The transactions might be familiar but the detailed description of the allegedly criminal role played by former Anglo Irish Bank chief executive David Drumm as their orchestrator is new. Much has been said and written on Drumm's role in funding arrangements dating back to the 2008 banking crisis.
The transactions at the centre of the new US criminal complaint against him had two purposes in mind: propping up Anglo’s share price when falling prices were a sign of weakness and making the bank look better than it was with purportedly stronger deposits.
For the first time, the criminal case against Drumm over his role has been laid out in stark terms in a 12-page court filing. In the new district court case, US prosecutors in Boston reveal the 33 offences they allege Drumm has committed and are grounds for him to be extradited to Ireland.
The charges relate to two series of transactions: the unwinding of businessman Seán Quinn’s investment through “contracts for difference” (CFDs) – a bet on the direction a share price will go in – and the back-to-back deposits with Irish Life & Permanent that flattered Anglo’s balance sheet as the bank edged towards collapse.
All but two of the 33 charges relate to Drumm’s efforts to unwind Quinn’s CFD investment. This is not surprising, as this is the only transaction from the crisis that has led to a successful prosecution.
Disclosure failure
In addition to 16 counts of providing unlawful financial assistance by a company – the Irish company law offence on which two former colleagues were convicted in Dublin last year – Drumm is accused of one count of failing to disclose information in an Anglo financial interim management report in breach of a EU transparency directive, seven counts of forgery and seven counts of falsifying documents.
In making the case to US magistrate Judge Donald Cabell for Drumm's arrest with a view to extradition, assistant US attorney Amy Harman Burkart says the charges stem from a complaint to the Garda from the Financial Regulator in 2009 and the subsequent investigation.
As Anglo’s share price fell in 2007, Drumm instructed an employee to lend Quinn €140 million to cover losses on his CFD position, followed by hundreds of millions of euro more up to June 2008. Drumm is accused of breaking the EU directive by failing to disclose Quinn’s CFD investment in Anglo’s half-yearly report on May 7th, 2008 as it constituted a “principal risk or uncertainty.” The non-disclosure was Drumm’s responsibility, Burkart argues, because he signed the report’s responsibility statement.
The complaint says Anglo loaned Quinn’s family members about €175 million to buy a 15 per cent stake, “despite the bank’s awareness of Quinn’s family’s weak financial position.”
“The lending was not done in the ordinary course of the bank’s business as it was motivated by the bank’s attempt to unwind Quinn’s CFD position and to stabilise its share price,” Burkart alleges. She claims 10 customers were “specially chosen by Drumm and other bank officers” to buy shares in the bank with loans from the bank and advanced €45 million to each of them “as part of the arrangement orchestrated by Drumm to unwind Quinn’s CFD position.”
The complaint says the loan facility letters were sent to the so-called “Maple 10” customers and the Quinn family before being considered by the bank’s credit committee. The letters were “inaccurate,” the legal filing says, as they portrayed the loans were intended for “a multi-currency share dealing facility” when they were in fact intended solely to buy Anglo shares.
The 48-year-old is accused of forgery and falsification of documents on the basis that the loan facility letters to seven of the Maple 10 were allegedly changed in October 2008 and backdated to July 2008 “to give the false impression of contemporaneity.”
Favourable terms
The changes gave “more favourable terms to the borrower and less favourable terms to Anglo,” the complaint says. Drumm was “responsible for creating [the letters],” the case states, and, as an officer of Anglo, “privy to the falsification of documents (the loan facility letters) which affected the financial affairs of Anglo.”
He is also accused of “conspiracy to defraud” and “false accounting” over his role in instructing Anglo employees to seek back-to-back deposits – €750 million in March 2008 and €7.2 billion in September 2008 – from a non-banking subsidiary of Irish Life & Permanent. The circular deposits, which originated with Anglo, were presented as corporate customer deposits – viewed as a stronger form of funding – in the bank’s financial statements, the complaint states.
The legal complaint, filed on October 5th, is accompanied by a warrant for David Kenneth Drumm "so that the fugitive may be arrested and brought before this court 'to the end that the evidence of criminality may be heard and considered.'" Drumm was arrested five days later.
