IS the mattress your only man? Small investors ask the same question daily, as they contemplate the unthinkable. Where are their savings safe?
Should they open a bank account in Germany? Is Switzerland still the business? How would they go about buying Finnish bonds?
Nobody wants to speculate any more. If ordinary citizens are lucky enough to have savings or a pension, the height of their ambitions is to hold on to them. If the vultures do not steal their savings, the Government will impose a levy.
Holding on to your money-- not increasing it -- is today's challenge. There are too many sharks and scoundrels lurking around planning an ambush.
Savers are right to feel nervous about deposits held in a bank. The banks are bust. Investment managers are worse; they have lost millions indulging their bogus expertise managing other people's money. Silver-tongued stockbrokers often persuade their innocent clients to give them discretion over their savings. Incredibly, savers agree in their droves, often allowing brokers to churn their money around the casino, taking commission at every turn.
There is a cardinal rule of investment: never give discretion to anyone. They will abuse it.
The predators in the investment jungle are still out there. The prey are still being slaughtered. Last week journalist Niall Brady published a sorry tale, the story of Custom House Capital, the investment managers that have recently gone into liquidation leaving 1,500 private investors high and dry and a black hole of maybe €90m.
We should not be surprised that small investors are still being fleeced. Bankers, investment managers and stockbrokers are serial offenders, often legally creaming off rich rewards for performing useless -- if not harmful -- services. But investors have theoretical protection from rogues and abusers. In the case of Custom House Capital, the protectors are exposed by Brady as woefully wanting.
Brady tells the tale of how the rogues still run rings around the protectors.
CHC was a small investment manager bought by colourful career banker Harry Cassidy and his smooth talking colleague John Mulholland in 2000. It was already authorised. It expanded rapidly under the two lads.
No one had ever heard of the duo in 2000 -- but they had heard of a silent partner who had accompanied Mulholland into the venture, a man by the name of John Caldwell.
Caldwell, an Isle of Man resident for reasons best known to himself, is famous for his prominent role in the 1990s tribunals and the planning scandals. In 2004 the Mahon tribunal found that Caldwell was the beneficial owner of lands in the Dublin suburb of Carrickmines that were the subject of investigations into bribery. Hardly the ideal man to be the guardian of people's pensions or the savings of widows and orphans.
Caldwell was also a partner with Mulholland in European Pensioner Trustee Company (EPT), set up to run self-administered pension funds. Clients at EPT were urged to give their money to Custom House Capital to manage. Coincidentally, Caldwell's one-time life partner, barrister Geraldine Clohessy, was to become chairperson of the Irish Pensions Board in 2000!
In 2007 Caldwell was bought out of CHC for €1.5m and from EPT for €0.5m. He trousered a cool seven-figure sum out of a company rapidly running into trouble. Widows and orphans were rewarding him.
CHC caught the property bug in 2004. Its bosses did all the usual things, entertaining in style, hosting clients in the K Club and jetting them off to football matches.
It had plush, prestigious offices in Dublin's Merrion Square. It paid intermediaries handsomely for introductions to rich professionals or wide- eyed pensioners. The intermediaries -- accountants, bankers, even brokers -- responded to the rewards by pushing suckers into CHC's clutches. CHC invested the suckers' money in equities, bonds, cash ... and -- fatally -- property.
CHC's love affair with property went sour. So, unauthorised by its investors, CHC dipped into clients' cash, equity and bond portfolios to fund spiralling property losses.
They invented fancy phantom products like mezzanine or corporate bonds as a cover. The products turned out to be fig leaves, vehicles dressed up to extract clients' money to fund the property losses.
First they merely dipped into their equity, cash and bond funds! As the property markets sank, the dip developed into a wholesale raid. Then it was outright plunder.
Today the company is in liquidation. Many investors have lost their life savings. Custom House Capital has caused human misery in at least 1,500 households.
Brady's book -- a short 20,000-word work, digitally available from Penguin -- is damning. Everybody knows that wherever there is money there are scoundrels. What is more scary is that none of the protectors managed to save the investors.
Some of CHC's rich professional clients can afford the hit, but CHC ambushed little old ladies in flat hats, nursing nest eggs in their old age.
The little old ladies believed that they were protected by the directors of CHC, by the auditors of CHC, by the gardai and -- above all -- by the Financial Regulator. They were abandoned.
The hard question is whether the reassuring words "regulated by the Financial Regulator" are worth a sausage. In CHC's case, the Regulator had actually spotted sloppy paperwork in CHC back in 2007. There was no follow-up, despite a €4m discrepancy. They gave Cassidy's firm a rap on the knuckles -- but accepted its assurance that all was well.
It then took a whistleblower (where would we be without them?) to alert the Regulator in 2009 that CHC was stuffing investors into its mezzanine bond to support property losses -- without their authorisation.
The Central Bank (by then restored as Regulator) sent in an investigating squad. The investigators failed to find out the full truth. Instead of revoking CHC's licence, the Central Bank installed a new chairman and demanded that the firm be sold.
Other piecemeal action was taken. CHG's auditors, KSi Faulkner Orr, were replaced. Their replacements -- MKO partners -- qualified the accounts, raising a few questions, but made no mention of clients' money being in danger. The Regulator seemed to think that all would be well if the firm was sold and Cassidy was replaced.
A buyer was found. Appian Asset Management took the bait in June 2011, two years after the whistleblower had acted. The Regulator believed that an irritant had been removed. We have yet to find out how much of the money was stolen from client accounts in the two-year delay between the whistleblower's surface and the ultimate liquidation.
It took Appian, whose money and reputation was on the line, to rumble the truth. After a thorough probe they recalled the Central Bank. This time the Regulator finally froze investments and payments to pensioners. The High Court appointed inspectors to CHC.
When the report of the inspectors hit the High Court, Judge Gerard Hogan described the CHC venture as having "some of the classic characteristics of a full-blown Ponzi scheme ... false accounting had become almost the norm and clients were deceived ..." He even made comparisons with the US fraudster Bernie Madoff.
Yet no one spotted this Ponzi scheme. CHC investors have been betrayed by their protectors. Astonishingly, the Central Bank is immune from legal action. Lawyers Lavelle Coleman have issued a depressing report, suggesting that remedies against the auditors, directors and the Regulator are few and far between. The dice -- as always -- are loaded in favour of accountants, regulators, officials and predators.
On July 25, gardai arrested CHC boss Harry Cassidy. No charges have been brought.