Roots of the deception and Pearson's illicit trading go back as far as 1998, reports Conor Lally

A complex fraud which resulted in the former stockbroker Stephen Pearson being jailed for three years yesterday had its origins as far back as 1993.

Back then the former monk admitted to his father that he had defrauded money from the family firm W&R Morrogh, a 40 per cent stake of which he had inherited from his father.

Mr Pearson Snr decided to inform Alec Morrogh, the 60 per cent partner in the company.

Mr Morrogh says he was never told how much was taken on that occasion. However, he said that after the funds were paid back and Stephen Pearson (44) assured him it would never happen again he agreed not to inform the regulators and to allow Pearson stay on.

Mr Morrogh's trust in his partner was to come back to haunt him.

In April 2001 the extent of Pearson's illicit trading came to light. It was so serious that the company was insolvent and was shut down by the Central Bank.

Both Morrogh and Pearson, who were each worth several million at the time, lost everything. Their clients, who had placed their trust in the firm, not to mention their money, also lost considerable sums.

In some cases the individual losses were well over £1 million. Despite this, compensation under current legislation is limited to €20,000 per client. Three of Pearson's victims were in nursing homes.

One was suffering from Alzheimer's and another committed suicide.

Mr Morrogh told The Irish Times he recalls clearly the moment he realised the extent of the fraud.

"One of the dealers said to me on Thursday the 19th of April 2001: 'There's a journal entry, there's something that's very strange here. Will you have a look at it?' I looked at it and saw that something like £275,000 had been taken out of a solicitor's account for a trade that never happened at all. It was then moved into the account of the brokers with whom he had been trading options in London.

"I was shaking. I just felt shattered."

Pearson, the firm's financial controller, had lost the money by illegally trading on high risk futures and options.

When challenged the next morning about the matter Pearson admitted he had been stealing but said just £500,000 was missing. Mr Morrogh sold £800,000 of his partner's shares immediately, thinking it would cover the losses.

But Pearson then went missing for the weekend, attempting suicide in Dublin. In the days that followed, the magnitude of the financial crisis he had created became apparent.

"On the Tuesday we got messages to say there was possibly £3 million gone," said Mr Morrogh.

"The Central Bank [ the firm's regulators] investigated and discovered this huge hole in the banks [ bank accounts]. He had created false bank accounts within our system. So if you looked at them you'd think there was more money (than there actually was)."

Yesterday he said he was "very disappointed" with the three-year sentence handed down, 12 months of which was suspended.

"I thought it was a totally inadequate sentence for what he did, totally inadequate. The presentation of the case was all about him. As he pleaded guilty, all the case was skewed towards mitigating his sentence and suggesting that he was a victim himself of his own addiction. In my opinion what he did was extremely evil."

The court heard extensive testimony from Det Sgt Denis Heneghan of the Garda Bureau of Fraud Investigation who led the "complex" four-year investigation. He said Pearson had been interviewed 22 times, 10 by himself and 12 times by Det Insp John McCann, Det Garda Michael McKenna and Det Garda Patrick Linehan.