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Sunday 22 January 2017

Custom House secret report 'shows possible criminal acts'

COURTs

Published 29/10/2011 | 05:00

A HIGH Court judge has said he ordered the winding up of failed investment firm Custom House Capital (CHC) because of "systemic and pervasive" misconduct of the company, discovered by two Central Bank inspectors.

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Mr Justice Gerard Hogan ordered that the Central Bank inspectors' report could be published yesterday, but a separate secret report has not been released because it contains direct evidence about possible criminal acts.

Instead the second confidential report has been referred to the Director of Public Prosecutions and other statutory bodies.

Mr Justice Hogan said the confidential report was not published for "manifestly obvious" reasons. It was in the public interest that such conduct "should not be tolerated for an instant", he said.

Liquidation was also in the interests of creditors as a whole. If it had not been ordered, then the affairs of CHC -- which has some 1,400 clients -- would have collapsed in "a disorderly and chaotic fashion".

Mr Justice Hogan said the contents of the inspectors' report on CHC would in ordinary circumstances be regarded as "deeply shocking".

However, he added, "sadly our capacity to be shocked by nefarious conduct in the financial world has been diluted by incredible and remarkable events over the last three years both at home and abroad".

Findings

It was telling that lawyers for CHC had expressly stated the company did not dispute the inspectors' findings and conclusions, he added.

The judge made the comments in a judgment yesterday giving his reasons for his decision last week to appoint a liquidator to CHC after the inspectors reported "systemic and deliberate misuse" of more than €56m of client funds.

A further €10.4m is owed to clients on an investment bond.

In his judgment, Judge Hogan said CHC had begun its "long slide towards perfidy and oblivion" from the time of the credit crunch in 2007 when the firm found itself overcommitted to European property deals with prospective investors declining to invest.

By the time the winding up was ordered, CHC was exhibiting some of the classic characteristics of "a full-blown Ponzi scheme" with accounts of customers being raided to cover cash deficits elsewhere to give the impression CHC was solvent.

It was plain from the inspectors' report, on any view, that CHC was insolvent with a misuse of client funds estimated at about €66m, he said.

The issue before him last week was whether the court should immediately appoint a liquidator, with some investors urging the court not to take that step and to defer the matter for two weeks to allow investors to read the report.

The circumstances were so serious that immediate action was called for, he said.

The inspectors had sought the winding up of the firm, and as senior officials in the Central Bank their views weighed heavily with the court.

A second factor was that CHC was not of systemic importance to the Irish financial system, while a third factor was that winding up was in the interests of creditors as a whole.

The Central Bank had sought the appointment of inspectors Noel Thompson and George Treacy last July to conduct an investigation into the firm.

After judgment was given, David Barniville, for the Central Bank, told the judge the bank had decided not to seek the costs of the legal proceedings so as not to further dilute the funds available to the CHC investors.

Irish Independent

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