It wasn't the decision by a US bankruptcy judge to leave former Anglo Irish Bank chief executive David Drumm on the hook for €10.5 million in debts that was startling, but the judge's damning findings on Drumm's conduct.

Anyone who sat through his six-day trial in Boston last summer could see that Drumm was struggling to defend the case made by his former bank, now the State-owned and liquidated Irish Bank Resolution Corporation, to stop him walking away debt-free with a clean financial beginning.

After seven months of deliberations, bankruptcy judge Frank Bailey delivered devastating conclusions for Drumm in his rejection of his bankruptcy claim.

The judge peppered his 122-page judgment – released late on Tuesday – with withering findings of the former banker's attempts to pull the wool over the eyes of his creditors about well over €1 million in asset transfers to his wife, Lorraine Drumm.

He also criticised Drumm’s failure to fully disclose to the court all information about his finances.

In denying him a valuable discharge from his debts, the judge landed some heavy blows: Drumm was “not remotely credible”, his conduct was “knowing and fraudulent”, and his statements to the Boston bankruptcy court were “replete with knowingly false statements, failures to disclose, efforts to misdirect and outright lies”.

“It was brutal,” said one legal source who is familiar with the case.

On most of his excuses for failing to disclose hundreds of thousands of euro and dollars worth of cash and property transfers to his wife from September 2008 – when Drumm’s own fortune, tied up with the fate of Anglo, was fast disappearing – the judge said he simply didn’t believe him.

Innocent mistakes

The former Anglo chief had tried to blame innocent mistakes by him or his advisers as the reason he failed to list the transfers to his wife in sworn court statements filed when he petitioned for bankruptcy in October 2010.

In part of his ruling, the judge teased out why Drumm failed to include what he should have in those official records.

The judge found that before and during the trial, Drumm answered this question five times with a total of four different answers.

“The overall sense is of a man casting about for any plausible answer but the truth,” the judge concluded.

Drumm made much during his trial at his shock and “state of panic” when he learned at a meeting of creditors on April 1st, 2011 – five months after he filed those purposely woolly financial statements – that he should have included about €1 million in cash transfers to his wife.

Affected surprise

The judge didn’t buy it: Drumm’s “expressions of surprise” in emails to his advisers after the meeting were “not genuine but affected, for show, when Drumm realised that he would have to explain his omissions”.

The characterisation of a $250,000 transfer from Lorraine Drumm to David Drumm in 2009 as a “loan” to help him secure an investor visa to live and work in the US was rejected by the judge.

The judge described the “loan” as “a fiction” and “an accounting treatment invented after the fact”.

The judge noted another exchange with an adviser, in which Drumm asked that the make of his Mercedes vehicles be removed from filings to be made public so that the “media can go fish”. This, he said, illustrated that Drumm wasn’t a “mere passive and obedient receiver of advice here”.

“Drumm showed great concern about details, appearances and minimising the richness of his profile,” concluded the judge.

He rejected the “so stupid” defence: Drumm claimed no one would be so stupid as to attempt what he was accused of, knowing that he would forfeit a chance to escape multimillion-euro debts.

To consider his argument, the judge delved deep into Drumm’s character. He described him as a “quick thinker, adept in testimony intended to deflect, misdirect, avoid, fabricate”.

That Drumm misunderstood what he was supposed to have disclosed as to some transfers and “simply forgot several others” was “exceedingly implausible,” the judge said.

“I have no trouble finding him capable of the kind of stupidity of which he stands accused,” said the judge.

On the reasons for the transfers, the judge questioned Lorraine Drumm’s request for money – “like a million euro,” she told the court she sought from her husband – on the basis that she was concerned about their severely strained marriage and how the banking crisis was putting stress on his health. She wanted money for herself and her children.

Motivating factors

“As for Mrs Drumm, I do not believe that she was motivated by a need for protection from possible alienation from Drumm any more than she was motivated by a fear of Drumm’s creditors,” said the judge.

Both were “motivated first and foremost” by a desire to shelter their assets from seizure by Drumm’s creditors, especially Anglo, he said.

To deny Drumm a discharge, the court was only required to find a single count out of 52 objections presented by IBRC. In the end, the judge found 30 counts, finding “a wide preponderance of evidence” that he knowingly and fraudulently omitted asset transfers.

Meticulous

“Drumm is intelligent, very sophisticated in the kinds of accounting and financial issues he was addressing in [his statements], meticulous, involved in the details of his bankruptcy filing, controlling, not one who would simply turn these matters over to counsel to handle for him,” he said.

“Over a period of two years, while insolvent and facing legal action on $11 million of debt by IBRC, he had carefully transferred considerable value in cash and real estate to Mrs Drumm, to keep it from IBRC,” the judge said.

The court allows Drumm 14 days to appeal the judgment. One legal source questioned the prospect of this happening, given how “bullet-proof” the judge’s detailed ruling was, seven months in the writing.

Drumm faces financial ruin. However, given the judge’s findings, he has only himself to blame for failing – as the former banker himself described the US bankruptcy process – to “get naked in public” by disclosing everything about his finances to the court.