were to take a shareholding in Anglo directly, and there would be a market announcement to say the Quinn CFD position had been resolved," said O'Higgins.
He named the six Quinn children, and then mentioned the Maple Ten, ten men to each of whom the bank offered to lend money to buy part of its shareholding. The majority of the jury were writing the story down.
Of the Maple Ten, he said: "One of the ten, at least, was on holidays in the South of France when persuaded to take the loan. A lot of people, if they were off on holidays and saw their bank manager in the distance, would head to the nearest sand dune In Nice," he said, ''or Faro."
At 20 minutes to four, the jury was dismissed.
The trial's first witness, Claire Pyke, an employee of the Companies Registration Office, was called on Thursday morning. Pyke confirmed appointments, name changes and changes in directorship of Anglo from the mid-eighties to the mid-aughts. The courtroom was full, but less full than it had been the day previous.
The second witness was Aisling McArdle, regulatory manager at the Irish Stock Exchange. McArdle was questioned by counsel for the prosecution, Una Ni Raifeartaigh.
For the first time - although they would be produced on multiple occasions, at regular intervals - graphs charting the Anglo Irish Bank share price during 2007 and 2008 were displayed.
A jagged orange line sputtered across the graph for 2007. Members of the jury craned their necks to look at it. There was less neck-craning required when it came to assessment of the graph for 2008. A dipping, tapering line, plunging at easily identifiable points, falling into the bottom right-hand corner. ''The overall pattern is one of decline, Na Raifeartaigh said politely.
Brendan Grehan, on behalf of Whelan, followed with questions. "I'm just wondering how familiar you were with the events of 2007 and 2008," the barrister said, sizing McArdle up. He asked her if other banks would look the same, gesturing at the graphs.
"I wouldn't be able to answer that," McArdle demurred. She said she "would have heard" about the demise of British bank Northern Rock, she "would be aware" of what became of Bear Stearns. "Do you know anything about CFDs?" Grehan asked. "No," McArdle said flatly.
The third witness was Natasha Mercer, company secretary of Anglo Irish Bank in 2008. Ni Raifeartaigh asked her about board meetings, which she was responsible for arranging.
A pair of grids appeared on the projection screens; executive directors on one side, in blue, non-executive on the other, in red. Mercer featured as an outlier in the graphic, in a separate box. She said that the board of Anglo held 33 meetings in 2008, all but six for which she was present. These were held in March and September.
Seamus Coffey, a lecturer in economics at University College Cork, was tasked with spelling out to the jury what a CFD was. Coffey said derivatives' value derived from the performance of something else. He used inoffensive analogies. "You've purchased a derivative," he said at one point, "just like a bet, you haven't bought the horse."
Coffey gamely provided a portraiture of what he seemed to be suggesting was your average CFD broker: motivated by profit, eager to insulate himself from risk, unsentimental. Some jurors took notes, others gazed into the middle-distance.
Then Michael O'Higgins, counsel for FitzPatrick, stood to cross-examine. Coffey smirked when O'Higgins advanced fanciful hypothetical situations he wanted explained.
O'Higgins, arms folded, one foot on the bench in front, asked facetiously about his "vault", made reference to Trading Places (a film from 1983 starring Eddie Murphy as a street hustler-turned-commodity broker) and suggested that one hypothetical CFD character would regard "the hedge fund people" as "gougers".
"Am I correct in saying all this stuff is done off the radar?" O'Higgins asked, bouncing on his foot. "By and large, yes," Coffey replied. "Whatever the opposite of transparency is, that's it," O'Higgins declared.
Coffey's stint as a witness wrapped up at a quarter past two. Unbeknownst to himself, the fifth witness, Liam McCaffrey, was going to take the case into the following week.
McCaffrey was chief executive of Quinn Group in 2008. In the box, he was neat in appearance and softly spoken, almost rolling the r' in David Drumm. McCaffrey was subdued, but collected, interrupting to clarify a point or lay out a sequence of events.
"We need to go back over matters in a little more detail," Grehan said, and meant it. He diced into the structure of the Quinn Group.
McCaffrey's ease in discussing covenants and profit-to-debt ratios made the whole thing flow. Every now and again, Grehan would interrupt that flow. He used "calamitous" to describe what the discovery of the CFD position by bondholders would have been for the group. "I don't know how calamitous it would have been," McCaffrey was firm.
"Funding all around the world had dried up," Grehan said. "We didn't ask anybody else for funding," responded McCaffrey. Grehan paused and smiled. "Nobody would have given you funding," he said. "Seriously."
FitzPatrick walked into the dock shortly after 10.30am. He sipped from a cup of coffee. The sun shone through dropped blinds, casting a strange light on the room.
McCaffrey was back in the box. He was regarded carefully by scheduled witness Sean Quinn. Quinn sat against the wall, behind the jury, with an elbow propped over the back of his bench. He donned a pair of glasses; thick, black rectangular frames. His record was about to be assessed at some length.
"Mr Quinn was gambling with CFDs", said Grehan. "Personally I think 'gambling' is wrong," McCaffrey said. "Others don't seem to have a problem with using it," Grehan replied.
He later said Quinn had agreed to sell properties "mañana", that he could do what he liked, that he could tell the Financial Regulator he wasn't going to sell shares - until the "St Patrick's Day Massacre", March 17, 2008.
"I'm not sure there was any huge trigger there", said McCaffrey. "You're not," Grehan intoned. "Do you agree," he asked, "that Sean Quinn lost €2.4 million on this spectacular punt with the CFDs?"
"At least," said McCaffrey. "He paid a very high price for investing in that bank."
"If CFDs can be called investing," Grehan replied.
Sean Quinn couldn't be backed forever, said Michael O'Higgins for FitzPatrick. He asked McCaffrey if Quinn's "adventures" were on Bank of Ireland rather than Anglo, that Anglo might not have kept the money running as long as they did.
"It's a reasonable suggestion," said McCaffrey.
Later, O'Higgins quoted from an answer FitzPatrick gave in a garda interview, in which he described McCaffrey as "one of Quinn's colleagues, Liam Something". There was a guffaw from the back of the court.
O'Higgins suggested that anybody looking at Quinn Group from the outside would have been met with a "false and distorted picture", to which McCaffrey disagreed.
O'Higgins listed the installments of hundreds of millions euros to make margin calls that had ''no bearing on a rosy outward picture.
"Anyone who thought it was doing well didn't see the full picture", he said. McCaffrey disagreed.
"Part of the [Morgan Stanley] brief was to come up with some kind of formula to out the toothpaste back into the tube," said O'Higgins. "Would you agree or disagree they were brought in to clean up the mess?" McCaffrey disagreed.
Quinn drummed his fingers on his bench. Minutes later, at four o'clock, he turned to laugh at his own expense with some courts officials. Tomorrow, his turn.