Davy stockbrokers fined record 4.1 million euros for “serious conflict of interest” failures in bond deal case

The country’s largest securities broker, Davy, was reprimanded and fined € 4.13 million by the Central Bank of Ireland for four breaches of the 2007 European Communities regulations (markets in instruments financial) (MiFID).

The fine is the largest ever for an Irish broker and the largest here under MiFID regulations. Regulators were said to have been particularly alarmed by the ease with which staff bypassed Davy’s compliance function and the company’s failure to properly engage with regulators once the case was under investigation.

The central bank said it could not comment on the individual incident involved in the case.

However, it appears to be a 2014 incident when businessman Patrick Kearney and his Kilmona Holdings Ltd sold Anglo Irish Bank bonds via Davy at a steep discount in order to settle a debt. – without knowing that the buyers were Davy employees who then sold. assets at profit.

A subsequent lawsuit by Mr Kearney against Davy was settled several years ago, after details of the case were laid out in the High Court.

The Central Bank said its investigation resulted from a transaction that a group of 16 Davy employees – including senior executives – carried out in a personal capacity with a Davy client in November 2014.

“In clearing the deal, Davy has prioritized the facilitation of an opportunity for the [buyers’] consortium to achieve personal financial gain by ensuring it complied with its regulatory obligations, ”regulators said.

“The transaction highlighted a weak internal control framework within Davy with respect to the management of conflicts of interest and the management of personal accounts.”

Central Bank Law Enforcement and Anti-Money Laundering Director Seána Cunningham said Davy was well below the standards required to meet his regulatory obligations on conflicts of interest and personal account transactions.

“By allowing a group of employees to pursue a personal investment opportunity, conflicts of interest were not properly taken into account, the rules in place regarding the management of personal accounts were easily bypassed and the function Davy’s compliance has been kept in the dark, ”she said.

“This case serves as an important reminder that conflicts of interest are an inherent risk in all regulated entities. When not properly managed, they represent a risk for investors and reduce the integrity of the market.

She said Davy’s “lack of candor” in first reporting the case to the Central Bank was an aggravating factor in determining the amount of the fine.

Davy declined to comment on the fine, however, in a note to Staff CEO Brian McKiernan, said: “We deeply regret and apologize for the shortcomings which gave rise to the findings which could not be repeated today. ‘hui. “

He pointed to the large-scale changes in the business, which since 2014 have brought in outsiders like the former CEO of the National Treasury Management Agency (NTMA) who was appointed Davy’s chairman in 2015 and the former CEO AIB Bernard Byrne who took over. as Head of Capital Markets at Davy Group in 2018.

“Since 2014, Davy has gone through a process of board and leadership renewal with a significant investment in people, risk management, structures, policies and processes,” said McKiernan.

In his own separate lawsuit against Davy, real estate developer Patrick Kearney claimed that brokers were negligent in advising him to sell bonds at a price he felt was undervalued.

Mr Kearney and Kilmona Holdings sued J&E Davy in commercial court in 2015 over advice that brokers allegedly gave in 2014 on the sale of Anglo Irish Bank’s subordinated bonds.

Mr. Kearney was one of the so-called Anglo “Maple 10” borrowers who received loans from the bank to buy Sean Quinn’s controversial stake in the lender just as the real estate and banking bubble collapsed.

In an affidavit, Mr Kearney, of Queensway Quay, Gibraltar, said he and a company called Pattan Sl obtained a loan from the former Anglo Irish Bank in 2009 to purchase the bonds.

Anglo’s successor, IBRC, then ceded the benefit of the loans to a company called Stapleford Finance.

In 2014, Mr. Kearney hired LeBruin Private to advise him on his obligations to Stapleford.

As a result of discussions, it was decided that Davy would sell the bonds at a price that would discharge the € 2.36million (£ 1.75million) debt owed to Stapleford and leave a balance to be shared between him, LeBruin and Davy.

The bonds were sold for 20.25 cents in euros, or 5.58 million euros (£ 4.13 million), but Mr Kearney said he met with an investment banker, who then agreed to buy them for 32 cents in euros.

Mr Kearney says he was dissuaded by Davy and LeBruin because he had already legally committed to selling the bonds, to what turned out to be a group of Davy employees.

Source link

Previous FinTechs find loan data in emerging markets
Next Limbo in mortgage rates: how far will they go? - Update of the real estate market