Garda review of Davy bond deal moved to criminal investigation

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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 turned into a formal criminal investigation.

The Garda’s National Economic Crime Bureau had been looking into the deal for the past few months but has since upgraded its work to a full investigation into the 2014 bond deal, which led to the record regulatory fine against a brokerage firm, the largest in the country.

A Garda spokesman said it “does not comment on ongoing investigations”. A source said it would likely be “a very complex investigation”.

The Central Bank, the financial sector regulator, has fined the company for its handling of a transaction involving the sale of bonds held by Belfast businessman Paddy Kearney in 2014.

Consortium

The bonds were bought by a consortium of 16 Davy staff, including a number of senior executives, without the company disclosing they were the buyers.

The regulator concluded that Davy breached market rules by failing to identify whether a conflict of interest existed because the 16 employees brought in the Anglo Irish Bank bonds without informing Mr Kearney, a property developer, they bought them.

The Central Bank also discovered that Davy had kept his own compliance officers in the dark about the deal.

It is understood that Mr Kearney gave a lengthy statement to the Garda detailing the transaction and the role played by Davy executives.

The bond scandal led to a series of high-profile resignations from the brokerage firm and the eventual sale of the business last year to Bank of Ireland in a €600 million deal.

Turning the Garda review into a formal investigation clarifies months of uncertainty over whether the cases being investigated by the financial services regulator rise to the level of potential criminal offenses under other laws.

A spokesman for Davy said the company was “not under investigation by the Garda”.

Criminal activity

The Central Bank’s chief financial conduct officer, Derville Rowland, said last year that the regulator’s years-long investigation had found nothing to suspect criminal activity that would have required the bank by law to do reports to the Garda and the Office of the Director of Corporate Law Enforcement (ODCE), the state agency responsible for investigating breaches of company law.

However, she said she intended ‘to have a proactive discussion’ with the Garda and the ODCE after the regulator’s investigation is concluded and present them with ‘the full facts of the information so that from their point of view, they can look into this matter”.

Mr Kearney is bringing a separate civil action against Davy in the High Court. Judge Michael Twomey said in a ruling on a pretrial application in the case last month that a prima facie case of fraud against the brokerage firm had been established.

The Belfast businessman claims in his lawsuit that Davy made a windfall profit of around €25m on the bonds he sold on his behalf.

The company and the 16 former employees and senior executives sued by Mr. Kearney deny his allegations and defend the action.

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