ANGLO IRISH Bank told investors who invested $50 million (€36.4 million) in the bank’s New York hotels investment fund there was no other planned hotel development in the relevant area of Manhattan, although Anglo had provided funds to refurbish another hotel in the area, the Commercial Court was told yesterday.

The “black brochure” about the hotel investment fund given to potential investors by Anglo in September 2006 had stated there “is no planned hotel development in Midtown East”, but Anglo was involved in funding the refurbishment of the Crown Plaza Hotel nearby, Martin Hayden SC, for investor Gerard McCaughey said.

There were other hotels in the area, he added.

He said Timothy Haskin, the US businessman who was Anglo’s general partner in the fund, had e-mailed the bank in August 2006 saying zoning issues related to the hotels should be disclosed to the investors. Mr Haskin had asked the bank not to send out the brochure to the investors until all issues were resolved.

When Anglo, its servants or agents, replied stating their impression was there was a risk about some issues but it was “manageable”, Mr Haskin again wrote, saying the issue was one of “disclosure”. However, Anglo had failed to disclose these matters in the brochure, Mr Hayden said.

While the brochure did refer to the hotel fund as being a “high-risk” investment and Mr McCaughey accepted it was high risk, his case was he should have been given information about those risks, particularly the renovation costs for the hotels, Mr Hayden added.

The brochure referred to renovation costs of $28.4 million for the two hotels, plus management fees and other costs of $7 million, but did not disclose there was at that point no basis on which Anglo could have advanced realistic renovation costs, it is claimed.

The investors did not know the renovation budget was still a live issue while Anglo knew any major rise in the renovation costs would diminish the prospect of a return on the investment. Figures for renovation costs rose and were put at $103 million in 2008, beyond the capacity of the investment fund, the court heard. The hotels have still not been renovated.

Yesterday was the second day of the action by Mr McCaughey, Sandymount, Dublin, and Manhattan Beach, California, against Anglo and the Anglo-owned Delaware-based Mainland Ventures Corporation (MVC) over the Anglo Irish New York Hotel Fund, a private equity investment in which 50 people invested an average $1 million each in 2006.

The action is regarded as a test action for cases by 23 other investors.

Both defendants are being sued for $23 million over alleged fraudulent and/or reckless concealment and/or misrepresentation concerning the fund, set up to purchase and renovate the Beekman Tower Hotel and Eastgate Tower Hotel.

The investors claim the hotel investment project was arranged by Anglo Irish Private Banking with its New York office. MVC was formed by Anglo to hold its interest in the fund in a “very sophisticated manner” to avoid any regulatory supervision of the brochure, it is alleged.

The defendants deny the claims. They plead the action is premature and misconceived as the fund brochure provided for a minimum target investment period of five years. Without prejudice to their various pleas, they say they disclosed all facts believed by them to be material at the time the brochure was given to the investors.