Before David Drumm, the former chief executive of Anglo Irish Bank, faced his creditors for a third time in his US bankruptcy proceedings on January 5th, 2011, he emailed his lawyer.
Drumm asked Stewart Grossman, his Boston bankruptcy lawyer, whether he had "put any thought into where the landmines are buried".
"Lorraine transfers are the only concerns of mine," Grossman replied, referring to money and property Drumm passed to his wife over a two-year period.
The lawyer was right to be worried. State-owned Irish Bank Resolution Corporation, formerly Anglo, and the bankruptcy trustee, a court-appointed officer, liquidating Drumm's estate want to stop the former banker being discharged from bankruptcy in the US because of those transfers. The matter will be decided at a trial scheduled to last five days in Boston, starting next Wednesday.
If they win, a Massachusetts judge could force the 47-year-old Dubliner to hand over a share of future income for the rest of his career or until debts of €10.5 million to his creditors, including €8.5 million to IBRC, are repaid, or to reverse more than €800,000 in transfers.
It will be some time before there is a decision – the judge indicated this week that it might be later this summer before there is a ruling.
“David Drumm, the debtor, is a highly sophisticated banking executive who, when his financial fortunes took a decided turn for the worse, undertook a series of deliberate acts to move as much of his assets as he could into his wife’s name and to then conceal those efforts,” the bank and trustee argue.
In a briefing document submitted on Monday to the Boston court where Mr Drumm filed for bankruptcy in 2010, the bank and trustee allege that his intent was to “hide or shield” as much money and property as possible from his creditors, primarily from the bank he ran for almost four years.
“Drumm has played fast and loose with the bankruptcy process, his dealings with IBRC and the trustee, his disclosure obligations and, most notably, the truth,” they argued in a trial brief.
The bank and trustee, the plaintiffs in Drumm's bankruptcy trial, say that, between September and December 2008 Drumm transferred more than €830,000 in cash from accounts in his sole name or accounts held jointly with Lorraine Drumm to accounts held in her sole name "sometimes on the very same day that Drumm received a salary of bonus payment from the bank".
The sums included €250,000 in cash transferred by Drumm to his wife just four days before he resigned as chief executive of Anglo on December 19th, 2008. In total, the plaintiffs say that in the two years before Drumm filed for bankruptcy, Lorraine – who did not have an account in her name only since marrying Drumm in 1991 – opened 15 bank accounts in her sole name at eight banks.
Drumm admitted to creditors at a meeting in Boston on April 1st, 2011 that September 2008 was “Armageddon” and the world was “falling apart” as the crescendo of the banking crisis grew.
The bank says that as Anglo was facing almost financial ruin, along with Drumm’s personal fortune, which was tied up in the bank’s shares, he started transferring cash and property to Lorraine.
Drumm argues that, in the autumn of 2008, Lorraine was concerned about the state of their “seriously strained” marriage, his health because he was working long hours at Anglo and she wanted “money of her own” to support her and her children in case something happened to him, his lawyers claim.
“To preserve his marriage and give his wife peace of mind, Mr Drumm acceded to his wife’s request for money of her own,” they argue in a pre-trial statement filed in court on May 2nd.
The bank and trustee take a more malign view of the husband-to-wife transfers. “In the guise of giving his wife some money of her own as it was clear he would soon be chased by his creditors, Drumm cleaned himself out of all cash,” they argue in the briefing document submitted on Monday.
In his defence, Drumm argues that most of the transfers fell outside the one-year time limit in which any fraud claim can be made against him and those that were inside that period benefited his creditors.
Any statements containing false information or incorrect values on certain assets filed in his bankruptcy proceedings was not intentional and were “honest mistakes”, Drumm has claimed.
IBRC says Drumm knew he had to disclose everything when he filed for bankruptcy on October 14th, 2010. Two days before he submitted his “Schedules” and “Statement of Financial Affairs” bankruptcy filings – showing all of his assets and liabilities, and income and expenditure – his lawyer told him that “[We] all have to always be careful about what we say and the documents we turn over.” Drumm replied: “Good advice – never pays to be co-operative right!” (He later described this as a joke.)
The bank and trustee portray Drumm as a man attempting to pull the wool over the eyes of creditors from the height of the financial crisis and throughout his bankruptcy proceedings.
Documents released to the bank show that, two weeks before filing for bankruptcy in the US, Drumm was attempting to reach a settlement with the bank ahead of a trial starting in the High Court in Dublin on October 26th, 2010. He frantically liaised with his Irish and American lawyers as he prepared a statement of his finances, which had to be sent to the bank by 5pm on October 1st, 2010.
Several draft statements sent back and forth to his lawyers showed a negative net worth of $4.3 million, $2.9 million and then $3.2 million.
Drumm's Irish counsel advised him that a negative net worth could allow IBRC to petition the High Court in Dublin to have him declared a bankrupt in Ireland.
Drumm called this prospect “a disaster”. The statement was revised to include Drumm’s counterclaim for unpaid salary and benefits against Anglo giving him a positive net worth of $340,203.
“Problem solved,” Drumm told his lawyers. This statement was filed in court in Ireland and with the bank.
Six weeks after being questioned about transfers at a fifth creditors’ meeting, Drumm filed amended financial statements, listing 14 transactions totalling $765,429 that he did not include in his original statements seven months earlier. He also added the transfer of his 50 per cent interest in a house at Cape Cod, north of Boston, to his wife in 2008 and its sale for $2.365 million in September 2009.
“Only after he was caught red-handed did Drumm file amended [statements],” the bank and trustee claim in this week’s trial brief.
Now, three and a half years since filing for bankruptcy, Drumm is about to face trial.
To assist his determination on whether Drumm should have a fresh financial start, Judge Frank Bailey asked the plaintiffs at a final pre-trial hearing on Monday to list all claims of Drumm's concealed assets, cash and property transfers and misrepresentations during his bankruptcy proceedings to provide a "who, what, where, when" on each alleged fraud.
Lawyers for the plaintiffs have until late afternoon Monday to submit this detailed, itemised list setting out in each alleged instance why Drumm should be denied a discharge from bankruptcy. Then, on Wednesday, the trial will begin. After brief opening statements, Drumm will be the first witness.
Appearing for the first time in public in these US legal proceedings in more than three years, it will also be his first appearance in court since his two former colleagues at Anglo, Willie McAteer and Pat Whelan, were convicted by a jury in a Dublin criminal court for an illegal share support scheme in July 2008, of which the judge in the case said that Drumm was the "instigator and author".
In this US bankruptcy case, the former Anglo alleges that Drumm, whom it describes as “a serially dishonest debtor”, was the author of a different scheme – a plan to defraud his creditors.
Next week the former Anglo chief must fight those accusations from a witness box in a Boston bankruptcy court.
