Former Anglo Irish Bank chief executive David Drumm faced creditors for a fifth and penultimate meeting in his US bankruptcy proceedings on April Fool's Day 2011, six months after filing for bankruptcy.

"And what was going on in the world, if you recollect [on] September 24th of 2008?" asked Ken Leonetti, attorney for what was then still known as Anglo Irish Bank, now Irish Bank Resolution Corporation. "[It was] falling apart," replied Drumm during testimony at the offices of a Boston law firm.

Drumm told the bank’s lawyer that the second half of September 2008 when the Irish banking crisis was at its peak was “just Armageddon” and described how his wife was concerned something might happen to him because he was working 18 hours a day and was “stressed out”.

This moment marked "a sea change in Drumm's handling of his personal and financial affairs", the bank and the court-appointed trustee liquidating Drumm's assets claim in new filings in the Massachusetts bankruptcy court.

From September 22nd, 2008 – eight days before the Government stepped in to guarantee the Irish banks – and over the following 10 weeks, Drumm transferred €641,281 to his wife, which he later failed to disclose in financial statements made when he petitioned for bankruptcy in the US in October 2010.

Sole name
"Mrs Drumm had never held bank accounts in her sole name during the Drumms' marriage until this time, and all cash and property owned by Drumm was held either in his sole name or jointly with his wife," the bank and trustee argue in a brief statement summarising their case against Drumm.

"Yet at this critical juncture for IBRC and Drumm personally, Drumm began actively seeking to shield assets from creditors [namely, IBRC] by shifting them to his wife. Lorraine Drumm began opening bank accounts in her own name – 15 in total in the two years before the petition date – which received these massive cash transfers from Drumm's accounts or joint accounts."

The case against Drumm – and his defence argument – was outlined in a joint memo just filed in the Massachusetts bankruptcy court ahead of the start of the bankruptcy trial on May 21st in Boston.

Liabilities
The trial will determine whether the former Anglo chief executive can be discharged from bankruptcy, which would allow him to walk away from whatever debts remain out of more than €10 million in liabilities, including more than €8.5 million due to IBRC, following liquidation of his assets.

In an outline of their case, the bank and trustee paint a picture of a man who knew in September 2008 that his bank and his shares in that bank, supporting €7.65 million in loans he had borrowed from Anglo, were going down the tubes and chose to make “substantial cash transfers” to this wife.

In a summary of his defence, Drumm’s lawyers maintain that, at this time, the Drumm marriage was “seriously strained” and that Lorraine Drumm was concerned about her dependence on his income, the state of their marriage, her husband’s health and how she could support herself “without a husband”. “Her response to these grave concerns was to insist on ‘money of her own’,” the pre-trial memo states. “To preserve his marriage and give his wife peace of mind, Mr Drumm, for his part, acceded to his wife’s request for her own [resources].”

The cash transfers continued until around the time Drumm left Anglo. A week before he resigned on December 19th, 2008, Drumm's wife opened an account at AIB and he transferred €552,561 into it from a joint account. The plaintiff say this was also not disclosed in his bankruptcy statements.

IBRC and Drumm's trustee, Boston lawyer Kathleen Dwyer, claim he did not disclose transfers of cash, property and jointly borrowed mortgage debt to his wife totalling more than $1.2 million (€864,000).

The mortgage relates to a €250,000 loan borrowed against a house they jointly owned in Skerries, Co Dublin, that the plaintiffs claim was used to create a fictitious loan from wife to husband. This funded an investment in a business that enabled Drumm to qualify for an E-2 investor visa to live in the US.

In 2009, Drumm also sold two cars – a luxury Range Rover SUV for €36,000, and a luxury BMW SUV for €42,000 – the proceeds from which went to Mrs Drumm and to an account they jointly held.

Family home
The plaintiffs also claim that Drumm listed his 50 per cent interest in the $2 million Drumm family home in Wellesley, Massachusetts, held in a trust called Epiphany Nominee Trust, at nil value in his financial statements.

“Don’t freak out when you read this,” wrote his lawyer Stewart Grossman in an email to Drumm [disclosed in the memo], informing him that this asset should be listed as a 50 per cent interest.

In the summary of Drumm’s case, he maintains that a deposit of $831,000 used to buy the Wellesley property was Lorraine’s money. He claims that most transfers occurred outside the year before his bankruptcy, undermining the plaintiffs’ claim that they were carried out to defraud creditors, and that the only transfers during the year were from his US consulting business to his wife to pay creditors.

Drumm argues that any information omitted from his bankruptcy financial disclosures in October 2010, later amended in May 2011, were not designed intentionally to misrepresent the value of certain assets.

“To the extent information was omitted – and Mr Drumm understands now that information was missing – it was the result of honest mistakes by him and his professionals,” his lawyers say.

The bank claims that Drumm’s only defence, which would allow him to be discharged as a bankrupt, is that “he lacked the requisite ill intent” and that he relied on his lawyers for advice.

“[This] cannot save Drumm here because, in short, he was not advised to exclude anything and, as a sophisticated banker, he understood the questions,” the plaintiffs argue.

Judge Frank Bailey will hear evidence from at least nine witnesses, including the Drumms. He will decide whether Drumm can have a fresh financial start or whether he must repay multimillion-euro debts due mostly to his former employer.