Anglo Irish Bank Corp., the defunct lender whose bailout almost pushed Ireland into bankruptcy, told a judge in Boston that ex-Chief Executive Officer David K. Drumm hatched a “fraudulent” plan to hide his personal assets and avoid repaying a 7.65 million-euro ($10.5 million) loan.
Drumm, 47, can’t use U.S. creditor-protection law to avoid repayment because he lied on his bankruptcy petition and tried to transfer cash to his wife, the bank’s lawyer, John Hutchinson, said today in opening remarks at a trial in which the bank is trying to collect the money. Drumm later sought to correct his application, Hutchinson said.
“Only fraud or recklessness explains how a former bank CEO could have gotten such basic and elementary forms so very wrong,” Hutchinson told the bankruptcy judge. “If ever there was a debtor who did not deserve” to eliminate a debt in court, “it is David Drumm.”
Ireland nationalized the Dublin-based bank in 2009 after loan losses soared in the wake of the worst real estate crash in Western Europe. The lender, renamed Irish Bank Resolution Corp., is seeking to recover cash for creditors after being placed into liquidation to restructure its 34.7 billion-euro bailout.
The cost of saving Ireland’s banks later forced the government to seek a rescue from the International Monetary Fund and European Union.
Drumm, who now lives in Massachusetts, resigned from the bank before the bailout, in December 2008, after revelations that bank Chairman Sean Fitzpatrick had quit for failing to fully disclose 87 million euros in loans from the bank.
“The bank’s argument is tortured and the evidence will show it is nothing more than a smokescreen,” Drumm’s attorney, David Mack, said today in court. “Their case will be a lot of bluster, but short on evidentiary substance.”
On the witness stand today, under questioning by Hutchinson, Drumm agreed that his wife had never had a bank account in her own name until 2008, and that there were omissions on his statement of financial affairs with the bankruptcy court.
“You left out two of three real estate transfers, isn’t that right Mr. Drumm?” Hutchinson asked.
“That’s correct,” Drumm said.
IBR entity received U.S. bankruptcy court approval earlier this year for the sale of loans with nominal balances totaling more than $19 billion.
Anglo Irish sued Drumm in August 2011 in Boston, where Drumm’s personal bankruptcy case is being heard. The bank said Drumm wrongly converted loans worth 18.5 million euros to himself and other Anglo Irish directors into so-called non-recourse loans to avoid personal liability for the debt.
Anglo Irish made the loans to Drumm and other directors in late 2007 and early 2008 so they could buy stock in the bank, according to the complaint. The company’s goal was to boost investor confidence by showing that directors were putting their own wealth at stake.
Drumm didn’t allow any documentation for the loans to be drawn up until about nine months later, after Anglo Irish’s stock plunged. When the loans were documented, they were classified as non-recourse debts whose repayment was only guaranteed by the stock, according to the complaint.
After Drumm and the bank failed to settle the dispute, he filed for bankruptcy in October 2010, listing debt of $14.2 million and assets of $13.9 million.
The lawsuit is Anglo Irish Bank Corp. v. Drumm, 11-01266; and the bankruptcy case is In re David K. Drumm, 10-bk-21198, U.S. Bankruptcy Court, District of Massachusetts (Boston).
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