THE HIGH Court has appointed a liquidator to the Dublin investment firm Custom House Capital after Central Bank inspectors found “systemic and deliberate misuse” of more than €56 million of client funds.
A 198-page report by two inspectors into the company described “a sort of Irish Ponzi scheme”, Mr Justice Gerard Hogan said.
The judge directed the report to be referred to the Garda, Minister for Justice, Director of Public Prosecutions, Revenue Commissioners and the Director of Corporate Enforcement.
The inspectors admitted some clients would lose money but were unable to say how much or which clients would be affected. It would take time to resolve all issues regarding CHC clients and this may prove difficult if not impossible due to a lack of proper paperwork, the inspectors said.
The court was told it could take up to six months to unravel transactions and determine the full scale of investor losses, although sources familiar with the firm pointed out a liquidation this complex could take several years.
An as-yet-unknown proportion of €66.4 million in client funds, including €10.4 million owing on a bond, will be recovered from selling European property investments, mostly in Germany.
Liquidator Kieran Wallace of accountancy firm KPMG and the Investment Compensation Company will write to clients about the state of their investments and filing compensation claims.
The inspectors said the misuse of client funds was deliberately disguised through false accounting and the issuing of false misleading statements to the firm’s clients.
The company “deliberately adopted and pursued processes, policies and procedures that facilitated misconduct, ” they found.
As of July 2011, CHC had four directors, including chief executive Harry Cassidy, who was paid an annual salary €430,000. The other directors were John Whyte, John Mulholland and Seán O’Dwyer, whose assistance was acknowledged by the inspectors.
A group of 100 investors said in a statement last night that they were “outraged and shocked” and that it was “a disgrace that such a misuse of funds could happen under the eye of the Central Bank”. The Central Bank carried out an inspection of CHC in 2009, they said, and had it “acted promptly” then, “the misuse of client funds may not have happened”.The Central Bank insisted on changes to the management at CHC following its 2009 inspection but discovered further issues after another firm took it over in July.
The inspectors appointed that month found that CHC disguised the unauthorised use of client funds in property transactions.
Falsifying client statements through the deliberate and temporary removal of property investment purchases from clients’ accounts was pervasive, they said.
Investors are covered by the State’s investor compensation scheme for up to 90 per cent of amounts lost, capped at €20,000.
Set up in 1997, CHC managed €1.15 billion in assets for 1,500 individuals. CHC began promoting property investments to clients in 2004 and later placed deposits without the required cash from clients.
As the property market turned in 2007, CHC was unable to secure expected investments from investors and covered the shortfall by creating a mezzanine bond and eventually by misusing client funds, the inspectors said.
CUSTOM HOUSE CAPITAL: BY THE NUMBERS
€56m – client holdings improperly transferred, primarily to property investments
€10.4m – additional sum owing on an investment bond
€1.15bn – assets under management by Custom House Capital in March 2011
1,500 – number of Custom House Capital clients
€430,000 – annual salary of CHC director Harry Cassidy
