A Garda Siochána review of the Davy bond deal that led to a €4.1 million fine by the Central Bank last year has been upgraded to a formal criminal investigation.
The Garda National Economic Crime Bureau was reviewing the transaction over recent months but has since upgraded its work to a full investigation into the bond deal dating back to 2014 which led to the record regulatory fine against a stockbroking firm, the country’s largest.
A spokesman for the Garda said it “does not comment on ongoing investigations”. One source said it was likely to be “a highly complex investigation”.
The Central Bank, the regulator of the financial sector, fined the firm over how it handled a transaction involving the sale of bonds held by Belfast businessman Paddy Kearney in 2014.
Consortium
The bonds were purchased by a consortium comprising 16 members of Davy staff, including a number of senior executives, without the firm disclosing that they were the buyers.
The regulator found Davy breached market rules by failing to identify whether a conflict of interest existed because the 16 employees brought the Anglo Irish Bank bonds without informing Mr Kearney, a property developer, that they were purchasing them.
The Central Bank also found Davy kept its own compliance officials in the dark on the deal.
It is understood that Mr Kearney has made a lengthy statement to the Garda outlining in considerable detail the transaction and the role played by Davy executives.
The bond-deal scandal led to a series of high-profile resignations from the stockbroking firm and the eventual sale of the business last year to Bank of Ireland in a €600 million deal.
The upgrading of the Garda review to a formal investigation clarifies months of uncertainty around whether the matters investigated by the financial services regulator rise to the level of potential criminal offences under other laws.
A spokesman for Davy said the firm was “not the subject of a Garda investigation”.
Criminal activity
Central Bank director general of financial conduct Derville Rowland said last year the regulator's years-long investigation found nothing to suspect any criminal activity that would have obliged bank by law to make reports to the Garda and the Office of the Director of Corporate Enforcement (ODCE), the State agency that investigates company law breaches.
However, she said she intended “to have proactive discussion” with both the Garda and the ODCE following the conclusion of the regulator’s investigation and present them with the “full facts of the information so that from their perspective they can consider this matter”.
Mr Kearney is taking a separate civil legal action against Davy in the High Court. Mr Justice Michael Twomey said in a ruling on a pre-trial application in the case last month that a prima facie case of fraud against the stockbroking firm had been established.
The Belfast businessman claims in his legal action that Davy made a windfall profit of some €25 million from the bonds it sold on his behalf.
The firm and the 16 former employees and senior managers being sued by Mr Kearney are denying his claims and defending the action.
