was a complex corporate set-up that involved senior executives in the
Quinn Group, companies in four jurisdictions and professional tax
advice from a top accountancy firm.
But the family of businessman Sean Quinn claim they had ‘‘limited appreciation’’ of the structures created in their names to bet on shares in Anglo Irish Bank or the
billions of euro in borrowings to fund the deals. On that basis, they say, Anglo had no right to seize control of the Quinn Group as it seeks repayment of over
In a statement of claim, the wife and five children of Sean Quinn give their version of events leading up to the group being put into receivership in April.
The family are suing Anglo and the receiver, Kieran Wallace of KPMG, seeking a declaration that the charges the bank used to seize the group are
unenforceable, and of no legal effect’’.
They also want a declaration that personal guarantees they gave over almost €500 million in loans from Anglo to six companies set up in Cyprus in their names are
similarly invalid. Arguing that Anglo lent the money for the ‘‘illegal purpose’’ of propping up the bank’s share price, the Quinns are also claiming damages for
negligence and breach
of duty by Anglo and damages for ‘‘intentional and/or negligent
infliction of economic damage’’.
At stake in the case, which is due to be heard early next year, are billions of euro and the control of the Quinn Group. If the Quinn family win, Anglo - now owned by
the taxpayer - will lose any leverage it has in seeking repayment of the money. If the family lose, they face demands for repayment and the prospect of losing
The bet begins
It was September 2005 when Sean Quinn decided to invest in publicly-quoted firms, including Anglo, using contracts for difference (CFDs).These financial instruments
allow investors to bet
on the price of shares without owning the shares - but if the bet
goes the wrong way, the investor has to cover the difference.
Senior executives in the Quinn Group ‘‘understood the need to maximise tax efficiencies in connection with these investments’’ and brought in
PricewaterhouseCoopers to provide tax advice.
The outcome was the establishment of a company in Madeira, BazzelyV Consultadoria Economica E Participacoes, Sociedade Unipessoal LDA, or Bazzely for short.
PWC advised that, in order ‘‘to achieve maximum tax efficiencies’’, the company should be owned by the five Quinn children, Ciara, Colette, Brenda, Aoife and Sean
junior. But while they owned Bazzely, they claim they were ‘‘unaware of the details of the investments being made and took no part in the decision-making process
or in the actual making of
Indeed, although they owned one of the biggest and most complex businesses in the country, none of the Quinn children knew how to go about buying shares ‘‘on the
or otherwise’’, the legal document says.
‘‘More particularly, none of the plaintiffs were familiar with, or were advised on, the mechanisms use for purchasing positions by the use of CFDs."
In October 2005, Bazzely did its first deals, using CFDs to take positions in Anglo, AIB, Bank of Ireland, Ryanair, Paddy Power and Tullow Oil.
It also invested in international firms, buying into Royal Bank of Scotland, BP, chemicals firm BASF, financial services firm BBVA, Deutsche Telecom, Nestlé, and
pharma firm Sanofi Aventis. By early 2006, Bazzely was doing CFD deals through four brokers - Davy stockbrokers, Bear Stearns, IG Index and Credit Suisse - and
using any profits it made
to fund more CFD investments.
But by late 2006, the firm started disposing of its non-Anglo stakes and using the profits ‘‘to support the continued funding of the overall Anglo CFD position’’.
Quinn was clearly impressed by what he saw at Anglo, which had grown dramatically. In Quinn Group, which was also experiencing sharp growth, he had ready
access to hundreds of mill
ions of euro in funds.
The losses mount
From October 2005 to September 2007, the money for the CFD investments came through loans from companies in the Quinn Group and companies owned by the
Quinn children. By the second half of 2007, however, Anglo’s share price was in decline and Bazzely was facing regular demands to fund the loss-making CFD
Up until then, Quinn’s stake-building was still a secret, unknown even to Anglo’s management. But at a meeting at the Ardboyne Hotel in Navan around September
11, 2007, Quinn and Quinn Group boss Liam McCaffrey revealed to Anglo chief executive David Drumm and chairman Sean FitzPatrick that he owned 24 per cent of
the bank through CFDs.
In fact, the Quinn children, through Bazzely, owned the Anglo stake, although they claim they knew nothing about it. But the relationship between Quinn and Anglo
was about to get more complex and, by the Quinn family’s own admission, the circle of people who knew what was going on widened to include executives in Quinn
Insurance and Anglo.
From September 2007 onwards, Bazzely ‘‘had limited access to funding’’ and, through necessity, the relationship with Anglo deepened. The Quinn children claim that
Anglo took ‘‘effective control and management’’ of the CFD position from then on, ‘‘for the dominant and/or sole purpose of supporting and maintaining its own share
In practice, that meant that the group finance director of Quinn Group had regular dealings with Anglo executives to establish how much was needed to fund the loss
-making CFDs. New Anglo loans of hundreds of millions of euro were negotiated to cover the shortfalls, with the money being advanced to Quinn family companies
under the guise of
From late 2007, a dedicated individual at Quinn Insurance was giving instructions to Anglo on behalf of Bazzely. While the Quinn family argue that Anglo managed the
relationship and kept it secret, it is clear from their legal
document that it was also in the interests of Sean Quinn to keep the
dealings under wraps.
