Anglo Irish Tells Judge Ex-CEO Hid Assets to Dodge LoanErik Larson and Janelle Lawrence
A lawyer for defunct lender Anglo Irish Bank Corp. told a U.S. judge that former Chief Executive Officer David K. Drumm tried to hide cash and asset sales to avoid repaying a 7.65 million-euro ($10.5 million) personal loan.
Drumm, 47, filed for personal bankruptcy in Boston in 2010, seeking protection from creditors. Anglo Irish attorney John Hutchinson said that Drumm can’t use U.S. law to avoid repaying the bank because he lied on his bankruptcy petition and gave cash to his wife to keep it out of the bank’s hands.
“Only fraud or recklessness explains how a former bank CEO could have gotten such basic and elementary forms so very wrong,” Hutchinson told a U.S. bankruptcy judge in Boston yesterday at the beginning of a trial. “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 following the worst real estate crash in Western Europe. The cost of saving Ireland’s banks later forced the government to seek a rescue from the International Monetary Fund and European Union.
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. Irish Bank Resolution received U.S. bankruptcy court approval earlier this year for the sale of loans with nominal balances totaling more than $19 billion.
Under questioning for five hours by Hutchinson yesterday, Drumm acknowledged that his wife never had a bank account in her own name until 2008. He also admitted 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. The omissions were “honest mistakes,” he said.
Drumm also agreed he told the bankruptcy trustee in 2010 that he had not made loans to family members 10 days after he had loaned his brother $6,000.
“That testimony was just blatantly false, was it not?” Hutchinson said.’’
“I completely forgot about it and I misspoke,” Drumm said.
Drumm said in court papers he had valued the furniture in his two homes at $10,000 when it had been purchased for $300,000. He also confirmed that he didn’t disclose on his financial forms that he’d sold his BMW to his sister for 20,000 euros and sold a Range Rover for 36,000 euros.
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, told the judge. “Their case will be a lot of bluster, but short on evidentiary substance.”
Anglo Irish sued Drumm in August 2011 in U.S. bankruptcy court in Boston. 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 sought bankruptcy protection 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).