This story was first published in the Irish Maill on Sunday on 08/01/2012
By: Michael O’Farrell
Investigations Editor
BRIAN O’DRISCOLL is one of three top Irish rugby stars who were investors in the €1.1bn collapsed pension firm Custom House Capital, the Mail on Sunday can reveal.
The Ireland captain, along with at least two other high profile rugby stars, gave CHC money to invest. The firm, run by the disgraced businessman Harry Cassidy, was put into liquidation last October and was dubbed a Bernie Madoffstyle ‘Ponzi scheme’ by High Court judge Gerard Hogan.
The company is now being investigated by the Garda Fraud Squad and the Director of Corporate Enforcement following a damning report by Central Bank inspectors.
The report found that Mr Cassidy had taken up to €66m of pensioners’ and investors’ money and, without their knowledge or permission, used it to plug losses in a series of disastrous property investments.
Until now, the identity of those who invested in CHC has been unknown but the revelation of the involvement of such high-profile sports stars gives the first indication of the calibre of investor that Mr Cassidy was able to attract.
The MoS can reveal that Brian O’Driscoll handed over at least €400,000 to CHC several years ago. The money was used to purchase a Spencer Dock apartment, which is registered to a CHC-controlled fund for the benefit of Mr O’Driscoll.
The apartment will have significantly reduced in value – perhaps by as much as half – and Mr O’Driscoll’s investment is therefore currently making a significant loss.
A spokeswoman for Mr O’Driscoll said he had no wish to comment, but confirmed he had been an investor in the scheme.
Two other high-profile rugby players made a similar investment although, in their cases, they joined a CHC syndicate that owns a different British-based property investment controlled by the stricken company.
Although their investments have reduced in value because of the property crash, none of the investments made by the rugby trio has been affected by the improper transfers of client funds that became standard at CHC.
In all, CHC controlled investments worth more than €1bn on behalf of 1,500 investors who had trusted Mr Cassidy’s firm with their money.
Many of these clients had invested their pensions and life savings and now face getting little or nothing back.
With their funds now frozen and CHC in liquidation, it is far from certain how many investors will lose some or all of their pensions – especially since the CHC professional indemnity insurance policy lapsed last summer because the company did not pay its premium renewal.
This week, the KPMG liquidator appointed by the High Court to recover as much as possible for investors said the scale of financial misuse at CHC was still far from clear.
‘It will be well into 2012 before we are able to put a final definitive figure on the amount of money misused,’ Kieran Wallace said.
According to the Central Bank’s 200-page report into the scandal, there is ample evidence of the ‘systemic and deliberate misuse’ of €66m of client funds to prop up failed investments.
Yet the misuse of client funds was allowed to continue for years even after a whistleblower came forward in 2009 to tell the Central Bank.
The Central Bank demanded that CHC stop putting money into its Mezzanine Bond Fund, which was used for property investments.
But no further investigations were undertaken and the web of deception within CHC deepened for two further years, with more and more money used to prop up struggling investments.
It was not until July 2011, after a potential buyer, Appian Asset Management, conducted due diligence on CHC that the true extent of malpractice emerged.
This week one insider, who spoke on condition of anonymity, criticised the authorities, saying they could and should have moved after initial concerns emerged in 2009.
‘The Central Bank had two years.
Appian were in there for just three days when they realised things weren’t adding up,’ the source said.
When the Central Bank did finally act last summer, it instructed that all payments to clients and all investments be suspended pending an investigation.
At that point, Mr Cassidy resigned as CEO and director.
When the inspectors delivered their report in October, the full extent of his desperate, unauthorised juggling of client funds was laid bare.
Among a string of shocking findings, the report concluded that ‘CHC caused very substantial amounts of clients’ cash portfolios to be invested in property – representing ‘a breach of primary conduct of business obligations’.
‘There was a widespread practice within CHC of money being taken from accounts where there were positive cash balances in order to meet the redemption amounts due on other accounts,’ the report continues.
The inspectors also concluded that scores of customer statements had been deliberately falsified.
‘In the view of the inspectors, the practice of falsifying client statements through the deliberate and temporary removal of property investment purchases from clients’ accounts was pervasive within CHC,’ the report reads.
The report also repeatedly demon-strates how many CHC officials and staff members obeyed the instructions of Mr Cassidy and his senior executives despite having suspicions about clients being misled.
‘The style of management within CHC was not conducive to proper conduct of business,’ the report found. ‘Junior staff were not encouraged to raise queries as to the nature of instructions they were required to implement or process for clients.’
Mr Cassidy apparently worked wonders in terms of attracting and reassuring investors to CHC.
Established in 1997 by Patrick O’Sullivan and Dr Tony Burke, CHC sought to attract professional clients who would invest a minimum €250,000 in their pensions.
But it was in 1999 when then banker and tax consultant Mr Cassidy joined the company that business really took off. He joined from Guinness & Mahon, the merchant bank notoriously linked to Charles Haughey’s bagman, Des Traynor.
It was not long before he was joined by experienced fund manager John Mulholland, who himself was in business with controversial solicitor John Caldwell, who was investigated by the Mahon Tribunal.
The trio eventually came to the fore at the company, amassing a client book worth more than €1.1bn. When approached this week, Mr Mulholland refused to comment on the matter.
In 2003, as the Celtic Tiger began to roar, classified advertisements started to appear in the Irish Times. By 2007, the advertisements were accompanied by announcements of massive commercial purchases across Europe. That January, CHC spent €121m on four properties in Germany and France. In October, it spent €135.8m on two properties in Paris and one in Le Havre. The high-flying company even sponsored PGA golfer Damien McGrane and hosted corporate golf tournaments for its clients in the K Club.
Mr Cassidy, now facing possible prosecution for his role in the scandal, was photographed by the MoS coming and going from a charity shop in Dublin. When confronted, he refused to answer questions on why he moved his clients’ funds into property without their permission and refused to apologise to those who now face losing their money.
But despite his predicament, his Russian wife Elena, and his son, 24, set up a new fund management firm operating out of his Dublin house one month after the scandal emerged.
Mr Cassidy, who drew a €430,000 salary from CHC, has not yet been questioned by gardaÃ. But the High Court referred the Central Bank report to the Fraud Squad, the Justice Minister, the DPP and the Director of Corporate Enforcement.
