ACCBank marketed borrow-to-invest tracker bonds as “low risk” to hundreds of Irish customers despite being aware of concerns by the financial regulator, actuaries and within the bank itself about such products, the Commercial Court has been told.
While ACC was publicly saying in late 2003 that borrowing to invest in products linked to stock market performance was “not a good thing”, John Gordon SC said, within three months it was “privately peddling it for all it was worth”, the bank’s “own greed took over” and it “missold” the bonds.
ACC staff were told to “flatter” customers they regarded as being of high net worth and say they were being offered “exclusive entry to a private club”, he said. Investors were told there was “nothing to worry about”, this was “a fantastic product” and the bank would give them the money to make the investment. “Sales boomed and the rule book went out the window.”
Mr Gordon was opening proceedings before Mr Justice John Cooke seen as a test case for more than 400 investors who bought Solidworld bonds in 2003 and 2004 but who allegedly failed to secure returns on the investments.
Popular schemes
On consent of both sides, the case was adjourned until this morning following indications that some talks were under way between lawyers.
The bond schemes were very popular among Irish investors in 2003 and 2004 with an estimated €650 million worth of geared tracker bonds sold to more than 1,000 people who borrowed an average of €200,000 from ACC to invest in the bonds.
Most investors took out loans with ACC to buy the bonds and are claiming losses arising from interest repayments on those loans.
Mr Gordon, representing four investors in Solidworld5 bonds, yesterday said that ACC made a policy decision in late 2003-2004 to sell Solidworld5 bonds to high net worth individuals here for an initial minimum €250,000 investment, which was later lowered to €100,000.
Some 96 per cent of €321 million ultimately invested in Solidworld5 bonds was funded by loans from ACC itself to the investors. Most of them had a low-risk investment appetite and their complaint was that ACC missold the bonds as low risk when they were high risk because of the combination of the bond with borrowing to invest, he said.
An ACC expert had said that if money was borrowed to invest, there was a 32 per cent chance of losing all that was paid and only 26 per cent chance of ever making any meaningful gain, he said.
If ACC had advised potential investors of that, “chance was no one would ever have invested”.The Solidworld5 bonds were “a massive success” as far as ACC was concerned but “not, unfortunately, for the investors”. They were primarily aimed at the “borrow-to-invest market”, people who did not have cash but had repayment capacity.
