ACCOUNTING irregularities at Bloxham Stockbrokers meant that the firm’s capital position was overstated by more than €5 million, the High Court was told during a hearing to appoint a provisional liquidator to it.
Kieran Wallace of KPMG was appointed provisional liquidator to Bloxham, the country’s oldest and third-largest stockbroker, at a special court hearing on a petition from the partners of the firm.
Patrick Dempsey, a partner at Bloxham, told the court in an affidavit that the discovery last week of accounting discrepancies and a capital shortfall of €5.3 million at the firm “came as a total shock to me and to the other partners”.
The partners were told by financial and compliance partner Tadhg Gunnell on Wednesday, May 23rd, that trading losses and payments were wrongly recorded as assets of the firm.
Mr Gunnell told the partners there was “an accounting misrepresentation” of trading losses of €2.6 million, said Mr Dempsey.
A pre-payment of €1 million in April 2011 to cover the partners’ income taxes and repayments of National Irish Bank loans to the partners of €1.7 million were never recorded as having been paid out, the court was told.
These accounting discrepancies meant that Bloxham’s capital position had been overstated by more than €5 million, Mr Dempsey said.
Barrister Bernard Dunleavy, for Bloxham, an unlimited partnership, said that the partners unanimously agreed yesterday morning that the broker should be wound up and a liquidator appointed.
Mr Dempsey, who was in court with another partner, Niall Tinney, said he and the partners would co-operate with the liquidator.
Bloxham was ordered to cease trading by the Central Bank last Friday after being informed by the partners about the irregularities disclosed by Mr Gunnell.
The firm removed Mr Gunnell as financial and compliance partner and hired KPMG to investigate. Mr Gunnell, a 36-year-old accountant, joined Bloxham in 2000 from Deloitte and was appointed a partner in 2005.
“The partners relied on internal reports provided to them by Mr Gunnell, together with audited accounts provided by Bloxham’s external auditors Deloitte, none of which indicated any inaccuracy in the firm’s stated capital position,” Mr Dempsey said in the affidavit.
The firm had to hold a minimum of €5.6 million in capital to maintain its licence as a broker.
The court was told that Bloxham had sold its private client business for €2.2 million and its fund management business for €3.6 million to rival firm Davy.
Of Bloxham’s 75 employees, 21 are transferring to Davy.
Counsel said that there was an urgency in appointing Mr Wallace as the sale of the businesses to Davy had to go through, there had to be somebody to deal with the queries from clients and lawyers had to be instructed for litigation involving the firm in the UK.
Bloxham is being sued along with US bank Morgan Stanley for €20.5 million in claims from investors over the loss of almost all of their investment in the so-called Saturn bonds sold by the firm.
Mr Dempsey said the firm had paid out €14 million to investors but expected to make “a significant financial return” if it won litigation against Morgan Stanley, which had provided the bond.
Mr Wallace was also required to supervise any potential sale of Bloxham’s memberships of the London and Irish stock exchanges. It valued its share of the Irish Stock Exchange at €6.25 million in its 2011 accounts.
Mr Justice Cross granted Mr Wallace powers to sell Bloxham’s memberships of the exchanges and to investigate the firm. He adjourned the case till June 25th.
