Anglo assured investors it had no plans for another NY hotel, court told
Published 24/02/2011 | 05:00
ANGLO Irish Bank said there was no other planned hotel development in an area of New York when it was looking for investment for a similar project in the same district, the Commercial Court heard yesterday.
But it had already financed a hotel refurbishment project a block away in Manhattan.
A brochure about the hotel investment fund given to potential investors by Anglo in September 2006 had stated there "is no planned hotel development in Midtown East", the court heard.
But it was involved in funding the refurbishment of the Crown Plaza Hotel nearby, Martin Hayden SC, for one of the investors, Century Homes founder Gerard McCaughey, said.
Mr Hayden was speaking on the second day of Mr McCaughey's action against Anglo and a related company for $23m (€17m) over alleged fraudulent and/or reckless concealment and/or misrepresentation over the investment fund.
The investment fund was set up to buy and renovate the Beekman Tower and Eastgate Tower Hotels in Manhattan.
Mr Hayden said Timothy Haskin, the US businessman who was Anglo's general partner in the fund, had emailed the bank in August 2006 saying zoning issues related to the hotels should be disclosed to the investors.
Mr Haskin had also asked the bank not to send out the brochure to the investors until all issues were resolved.
When Anglo replied stating their impression was that there was a risk about some issues but it was "manageable", Mr Haskin again wrote saying the issue was one of "disclosure".
However, Anglo had failed to disclose these matters in the brochure, counsel said.
While the brochure did refer to the hotel fund as being a "high-risk" investment and Mr McCaughey accepted it was high risk, his case was that he should have been given information about those risks, particularly those relating to the key issue -- the renovation costs for the hotels, counsel said.
It referred to renovation costs of $28.4m for the two hotels, plus management fees and other costs of $7m. But it did not disclose there was at that point no basis on which Anglo could have advanced realistic renovation costs, it is claimed.
Figures for renovation costs quickly rose and were put at some $103m in 2008, beyond the capacity of the investment fund, the court heard. The hotels have still not been renovated.
Mr McCaughey, with addresses at Sandymount, Dublin, and Manhattan Beach, California, is suing Anglo and the Anglo-owned Delaware-based Mainland Ventures Corporation (MVC) over the "Anglo Irish New York Hotel Fund".
It is regarded as a test action for cases being taken by 23 other investors.
The investors claim the project was arranged by Anglo Irish Private Banking with its New York office. MVC was formed by Anglo to hold its interest in the fund in a "very sophisticated manner" to avoid any regulatory supervision of the brochure, it is alleged.
In late July 2006, Anglo had no investors but had to get $50m equity for the fund by September 2006, it is claimed. The investors were told there would be a return of between 17-20pc, it is alleged.
The claims are denied and the defendants say the action is premature because the fund was set up for a minimum of five years.