Drumm near 'hysterical' over $1.2m omission from papers – ex-lawyer
FORMER Anglo Irish Bank chief David Drumm was close to "hysterical" when he discovered that $1.2m (€870,000) of cash transfers to his wife should have been included in his bankruptcy forms, his former lawyer said.
Attorney Stewart Grossman had previously warned Mr Drumm that the transfers were potential "landmines" in his bid for a US bankruptcy.
Yesterday, Mr Grossman gave evidence as the second witness in the former Anglo Irish Bank chief executive's Boston bankruptcy case.
It is to decide whether Mr Drumm can emerge debt-free after filing for Chapter 7 bankruptcy in the US.
Mr Grossman told the court he was told that transfers of cash from accounts in Mr Drumm's name or in joint accounts to accounts solely controlled by Lorraine Drumm starting in September 2008 were made because she feared for her financial security.
"He told me she was getting nervous about the fact the world was getting shaky.
"The bank had issues, the marriage was bruised, the kids were upset, reporters were swarming around at all times. She needed security by having her own money."
Mr Grossman's firm Looney & Grossman was acting as legal adviser to Mr Drumm during the early phase of his bankruptcy, and his associate at the firm mistakenly believed cash transfers did not need to go on the bankruptcy papers, he said.
Mr Grossman only learned of the error in April 2011 when he was contacted by Mr Drumm. "He called me, he was very upset, " Mr Grossman said at the David W McCormack Federal court house in Boston's financial district.
"He caught me by surprise. My goal was to calm him down.
"Hysterical is probably a little too strong. But very animated. And I didn't understand what he was talking about because I thought it (the cash transfers) was in the schedule," Mr Grossman added.
He then learned that his colleague Heather Zelevinsky believed the cash did not have to be included in the papers, Mr Grossman said.
"I spoke to Heather about it. She explained and I disagreed with her. I told her that cash had to be included as well. She believed she did it accurately and that it didn't have to be disclosed. "I took the position we were going to have to amend it," Mr Grossman told the court.
Mr Grossman said his firm did "goof" when it was preparing the bankruptcy papers for David Drumm, meaning the lawyers had made a mistake.
But details about the cash transfers had been separately provided to Anglo Irish Bank, Mr Drumm's biggest creditor, and the the trustee managing his bankruptcy. All sides in the case agree that there were significant errors in Mr Drumm's original US bankruptcy papers filed in late 2010.
IBRC, the former Anglo Irish Bank, and bankruptcy trustee Kathleen Dwyer have objected to his Chapter 7 discharge. They claim omissions from his initial bankruptcy papers in particular in relation to cash transfers of $1.2m made to his wife make him ineligible for the fresh start available under the American system.
Yesterday, the court was shown emails between Mr Drumm and Mr Grossman dating back to the start of January 2011. "Have you put any thought into where the landmines are buried at Wednesday's 3417 (a meeting that is part of a bankruptcy process)? I need help preparing for it," Mr Drumm asked. In response, Mr Grossman said the Lorraine transfers were his "only major concern".
John Hutchinson, acting for IBRC, said the exchange indicated that Mr Grossman was at the time unaware that forms filed by Mr Drumm in October 2010 did not include the transfers, because he anticipated the information being an issue.
The court said Mr Hutchinson could treat Mr Grossman as a "hostile witness", meaning he has greater leeway to ask leading questions. That was because he was an adviser to Mr Drumm and because the court was told Mr Grossman met lawyers for Mr Drumm earlier in the day, before taking to the witness box.
Mr Drumm, the first witness called in the case, accepted that there were omissions on the statement filed with the bankruptcy court in 2010, but says that, in part, was because of advise from his then lawyers.
Mr Grossman said his advice to Mr Drumm at a meeting days later was "disclose the facts".
He told the court that it was his idea for Mr Drumm to value his furniture at €10,000, less than a month after the same assets were valued at €100,000. Mr Grossman said the change reflected the difference between an insurance valuation and a bankruptcy valuation.
"There were no antiques, no valuable pieces of art, he seemed to have spent a fortune on wall coverings and window coverings but that really just stays with the house (in a sale)," Mr Grossman said.
Next week the court will hear from Lorraine Drumm for the first time. She is one of three remaining witnesses due to take the stand when the case resumes on Tuesday and Wednesday.