Updated, 22 May 8am
A TRIAL STARRING former Anglo Irish Bank CEO David Drumm got underway in Massachusetts yesterday
As the proceedings head into day two, TheJournal.ie has put together an explainer about what that means for the banker-turned-consultant.
Why is Drumm in America?
Drumm left Ireland after stepping down as chief executive of Anglo Irish Bank in December 2008. He headed for Boston in the US, where he has been since.
He has resisted all requests from gardaí to return for questioning as part of the investigation into practices at the financial institution and has continued to work as a consultant to a number of firms on the east coast.
He filed for bankruptcy in 2010.
What is Drumm in court for?
This is the bankruptcy case. It is not a criminal case about fraud.
The 47-year-old wants to walk away from €10.5 million in debts and America’s bankruptcy regime is much more friendly than Ireland’s – or the UK’s.
Out of that €10.5 million, about €8.5 million is owed to the Irish Bank Resolution Company (formerly Anglo Irish Bank and Irish Nationwide Building Society).
Who can stop the bankruptcy discharge?
Both the court-appointed trustee in the case and IBRC have challenged his entitlement to bankruptcy.
They both claim that Drumm has committed a number of allegedly fraudulent activities.
The trial will be heard to allow the judge to decide whether he agrees with the challenge.
What is this about fraud allegations?
IBRC and the trustee – Kathleen Dywer – handed a list to the judge on Monday, itemising the number of “acts of fraud, misrepresentations, concealments, transfers or other predicate acts” they say they can prove over the next five days.
The list includes a number of ‘secret’ transfers to Lorraine Drumm, the defendant’s wife, between 2008 and 2010.
The plaintiffs say the transfers amount to him trying to conceal assets, and thus defrauding his creditors.
They also accuse him of making false statements as these monies should have been declared under US bankruptcy rules.
In another pre-trial brief, they said:
Drumm has played fast and loose with the bankruptcy process, his dealings with IBRC and the trustee, his disclosure obligations and, most notably, the truth.
Did we know about this before?
Reporting in the Irish Times last week, Simon Carswell mentioned details of emails between Drumm and his Boston bankruptcy lawyer which described transfers to his wife Lorraine as ‘landmines’.
The lawyer, Stewart Grossman, said he had concerns over the payments, which were made in money, property and vehicles over two years.
According to Carswell’s report, more than €830,000 was transferred to Lorraine Drumm between September and December 2008 alone.
Will Drumm have to take the stand?
Yes. It is expected he will be the first witness called at 9.30am (Boston time) today.
What will he say?
Drumm argues that the errors made in his bankruptcy filing were unintentional, honest mistakes. He is expected to outline how the banking crisis put a strain on his health and his marriage.
Lorraine Drumm’s first ever bank accounts (since marrying in 1991) were opened during this period to ensure she was provided for, he will tell the court.
There were 15 accounts opened in her name across eight different banks. Each were created in her sole name because she insisted that she should be able to provide for herself and her children if anything happened to her husband.
When will we get a verdict?
Judge Frank Bailey will decide whether Drumm should be given a fresh financial start under the US Chapter 7 bankruptcy laws.
We will not have a verdict until later this summer. When the trial ends next week, boths sides have 30 days to make submissions to the court on what they feel has been the outcome of the proceedings.
What happens if he is successful in his bankruptcy case?
Chapter 7 does not involve the filing of a plan of repayment. According to the federal government:
One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a ‘fresh start’.
If Drumm is successful, his creditors cannot initiate or continue any legal or other action against him to collect a debt.
And what if the bankruptcy is not discharged?
He can still be pursued for the €10.5 million. He may also face penalties if he is found to have defrauded his creditors, as the IBRC as claimed.
Can he go to jail?
The case is a civil case but bankruptcy fraud is taken seriously in the US.
It can be punished with either civil or criminal penalties.
The trustee can ask the court to impose a civil penalty if the allegations of fraud are proven. These penalties do not involve potential jail sentences or other criminal penalties.
It could mean he forfeits certain exemptions of the bankruptcy discharge – or the bankruptcy discharge in its entirety.
In bankruptcy cases, some property will be exempt, meaning the defendant gets to keep it no matter how much is owed.
However, if bankruptcy fraud is committed the court may choose to deny those exemptions and let creditors take the property that would otherwise have been protected.
If the fraud is serious enough, the trustee might refer the case to federal prosecutors. They can then investigate the claim and may file a criminal case against the debtor. Criminal penalties are more serious, involving jail, fines, and other penalties.
Can he get extradited back to Ireland over the Anglo collapse?
Earlier this year, the Irish Independent reported that gardaí were ready to file extradition papers for Drumm but were waiting for the DPP to decide on what charges to bring against the man described as the ‘author’ of the Maple 10 loan scheme.
A file from the Garda Bureau of Fraud Investigation has been with the DPP since 2011.
There is a major snag though. The US will only agree to extradition if the charges brought in Ireland are also seen as offences under American law.
What has happened so far?
Yesterday saw Drumm give evidence that the “buck stopped with him” when it came to giving information about his financial affairs to a US bankruptcy court, RTÉ reported.
The 47-year-old described how while he was filling out initial bankruptcy application forms, he forgot to include a cash transfer to his wife.
The court was also told that his case was “not run of the mill”.
Lawyers for the court-appointed trustee and the IBRC said that if there was ever a debtor who had made a mockery of the bankruptcy process, it was Drumm.
He, himself, admitted to forgetfulness and to lying about some transactions.
What’s going to happen today?
Drumm will be questioned again by IBRC lawyer John Hutchinson – and then by his own lawyers.
They will then put forward why they believe he is entitled to bankruptcy.
A total of eight witnesses will be called in the next four days of the hearing. The list includes Drumm’s wife Lorraine.
This article was first published on 21 May, 10am
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