Davy made a 'secret profit', court told
WATERFORD Credit Union (WCU) claims a stockbroking firm made a secret profit on €5.3m it gave to the firm to invest.
WCU is suing J & E Davy over the investment which was put into an AIB Step-up Perpetual bond, a Barclays Bank Step-up Perpetual bond, a Jyske Bank bond and a Nordea Bank AB bond, between January 2005 and August 2006.
WCU's High Court action followed an investigation by the Irish Stock Exchange (ISE), which in 2009 found breaches of business rules by Davy stockbrokers.
The ISE stated publicly that the investigation related to the sale of a number of perpetual Constant Maturity Swap (CMS) bonds to some of its credit union clients.
The ISE found the breaches related to the completeness of disclosure of certain information to the credit unions about the bonds and in relation to ensuring the bonds were in full compliance with the Trustee (Authorised Investment) Order, 1998.
As a result, Davy commenced a process with the credit unions involved in which most of the credit unions accepted a negotiated settlement to deal with loss of value of the bonds.
It cost Davy more than €35m, the ISE said in its statement following the investigation.
WCU issued proceedings in 2011 claiming the bonds were not authorised investments.
It also claimed Davy did not comply with its obligations to furnish WCU with all necessary information to know the characteristics and risks associated with the bonds.
It claimed Davy failed to disclose it was acting as principal in the sale of the bonds and was thus making an undisclosed profit. WCU says it is entitled to an indemnity or damages from Davy for the €5.3m invested.
Davy denies it acted as a principal in the sale of the bonds or that it made a profit from the sales.
It denies it was engaged as an investment advisor by WCU or that the bonds fell within the terms of the 1998 authorised investments order. Davy denies failing to comply with any obligations imposed on it by legislation governing the stock exchange.
The case was before the High Court following applications from both sides for discovery of documents in advance of the hearing.
Mr Justice David Keane ruled Davy should provide a numbers of categories of documents to WCU, and ordered WCU to discover documents including evidence of the alleged retention of Davy as its investment advisor.