Brendan Burgess
Founder
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Background
In late August 2003, the Managing Director of AIB Investment Managers (AIBIM), a subsidiary of AIB, was made aware of a former client relationship between AIBIM and a British Virgin Island investment company, Faldor Ltd (‘Faldor’). This
relationship was established in 1989 and ceased in 1996. The persons whose funds were managed through Faldor (‘the beneficiaries’) were then senior executives of AIB, and/or related parties. Because of concerns about the nature of the relationship, the Managing Director of AIBIM correctly alerted the senior management and Board of AIB. Initial inquiries into the origins and activities of Faldor had indicated possible
taxation issues. AIB reported their initial findings to the Financial Services Regulator and to the Revenue Commissioners in September 2003. An investigation was carried out into the facts surrounding the relationship between AIBIM, Faldor, the former senior executives who were beneficiaries and any other possible beneficiaries. The
investigation also involved an examination of all relevant internal control issues.
Following the conclusion of that phase of the investigation, the Financial Services Regulator sought additional information relating to the matters under investigation. Mr. Maurice O’Connell, former Governor of the Central Bank, was appointed to assure the integrity and independence of the investigation and maintained close contact with the Financial Services Regulator throughout this phase. Information relating to the investigative process was announced publicly on 27 May 2004.
Findings
1. Faldor, which was managed by Allied Irish Investment Managers Limited (now AIBIM), benefited from inappropriate favourable deal allocations, by way of artificial deals, amounting to approximately €48,000 out of AIBIM’s
own funds. The Financial Services Regulator has no evidence to indicate that the beneficiaries of Faldor influenced or were aware of these allocations. The allocations took place between 1989 and 1991.
2. AIBIM’s own trading funds were used to boost, through the unacceptable practice of artificial deals, the performance of certain clients’ portfolios, other than Faldor.
3. Further inappropriate deal allocation practices relating to eight transactions in the period 1991 to 1993 were identified which adversely affected the performance of two specialist unit trusts, amounting to a total of €174,000, to the advantage of other clients. These were unrelated to Faldor. AIB has made ex-gratia payments of €470,0004, to include an amount for the lapse of time involved, to the affected clients.
4. In 1991 the Internal Audit function in AIB did identify some inappropriate dealing practices. While the practices subsequently ceased in respect of certain categories of trades, a further internal audit in 1993 revealed that the practices had continued in other areas and that the practices had been more widespread than had been reported in 1991. There is no evidence that the Faldor account was identified in the 1991 or 1993 audits, nor was there evidence that it was
brought to the attention of the Audit Committee in AIB.
5. No disciplinary action was taken against individuals involved in these practices at the time and compensation was not paid to the unit trusts affected. A disciplinary process is now underway and, as indicated at 3 above, compensation has been paid.
Background
In late August 2003, the Managing Director of AIB Investment Managers (AIBIM), a subsidiary of AIB, was made aware of a former client relationship between AIBIM and a British Virgin Island investment company, Faldor Ltd (‘Faldor’). This
relationship was established in 1989 and ceased in 1996. The persons whose funds were managed through Faldor (‘the beneficiaries’) were then senior executives of AIB, and/or related parties. Because of concerns about the nature of the relationship, the Managing Director of AIBIM correctly alerted the senior management and Board of AIB. Initial inquiries into the origins and activities of Faldor had indicated possible
taxation issues. AIB reported their initial findings to the Financial Services Regulator and to the Revenue Commissioners in September 2003. An investigation was carried out into the facts surrounding the relationship between AIBIM, Faldor, the former senior executives who were beneficiaries and any other possible beneficiaries. The
investigation also involved an examination of all relevant internal control issues.
Following the conclusion of that phase of the investigation, the Financial Services Regulator sought additional information relating to the matters under investigation. Mr. Maurice O’Connell, former Governor of the Central Bank, was appointed to assure the integrity and independence of the investigation and maintained close contact with the Financial Services Regulator throughout this phase. Information relating to the investigative process was announced publicly on 27 May 2004.
Findings
1. Faldor, which was managed by Allied Irish Investment Managers Limited (now AIBIM), benefited from inappropriate favourable deal allocations, by way of artificial deals, amounting to approximately €48,000 out of AIBIM’s
own funds. The Financial Services Regulator has no evidence to indicate that the beneficiaries of Faldor influenced or were aware of these allocations. The allocations took place between 1989 and 1991.
2. AIBIM’s own trading funds were used to boost, through the unacceptable practice of artificial deals, the performance of certain clients’ portfolios, other than Faldor.
3. Further inappropriate deal allocation practices relating to eight transactions in the period 1991 to 1993 were identified which adversely affected the performance of two specialist unit trusts, amounting to a total of €174,000, to the advantage of other clients. These were unrelated to Faldor. AIB has made ex-gratia payments of €470,0004, to include an amount for the lapse of time involved, to the affected clients.
4. In 1991 the Internal Audit function in AIB did identify some inappropriate dealing practices. While the practices subsequently ceased in respect of certain categories of trades, a further internal audit in 1993 revealed that the practices had continued in other areas and that the practices had been more widespread than had been reported in 1991. There is no evidence that the Faldor account was identified in the 1991 or 1993 audits, nor was there evidence that it was
brought to the attention of the Audit Committee in AIB.
5. No disciplinary action was taken against individuals involved in these practices at the time and compensation was not paid to the unit trusts affected. A disciplinary process is now underway and, as indicated at 3 above, compensation has been paid.