Cat thrown amongst pigeons as IBRC sues former auditors, Ernst and Young

I wonder does Sean Quinn senior have access to the internet in Mountjoy? If he does, I hope he doesn’t choke on his cornflakes this morning if he reads the breaking report from Simon Carswell at the Irish Times  which states that IBRC, formerly Anglo and Irish Nationwide, is suing its former auditors, Ernst and Young and the “case relates to the firm’s role as auditors before the bank’s nationalization” Later in the article, the Irish Times states “The timing of the action is thought to be aimed at beating a six-year legal time limit that would have blocked the action.  Ernst & Young signed off the bank’s accounts for the year to the end of September 2006 on December 5th, 2006. These accounts are believed to be crucial to the bank’s legal action.”

So when Sean’s big case against IBRC comes before the courts next year, this action against the auditors might be crucial, and no doubt Sean’s legal team – if he has one, beyond his son-in-law – will surely seek discovery of the details of the newly lodged claim. Next year, Sean will be arguing that he doesn’t owe IBRC some €2.4bn of loans provided to him by Anglo, apparently for the purchase of Anglo shares. It has been a continuing theme pushed by the Quinn camp that Sean was relying on false accounts when making his investment decisions, that and the claim the loans are “tainted with illegality”. It is hard to see how IBRC’s case against Ernst and Young won’t be relevant to Sean’s big case next year.  Sean was reported to have built up a 5% stake in Anglo by January 2007, though by mid-2008 he had amassed an interest in the bank which could have led to him controlling 28% of the shares.

On here, there is relief that IBRC has at last been prodded into action. In September 2012, Minister Noonan responded to questions in the Dail and incredibly claimed that IBRC couldn’t identify the “principal person or persons” at Ernst and Young responsible for the audits. Minister Noonan was just about able to identify the auditor at Irish Life and Permanent who signed off the accounts. In June 2012, Minister Noonan (again!) washed his hands of mistakes in loan documentation at the banks which meant that NAMA acquired €455m of loans without paying a cent. There just didn’t seem to be interest at an official level in pursuing the auditors, at least to establish if there was any culpability in signing off the accounts based on poor records or inaccurate information.

Last week, it was reported that Ernst and Young’s revenues in Ireland have rocketed to €130m a year. This is the company which until recently employed Alison Kramer (Alice Kramer), wife of disgraced former NAMA employee, Enda Farrell.  To many people, it will be amazing that it is four years after the disastrous banking guarantee to stop the banks collapsing, that the first-known legal action has been initiated against an auditor of a bank. Here’s a reminder of the auditors in the banks during the boom/bust.

https://namawinelake.files.wordpress.com/2010/10/theauditors1.jpg

In a separate but related matter, there doesn’t appear to have been any progress in the case taken by the administrators of Quinn Insurance against its former auditors, PwC.

UPDATE: 29th November 2012, the Daily Business Post is reporting a response from Ernst and Young which reads “We have consistently said we stand by the quality of our work performed in the Anglo audit and will vigorously defend any such proceedings” – It should be remembered that at the moment, Ernst and Young are at a disadvantage because they have not yet seen the application by IBRC, which highlights another backwoods aspect of the Irish judicial system: the whole world can know that you are being sued, and the suing party can issue a statement, yet you might not see the application from the courts for some time. It never ceases to amaze how we can have such an expensive legal system with such third-world standards.

UPDATE: 11th December 2012. In the Dail today the Minister for Finance Michael Noonan was asked by the Sinn Fein finance spokesperson Pearse Doherty to provide an outline of the case being taken by IBRC against Ernst and Young and to describe the remedies sought in the application. The Minister point-blank refused to answer the question. So we have a position in Ireland where a 100%-state owned entity is suing a company and we cannot obtain details of the application from the Court Service and the Minisrer who is the sole shareholder in the bank refuses to provide any information. This is the full parliamentary question and response.

Deputy Pearse Doherty: To ask the Minister for Finance further to the recent application by the Irish Bank Resolution Corporation in the High Court where a company (details supplied) is named as the respondent, if he will provide an outline of the application and remedies sought by IBRC..

Minister for Finance, Michael Noonan: IBRC have advised me that it issued proceedings on 27 November 2012 against the company referred to in the question. These proceedings relate to the role of that company as auditors to Anglo Irish Bank Plc. pre-nationalisation. As this matter is now the subject of litigation, it would be inappropriate for me to comment further at this time.

UPDATE: 17th December, 2012. RTE reports that the case came before Judge Kelly in the High Court today, that IBRC is suing Ernst and Young for “in excess of €50m” which is a little less than E&Y’s annual revenue of €130m in Ireland.  RTE reports that the case relates to “so-called “bed and breakfasting” transactions that are alleged to have taken place over a period of years”. Judge Kelly has agreed that the case be transferred to the Commercial Court division of the High Court and set a hearing for 20th May 2013. No further detail is given on the meat of the case so we don’t know if the “bed and breakfasting” relates to directors’ loans being redeemed at year end via transactions with Irish Nationwide Building Society or if the “bed and breakfasting” relates to €8bn of cash deposits at year end from Irish Life and Permanent which had the effect of allegedly flattering the accounts of Anglo – the “bed and breakfasting” might relate to either, none or both of these matters.

UPDATE: 18th December, 2012. The usually-reliable Mary Carolan in the Irish Times today elaborates on yesterday’s proceedings. The application relates to the chairman Sean Fitzpatrick’s personal lending from the bank which had been masked in the accounts with year end refinancing at Irish Nationwide Building Society. It is reported that at in November 2006, Sean had €69m of loans and afterwards was advanced an additional €58m and now, all of Sean’s lending is classed as impaired and the bank expects to suffer losses of “well over €50m”, according to the report today. Ernst and Young are blamed for not picking up on the annual refinancing at year in 2006, and the implication is that if they had, then the bank might have taken steps to reduce the exposure before the property and bank crashes, and ultimately Sean leaving the bank and being declared bankrupt.