Three directors of Atlantic Resources used Ansbacher-related entities to secretly buy shares in the company which was chaired by businessman, Sir Anthony O'Reilly, writes John McManus
In the days before the National Lottery, there was something called oil shares. During the unrelenting economic gloom of the early 1980s, the prospect of an oil strike in the Celtic Sea offered not only the prospect of overnight riches for investors, but a panacea for the country's economic woes.
Speculating in the shares of small companies involved in oil exploration was something of a national pastime and the focus of attention for much of the early 1980s was a company called Atlantic Resources, chaired by the then Tony O'Reilly.
Things had started quite badly for the three-year-old company in 1983, when the vast majority of its 800 or so shareholders had refused to stump up extra cash. A rights issue, where existing shareholders were invited to buy additional shares at a discount, had flopped.
Reports from the time state that only two directors took up their full entitlement under the scheme, Sir Anthony and the chief executive, Mr Don Sheridan. As a result the bank that underwrote the issue - the then state-owned ICC Bank - was left holding some £3.5 million worth of shares, or roughly 5 per cent of the company.
However, in mid-July - just over a month after the rights issue - Atlantic's shares more than doubled in price, jumping to 105p from the 45p they hit after the rights issue. The new impetus came from rumours about a well being drilled in the Celtic Sea by US oil group Gulf Oil on a block - the infamous 49/9 - which was one third owned by Atlantic.
The shares hit 190p as the US company confirmed it had found oil, but it also warned it was too early to say whether it was in commercial quantities. For the next eight months Atlantic shares were the subject of massive speculative trading, until in April 1984 Gulf announced that its second well had found only water. In the meantime hundreds of small investors lost out.
One newspaper clipping from the time mentions a "young bank official" who lost £28,000. It also quotes a stockbroker saying: "The range of people involved is enormous, They are the type of investor that isn't normally in the market."
It emerged this week from the Ansbacher Inspectors report that three directors of Atlantic - Mr Vincent Ferguson, Mr Jim McCarthy and Mr Neil Collins - used Ansbacher-related entities to secretly buy shares in the company during this period.
Mr Ferguson was the deputy chairman of Atlantic and, along with Mr McCarthy, was a close friend of Sir Anthony. Along with Sir Anthony, Mr Ferguson and Mr McCarthy had been involved in establishing Fitzwilton, one of the first Irish industrial holding companies. Mr Collins was a wealthy Cork-based businessman who had inherited substantial sums from his uncle, Mr Con Neenan, who built up a fortune distributing Irish Hospital Sweepstake tickets in the US.
According to evidence given to the Ansbacher inspectors Mr Collins, along with Mr Ferguson and Mr McCarthy, organised a loan of around £1 million to buy shares in Atlantic in April and March 1984. This was prior to the announcement of the results of the second Gulf well. The source of the shares, according to Mr Ferguson, was the rump left with the underwriters after the unsuccessful rights issue the previous year.
Mr McCarthy told the inspectors that they approached Mr Traynor of Guinness and Mahon about a loan. He said that they used Mr Traynor because the major banks would not lend money to invest in speculative shares. Mr McCarthy also said that he personally would not have gotten a loan from a major bank because of problems at his other business interests
". . . We actually called him up and we said, 'look, we want to participate in this placing, Des,' and this, that and other thing. There had been, as I said, a strike," he told the inspectors.
Mr McCarthy borrowed £330,000 and Mr Ferguson and Mr Collins borrowed similar sums. Mr Traynor is alleged to have organised the whole thing, including the purchase of the shares, through Ansbacher and a nominee company called Medford. Mr McCarthy claimed this was done in order to give the bank control over the sale of the shares, which were the security for the loans, along with personal guarantees from the three men.
Mr McCarthy was also asked on what he based his decision to invest so much money secretly in Atlantic. "In a way, it was simple, you were involved in a drilling programme and like every red neck on the rig you knew what was happening," he said.
Mr McCarthy conceded that by using Ansbacher to buy the shares ". . . all they were doing was distancing the beneficial owner from the share register . . .". The inspectors also postulated that if the investment had been successful there "would have been a gain which would have been enjoyed by a company offshore and that might have presented tax opportunities".
Mr Ferguson also told the inspectors that they organised a loan from Ansbacher on "terms that were not available from any other bank". He also conceded that it was "completely hidden from the public and from everybody that the directors were buying these shares".
As it transpired the three men's investment turned out to be spectacularly unsuccessful because the Gulf oil find was not commercially viable. According to Mr Ferguson they paid £1.20 per share in March or April and by July the shares were down to 65p. There was a pick-up that August when a fresh bout of speculation broke out. This time it was another Gulf well being drilled on a block adjacent to 49/10. It also turned out to be dry and by the end of the year the shares were back down at 60p.
In addition to the substantial losses they faced on their shares, the three men were also looking at paying interest of 10 to 12 per cent per annum on their borrowings. Pretty soon they were "under water" in the words of Mr Ferguson.
In 1986 the three men refinanced their debt to Ansbacher with Mr Traynor's help. They took out an additional loan which was used to meet some of their initial liabilities and also buy further shares. In addition to Atlantic Resources shares the three men also purchased stock in Fitzwilton of which both Mr Ferguson and Mr McCarthy were directors. Sir Anthony was the chairman and controlling shareholder of Fitzwilton which had a significant stake in Atlantic and was to a certain extent a play on the exploration company.
The second tranche of investments proved as unsuccessful as the first and the men came under increasing pressure to clear their loans. Mr Collins was forced to liquidate most of his other investments according to his brother Barry who also gave evidence to the inspectors.
Both Mr Ferguson and Mr McCarthy turned to Sir Anthony for help and he agreed to guarantee their debts in 1990 and 1991 respectively. He gave a £750,000 guarantee in respect of Mr McCarthy and took over the payment of the interest on the debts.
Mr McCarthy ultimately cleared his debts in 1997 with a gift of £1 million from Sir Anthony's wife Chryss, while Sir Anthony honoured his guarantee in respect of Mr Ferguson in 1998. This was around the time that the existence of the Ansbacher accounts came to light during the McCracken tribunal. It is not clear from the transcripts of the inspectors interviews with Mr McCarthy and Mr Ferguson if Sir Anthony was aware of the source of their difficulties.
Mr Ferguson told the inspectors that Sir Anthony felt that he owed him a great deal. Mr Ferguson said he was "a very special business confidant". He took the credit for the establishment of Fitzwilton which, he claims, allowed Sir Anthony purchase what became the controlling stake in Independent News & Media.
Sir Anthony is the executive chairman and controlling shareholder in Independent News & Media. Both Mr Ferguson and Mr McCarthy are on the board of the company. Mr McCarthy is also a director of Arcon, as Atlantic is now known following its merger with Conroy Petroleum in the early 1990s.
Mr McCarthy also cited his friendship with Sir Anthony as the reason why he bailed him out. ". . . If I had said 'will you give me the £750,000', he would have given me the £750,000. Strange though it may seem. but it would have happened," he said.
Mr Paul Appleby, the Director of Corporate Enforcement, said this week that the dealings in Atlantic Resources shares will be examined as part of his widespread investigation on foot of the Ansbacher report. Insider dealing did not become an offence in Ireland until 1990, but prior to that there were requirements under company law and the stock exchange rules for share dealings by directors to be disclosed.