Insider dealing case ripe for a twist
The High Court will this week decide if a report into the DCC/Fyffes case will be published, writes Louise McBride
Published 17/01/2010 | 05:00
IT'S about eight years since the DCC/Fyffes insider dealer saga unfurled -- but yet more twist and turns will be added to this complex case this week.
The High Court will decide on Tuesday whether or not a report into the case by its inspector, Bill Shipsey, will be published. Those involved in the €106m share deals at the centre of this saga could find themselves behind bars after -- and if -- the report is published, according to John Devitt, chief executive of Transparency International Ireland.
"Insider dealing carries a maximum 10-year prison term and a sanction of around €250,000 in fines," said Devitt. "Still, even if the inspector's report confirmed that DCC broke the law, I would be surprised if the Director of Public Prosecutions pressed criminal charges against anyone involved in this case. Ireland has a very poor record in prosecuting white-collar crime."
Disqualification therefore could be the most that those involved in the €106m share deals -- which took place in February 2000 -- have to fear.
Those involved in a transaction in summer 1995 are also likely to be wary of Shipsey's findings as the report is also expected to examine this transaction. Five members of the DCC board in 1995 were also on the board in February 2000, according to a High Court judgement published in July 2008.
These directors were Jim Flavin, the founder and former chief executive of DCC; Alex Spain, a current director of fund management company Meritorial, and a former KPMG boss; Tony Barry, a current director of real estate company CRC Property Holdings, and a former CRH chairman and past president of IBEC; Morgan Crowe, who previously worked with the Boeing Company in Seattle; and Paddy Gallagher, a current director of Loreto Education Trust who previously worked with Aer Lingus.
The controversial deals of February 2000 involved the sale by DCC and two of its subsidiaries -- S&L Investments and Lotus Green -- of 31.2m shares in the fruit importer, Fyffes, for €106m.
About two years after the deal, Fyffes took a High Court action against Flavin, the founder and former executive chairman of DCC, S&L and Lotus Green. Fyffes claimed Mr Flavin had confidential information that the fruit group's profits were about to fall before DCC sold its shares in 2000.
Mr Flavin, who had previously been on the board of Fyffes, resigned from the board in February 2000, just before DCC sold a major tranche of Fyffes shares.
Although a High Court judge ruled in December 2005 that Mr Flavin did not have price-sensitive information at the time DCC sold its Fyffes shares, in July 2007 the Supreme Court overturned this ruling. As no moves were made by either court to disqualify anyone involved with the deal, the Director of Corporate Enforcement, Paul Appleby, sought a High Court inspection in May 2008. Flavin resigned as executive chairman of DCC shortly after this and in July 2008, the High Court appointed Shipsey to investigate the case.
"Shipsey's report will either give Appleby enough evidence to move to disqualify directors or to further investigate the case," said Peter Oakes, managing director of Compliance Ireland and a previous enforcement lawyer and investigator for Britain's Financial Services Authority.
As Flavin was the only DCC director who was also a director of Fyffes when the February 2000 share deals took place, Flavin could be the first, or the only, director to be disqualified on the back of Shipsey's report.
However, the implications of any disqualification could be somewhat limited. Flavin, who is now 67 years old, is well into retirement age. Also, when Flavin resigned from DCC in May 2008, he also stepped down as director of more than a dozen other firms, including S&L. When the High Court appointed an inspector to investigate the case in July 2008, the court judgement at the time said that Appleby believed "other senior persons (in addition to Mr Flavin) in the DCC group may have given support to the execution of the insider dealing transactions in 2000".
As the remit of the Shipsey report includes all breaches of the Companies Act, insider dealing may not be the only offence to emerge from it. This is where the summer 1995 transaction could come into play. The transaction involved the sale by DCC and S&L of their combined 10.5 per cent stake in Fyffes shares to Lotus Green. Appleby believes that DCC and Lotus Green may have breached the Companies Act by "failing to notify Fyffes of their disposal and acquisition of Fyffes shares in excess of the five per cent threshold", according to the High Court judgement of July 2008.
Appleby also said that the "planned and subsequent disposal by DCC and S&L to Lotus Green of a beneficial interest in the shares of Fyffes may have been information that was likely to be materially price sensitive"; that "the suppression of this price sensitive information from the market may have constituted insider dealing"; and that "a number of other officers and senior managers in the DCC Group may have facilitated the transactions which gave rise to [these] breaches".