Stockbroker gambled with orphan's €5m fortune
THE country's biggest stockbroker has been criticised by a judge for "deliberate neglect" after it encouraged an orphan with learning difficulties to pour millions of euro into highly risky investments that then went bad.
Judge Peter Charleton ordered Davy Stockbrokers to pay back more than €2m to the young man, who showed "alarming degrees of impairment", because he has intellectual difficulties following two childhood strokes.
The court heard that Davy encouraged the man, then aged 20, to invest €1.75m borrowed from Bank of Ireland on the back of a €5m property inheritance. The money was then invested in financial investments called contracts for difference or (CFDs).
These risky investments, which magnify gains and losses, left him facing potential losses of a staggering €30m at one stage.
Some of the investments included "disastrous positions" on Ryanair shares in 2007 while the man was being treated in a hospital psychiatric unit, the judge said.
"No reasonable stockbroker would have allowed [this man] into this kind of trading," he added.
The revelations are another blow to the reputation of Davy, which is easily the country's biggest stockbroker and sells bonds on behalf of the State, as well as providing financial advice to dozens of companies and many of the country's richest people.
Davy has generated controversy for decades, sending Bertie Ahern a political donation that ended up in the former Taoiseach's private bank account.
In recent years, Davy wrote to some clients, apologising for not communicating more about their losses.
A spokesman for the company said in a brief statement yesterday that it had made changes inside the brokerage to bolster regulations.
“Davy will carefully assess all learnings from this unusual case that might benefit Davy clients in the future,” the spokesman added.
Judge Charleton complained that there was a “systems failure” in Davy concerning its treatment of the young man.
He noted that there were failures in its documents section and failure in responsibility by higher management, including a senior manager who certified in a “paper-covering exercise” that the man was suitable for CFD trading.
Now aged 28 and with an address in south Dublin, the man lost his mother and father when he was aged 12 and 17 respectively and experienced developmental difficulties.
A medical report described him as “significantly impaired” in looking after his financial affairs, the court heard.
The judge said it was “probable to a high degree” that Davy was aware, or at least had been put on notice, of the client's limitations but negligently made no enquiry when one was manifestly called for.
Davy was paid to exercise care but manifested an insufficient level of care throughout its relationship with the young man and failed to provide the service paid for, the judge found.
This amounted to “deliberate neglect”. Examples included Davy having the client sign blank forms and, unknown to him, treating him as a “gold star” client with an “aggressive” attitude to risk.
Rejecting Davy's denials that it was unaware of the man's limitations, the judge noted, when the client finally persuaded Davy in late 2010/early 2011 to give him an interview for a job, Anthony Moyles of Davy emailed another employee, saying: “Go easy on him.”
In the context of the evidence, that expressed “shared awareness” by Davy of the nature of their client, the judge added.