Watchdog bails out lawyers' insurance scheme
THE Law Society has had to prop up the insurance fund which covers the majority of solicitors by guaranteeing loans worth €8.5m.
The fund -- known as the Solicitor's Mutual Defence Fund (SMDF) -- provides solicitors with insurance cover against negligence.
The guarantee emerged after one of the fund's multi-million investments was deemed worthless. That failed investment -- worth €8.4m -- is now the subject of a High Court action with the fund suing Bloxham Stockbrokers for alleged negligent advice.
The society cleared the decision to give the guarantee at a special meeting last month, the Irish Independent has learned.
The society confirmed that it made its decision after being approached by the SMDF, which expressed its concerns about its ability to provide insurance services in the future.
"The SMDF has informed the society that because of their losses on the investment, they would not have been in a position to offer insurance for next year unless a guarantee was provided," said Ken Murphy, director general of the Law Society, yesterday.
The November meeting gave the SMDF guarantees for bank facilities of up to €8.5m to cover the loss in its reserves as a result of the failed investment in bonds which guaranteed interest payments.
Last year, the SMDF reserves slumped to €300,000 from over €10m in 2007. It is understood that the society will inform its members of the move later today.
The bonds were sold by investment bank Morgan Stanley for Dublin stockbrokers to sell to investors here.
The High Court was told last week that news of the losses had come as a "profound shock" to the SMDF, which has invested one-third of its portfolio in the bond. The SMDF is also claiming in the courts that the investment loss is affecting its ability to compensate its members for losses or damages.
The bond is now only worth up to 3pc of the original €8.4m purchase price and interest payments have been suspended, according to the SMFD.
SMFD chairman Laurence Shields said in an affidavit that Bloxham Stockbrokers had expressly represented to the fund in January 2005 that the bond was a suitable investment issued by Dresdner Bank.
However, the fund learned in 2008 that the bond was not issued by Dresdner Bank and was not suitable.
The SMDF's 2008 accounts also show it had losses of €10m at the end of 2008, up from €6.3m in 2007.
The SMDF would not comment on the guarantee yesterday.