In early December 2007, Sean Quinn and Drumm had a phone conversation in which they discussed ‘‘the difficulties facing the Quinn Group, given the continued fall in
Anglo share price and the ongoing demand to meet margin calls on
CFDs’’. Quinn indicated to Drumm that €400 million was needed
to resolve the issue.
The new loan would be used to repay loans from Quinn Group companies that were used to buy CFDs, and to pay margin calls.
The move would ensure that the 2007 accounts for the Quinn Group ‘‘did not draw attention to the extent of the Quinn Group’s funding of the CFD position’’. Anglo
€500 million at the time, ‘‘in the false guise of a gearing-up
of the property portfolio’’ of a group company, the Quinn family
The Quinn children claim they were visited by an ‘‘unnamed representative of Anglo’’ around this time, with two boxes of documents to be signed.
They did so, but argue that Anglo failed in its duty of care to them because it did not seek to meet them personally or explain the nature of the documents they were
signing. As the Quinn bet on Anglo shares continued into 2008, the children signed more documents, but ‘‘they did so without any autonomy or appreciation as to
According to them, ‘‘the usual practice was only to receive and sign the signature page’’ which would be returned to Quinn Group staff and then to Anglo.
In March 2008, as Anglo’s shares fell during the so-called ‘St Patrick’s Day massacre’, Anglo loaned another €350 million to the Quinns in four transactions
. Highlighting the urgency of the
situation, one loan was dealt with by a Quinn company in Britain
because St Patrick’s Day was a bank holiday in Ireland.
The loans were all to meet CFD margin calls, but were described ‘‘completely falsely’’ as being for developments in Russia and India, the Quinns say.
The clean-up starts
Despite a continuing collapse in Anglo’s share price, and the pressure the CFD payments were putting on the Quinn Group, Sean Quinn continued to buy Anglo CFDs
. But from March or April 2008, the Quinns came under pressure from Anglo to reduce the CFD exposure. On Easter Monday, 2008, FitzPatrick and Drumm met
Quinn and McCaffrey on the issue.
A subsequent meeting was also attended by Colin Morgan, the then general manager of Quinn Insurance. Anglo said it was arranging a share placing, through Morgan
Stanley, to reduce the Quinn position. Yet Quinn did not want to sell out, even though Anglo’s shares had fallen from more than €17.50 in June 2007 to €8.50 at
the end of March 2008. ‘‘Bazzely was an unwilling seller, yet it was pressurised to do so by or on behalf of Anglo," the children say, complaining of ‘‘pressure
and control being exerted by
The share placing did not materialise because of lack of interest from the market, but the matter came to a head again in June of that year as the Quinn Group
faced ‘‘financial pressure’’ from banks and bondholders that had loaned money for the development of the group. In the absence of additional funding,
the group ‘‘would be compelled to make a detailed disclosure of
the wider investment holdings of the Quinn family’’.
After discussions between Quinn Group management and Anglo executives, ‘‘it was agreed by them that it would be mutually detrimental if this occurred’’.
Anglo loaned another €200 million to a Quinn company, allowing it to repay money to the Quinn Group and avoid disclosing the CFD situation. As part of that loan
agreement, Anglo demanded that the Quinn children give their shares in the Quinn Group as security. It was that move that allowed Anglo to appoint the share
receiver earlier this year.
Again, the Quinn children claim they were not contacted by Anglo and did not have legal advice.
The end of the affair
Seeking another way to unravel Quinn’s stake, Anglo executives came up with the ‘golden circle’ arrangement. Quinn CFDs equating to 10 per cent of the bank would
be placed with ten long-standing Anglo
customers, while Patricia Quinn and her five children would convert
the remaining CFDs into a 15 per cent stake in the bank.
The deal was done between July 14 and 21, 2008. The Quinn part of the deal required around €480 million in funding, but the Quinns say they were not aware of the
purchase of the shares.
In October that year, the deal was refinanced and restructured, with six Cypriot companies formed to hold the shares on behalf of the Quinns.
Patricia Quinn guaranteed the liabilities of a Cypriot company with more than €102 million in borrowings, while each of the children guaranteed the liabilities of
a company with €77.3
million in borrowings. It is those guarantees that are in dispute in
the legal action between the Quinns and Anglo.
In their statement, the Quinns claim that Anglo ‘‘supported and encouraged’’ the CFD investment in a bid to boost its share price. They say the bank paid ‘‘no heed to
the requirements of corporate governance or the interests of its shareholders’’, citing the hiding of loans to executives and a back-to-back deposit arrangement with
Irish Life & Permanent as examples. As a result, they allege all of Anglo’s dealings with Bazzely were ‘‘tainted by illegality’’ and constituted illegal ‘‘market
manipulation’’. In that case, they argue, the charges and guarantees they signed should not have been enforced. The Quinns claim they never knew they could
face ‘‘significant personal financial liabilities’’ from the CFD affair. ‘‘If they had been made aware of the potentially dire personal circumstances in which they could
have found (and do find) themselves as a consequence of executing the documentation, they would not have signed it," the Quinn claim says. It will be up to
the Commercial Court to consider the merits of that argument when it comes to court next year.
CONVICTED drink-driver Jim Mansfield Jr claims he did not understand the details of a multi-million euro development loan provided to him by AIB.