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Jury in trial will hear of 'extraordinary form of gambling'

THE jury in the trial of three former Anglo Irish Bank executives was told it will hear a lot about "an extraordinary form of gambling" called "contracts for difference" (CFD) during the trial.

It is a financial product that meant instead of buying shares directly, people could put down a small amount of cash up-front and place a bet on shares rising in value – but at the risk of being left with a bill if prices fell.

"At some point financial geniuses" began offering these products to the investing public, and charging commission for doing so, prosecution lawyer Paul O'Higgins said.

He explained how big bets could be made with a relatively small amount of cash.

"If I had €1,000 and I wanted to put it into €10 shares, then I could buy 100 shares.

"The creators of CFDs did something different. For a commission you go to a CFD provider.

"Instead of buying shares, you gambled on the future of shares. You didn't have to buy them. You might only have to pay 10pc or 20pc of the cost of the shares.

"Instead of buying 100 shares I invest my money in a thousand shares. If I take my CFD I pay 10pc of the value of 1,000 shares which are worth €10,000.

"If they go up, I gain €1,000. If they go down, I lose €1,000.

"It means I am gambling large sums on the possibility that shares which I don't own may go up or go down.

"Either the bookie pays you, or you pay the bookie," he explained.

SHARES

"You may own €1,000 or you may lose €1,000. If you lose the €1,000 you have to top up the amount you have with the CFD provider.

"Or you can close off the position, it means the shares are sold and you have to pay what you owe."

Businessman Sean Quinn used contracts for difference (CFD) to build up a 25pc stake in Anglo Irish Bank, without it being known even to the bank itself until September 2007, the jury was told.

Mr Quinn initially made "very substantial amounts of money" using the CFDs, the jury was told.

"But the tide turned."

Irish Independent