Tuesday 21 November 2017

Shocking and distasteful case shows duty of care has little meaning

Charlie Weston

Charlie Weston

WE know to our cost in this country that the exotic investments called contracts for difference (CFDs) are financial weapons of mass destruction.

We have the evidence of former billionaire Sean Quinn ending up bankrupt, the collapse of toxic bank Anglo Irish and the imploding of the financial system.

CFDs were the specialised investments that Sean Quinn used to secretly build up a stake in Anglo Irish Bank.

The unravelling of the stake built up through the CFDs led to financial mayhem, and eventually bankrupted the bank.

By definition, a CFD is a financial investment or gamble whose value is based on the future price change of an asset. So, not an investment for widows and orphans. Except that CFDs are the very instrument that Davy Stockbrokers used to invest some of the money inherited by a young man with intellectual difficulties. Oh, and the young man also happened to be an orphan.

The facts in this case could not be more shocking, and show how poorly regulated investments are in this country, and how concepts of duty of care have little meaning.

The young man in question was awarded €2m by the High Court against Davy after a judge found “deliberate neglect” that led to massive investment losses from the man’s inheritance.

Mr Justice Peter Charleton made the award to the client against Davy over breaches of contract and duty of care in encouraging him, from August 2005, to invest €1.75m raised on loans from his €5m property inheritance in CFDs.

The young man has speech difficulties, had two strokes before the age of 10, and lost both his parents before he reached 18.

Asked for a reaction to the case, a spokesman for Davy implied that something like this could not happen again. The venerable Dublin stockbrokers said CFDs were a very limited part of Davy’s offering, and one that Davy decided to exit some time ago.

“Davy acknowledges that initial trading gains recorded by the plaintiff on his Davy account were more than offset by subsequent losses during the downturn in 2008 and that processes in place at that time did not take adequate account of the plaintiff’s unique circumstances,” it said.

It said the processes in place at Davy at the time the investments were made pre-dated major regulatory changes and these had been reviewed and enhanced in line with regulatory developments since.

Davy said that it would carefully assess the outcome from the case that might benefit Davy clients in the future.

The case is shocking and distasteful and shows up stockbrokers and regulators in a very poor light.

For shame, Davy.

Irish Independent

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