The client account at the heart of the MMI Stockbrokers controversy made £5 million (€6.35 million) in profit from a £1 million investment in Tullow Oil shares during 1996 and 1997.

However, the bulk of the profit was subsequently lost when the money was transferred into Dana Petroleum shares. The price of those shares plummeted in March 1998, a development which led to MMI Stockbrokers being placed in liquidation.

Nevertheless, the owners of the account would be liable for tax on the initial profits, even though the gains were subsequently lost. During 1996 and 1997 the Tullow price moved between 69p and £1.67.

It is understood the account, originally held in the name of Investment Bank of Ireland Nominees (IBI Nominees), was involved in a significant amount of "rolling over", meaning that payment for the Tullow shares purchased in the name of the account was repeatedly deferred. At one stage £1 million of the profits made was removed from the account.

In June 1997, funds in the IBI Nominees account were transferred to a new account, this time in the name of Cater Allen, a Jersey company which is part of the Abbey National group. The account had around this time switched to investing in Dana Petroleum shares, but rather than repeating the success of the previous two years, the share price plummeted.

The account had a significant percentage of the 70 million Dana shares held by MMI clients at the time the Dana share price collapsed. The £5 million invested from the Tullow success dropped in value to £1.5 million. Liquidator Mr Tom Kavanagh has told the High Court that £1.9 million was taken from the Cater Allen account, changing the balance into a debit of approximately £400,000. A significant amount of this money was transferred to accounts linked to two of the company's directors, Mr Oisin Fanning, Forenaughts House, Naas, Co Kildare, and Mr John Curran, Kingsley Mews, Raglan Road, Ballsbridge, Dublin.

While Cater Allen initially said it was surprised to learn of the transfer of funds out of its account, that it had not received the money, and that it intended to sue for mismanagement of its affairs, it subsequently informed Mr Kavanagh that its client was "satisfied" there had been no misappropriation of funds and no fraud.

The change in attitude has not been explained but has serious consequences for fraud proceedings which were initiated last year by Mr Kavanagh against all the former directors of the firm. The High Court has been asked for directions and the matter is to be raised again on Monday. The proceedings may not now go ahead, in which case a tough battle over costs would be likely to ensue.

Who owns the account at the heart of the case is not clear. One alleged owner, a bookmaker, Mr Adrian Lynch, of Kilkee, Co Clare, has told The Irish Times that he has nothing to do with the account. Mr Fanning told the Central Bank in July 1997 that he, Mr Curran, and another director, Mr Paul Boucher, were once associated with the IBI Nominees account but no longer were.

All of the MMI Stockbrokers directors have strongly rebutted the allegations. Mr Michael Collins SC, for Mr Fanning, said at a recent hearing that the stance of Cater Allen "explodes entirely" the liquidator's case. He said his client had been damaged by the allegations. He also the MMI creditors would be affected because his client would be applying for costs.

Mr Brian O'Moore, for directors Mr Curran, Mr Boucher and Mr Peter O'Byrne, pointed out that his clients were also the subject of adverse publicity arising from the case. Other directors have made similar complaints.