A former investment fund manager of Abbey Life (Ireland) has alleged in a statement of claim put before the High Court that there was a high-performing "Midas Fund" within the company, which had benefited 12 key insurance brokers at the expense of other policy-holders. It was claimed Midas was a high-performing investment due to malpractice.
Mr Graham O'Neill (41), of White Gables, Tomriland, Annamoe, Co Wicklow, yesterday settled his claim for wrongful dismissal and breach of contract against Canada Life Assurance (Ireland) - the company which took over Abbey Life (Ireland) in 1992 - and Lloyds Abbey Life plc, the former owners of Abbey Life.
Mr O'Neill had claimed he was induced to leave his employment in London with Guardian Royal Exchange and was told his job with Abbey Life (Ireland) would be secure and permanent. He claimed that Mr James L. Rennie, the Abbey Life general manager, told him he had a "job for life".
On the strength of the warranties given to him, he came to Ireland with his wife in 1990, bought a house and, in March 1991, was commended for the performance of the investment fund under his management. But in March 1992 he got a letter purporting to make him redundant.
The action was settled yesterday while at hearing before Mr Justice Quirke. The judge was asked to strike out the matter.
The companies denied all of Mr O'Neill's claims. They denied the practices imputed to them were at the expense of other policy-holders, that there was an alleged payment of £98,000 to the Midas Fund in September 1990 or that there were back-dated switches from the assets of policy holders to compensate Midas brokers.
When opening the case, Mr Frank Callanan SC, for Mr O'Neill, said his reputationwas effectively destroyed by his dismissal before he had any opportunity to prove himself satisfactorily. Perhaps more seriously, as a result of malpractice in which Abbey Life engaged and manipulation of performance figures, Mr O'Neill was made to appear as if he had been a poor fund manager during the brief period of his employment with Abbey Life.
Mr Callanan said that one of the malpractices within Abbey Life was "something called the Midas Fund" which was a separate fund for a group of 12 key lump sum insurance brokers. Midas was a broker bond which was offered as a special facility to brokers.
Part of the reason why Abbey Life had to go to such lengths to secure a fund manager was because its overall investment performance had been mediocre, counsel said. There were two exceptions to that - the Midas fund and the pension fund. Midas was a high performing investment fund and, because it was a broker fund, its price was not published by external sources. It was very well known in the market.
When Mr O'Neill joined Abbey Life, he was not given to believe there was anything odd or unusual about the manner in which the high performance of Midas was secured. It allowed brokers to direct investors into it.
Mr Callanan said there would be evidence the very high performance of Midas was procured at the expense of other policyholders and this was a serious malpractice in relation to fund management. It was achieved by switching pricing with the benefit of hindsight as one moved from one fund to another. It effectively penalised other policy holders in favour of Midas brokers. There was effectively a "double hitting" on other policyholders - "back switching" (switching with the benefit of hindsight, switching at the old price) at the policyholders' expense and, secondly, tax considerations. Midas did not invest in external shares but was invested in other Abbey Life funds which it was switched in and out of. What it meant in practice was that switches were carried out in certain situations on a Wednesday at the previous Thursday's prices.
When Mr O'Neill arrived, nobody said anything to him about this. He was most concerned and he effectively tried to stop it. He did that by a variety of means, including the introduction of switching limits. This gave rise to a situation in which Mr O'Neill was viewed with considerable resentment by Midas brokers and where the performance of Midas deteriorated. Mr Callanan said he was not in a position to say if Midas brokers knew what was going on. As far as they were concerned, they had very high performing Midas bonds which ceased to be as high performing because Mr O'Neill was not prepared to condone the malpractices which led to Midas being a high performing investment. The satisfaction which the Midas brokers had with Midas was to do with artificially manipulated performance.
Counsel said there had been communications from the spokesperson for the Midas group complaining about Mr O'Neill's role and it was then decided, quite improperly, to compensate the Midas fund by a payment of £98,000 for falls it had suffered following the Iraqi invasion of Kuwait.
This was monies from managed funds belonging to other investors which were paid into the Midas funds to subsidise Midas brokers and their investors for a fall in the market.
This had been detrimental to Mr O'Neill's reputation and the payment of the £98,000 suggested that Mr O'Neill had done something wrong or in some way mismanaged the investment, counsel said.
Mr Callanan said the pension fund was a second "star performer" of Abbey Life Ireland. The main difference was that the pension funds were non-taxpaying funds, whereas life funds paid capital gains tax.
The pension fund had a very good performance before Mr O'Neill joined and it far outstripped the managed fund. That was a little unusual. On further inquiry by Mr O'Neill, this again turned out to be the result of an artificial manipulation of performance, which was achieved through the booking of trading profits into the pension fund, basically profits which were realised by Abbey Life Ireland on short-term trades in the market.
In 1991, it appeared a pricing error was discovered in relation to the funds, which meant they had been seen to perform better than they had. Mr Callanan said there was nothing wrong with mispricing but it was how the pricing adjustment was made that did damage to Mr O'Neill's reputation. The error had occurred over a number of years and he was told to correct it in one go. Mr Callanan said the proper course of action in relation to the pricing adjustment was for the cost to be absorbed not by policy holders but by shareholders, by Abbey Life or the owners of Abbey Life.
