Irish Financial Regulator – Betraying the consumer

The core claim at the heart of this blog is the assertion that Ireland is a corrupt state. Every country in the world suffers to one degree or another from the disease of corruption but some countries are in themselves corrupt entities.

The failure of a state to take proper and effective action when corruption is uncovered is one of the clearest indicators that it is a corrupt entity. Last Friday, RTEs Investigative Unit, headed by journalist Philip Boucher-Hayes provided us with a perfect example of how the Irish State fails in this regard and as a consequence, protects the corrupt.

THE FRAUD: In the early 1990s retired business man, John O’Mahony contacted a Mr. Stephen Donnelly of Friends First about investing £750,000. Mr. Donnelly was only cleared to guarantee a rate of 28% over five years but in order to get the business he forged a policy document guaranteeing Mr. O’Mahony 40% with a bonus on termination depending on how the policy performed.

When the policy matured in 2002, Mr. Donnelly convinced Mr. O’Mahony to roll over his investment into a new policy so it wasn’t until 2005 that Mr. O’Mahony found out that he had been defrauded. When O’Mahony confronted Donnelly he made a written confession of guilt and when all the information was given to Friends First Mr. O’Mahony was told that if everything he said was true their next phone call would be to the fraud squad.

At this point, in a law enforcing jurisdiction, the police would be called, there would be an investigation and if sufficient evidence was produced the case would be processed through the courts. In a law enforcing jurisdiction Mr. Donnelly would almost certainly have gone to jail and, at the very least, Friends First would have suffered severe sanctions.

THE REACTION: Here’s what happened in corrupt Ireland. Friends First knew of the fraud in February 2005. Two months later they informed the Financial Regulator. Nearly two years later, (Yes, two years) just coming up to Christmas 2006 (20th December) the regulator quietly announced on its website that Mr. Donnelly had been disqualified from acting as a director of a financial services provider for five years. There was no mention of fraud, no mention of forged letters, no mention of the sums of money involved and most notably there was no mention of police involvement.

AFTERMATH AND CONSEQUENCES: Mr. O’Mahony is a victim of fraud by Friends First. According to his figures he is still owed about €250,000 but he is in poor health and Friends First, who are aware of his health problems, have indicated that they will strongly contest any legal action. He has indicated that he is unlikely to put himself through the trauma of lengthy legal proceedings.

Friends First acknowledge that the fraud took place but incredibly they claim that Mr. O’Mahony suffered no loss and penalised him (legally) €25,000 for early withdrawal of his investment. (Necks don’t come much harder than that)

The fraudster, Stephen Donnelly has not suffered any punishment, although to his credit, he has attempted to make good the loss and to date has repaid €170,000. He currently sits on the board of Arley Ltd., a Friends First property company. He sits in company with two Friends First directors who are apparently happy to be associated with a self-confessed fraudster.

The most serious aspect of this case is the failure of the so called Financial Regulator to protect and inform consumers. This government organisation

• failed in its duty to protect the interests of a consumer who was defrauded of his hard earned money.
• It apparently failed in its duty to report an alleged criminal offence to the police.
• It failed in its duty to inform and warn consumers that a major financial services group was happy to tolerate a self confessed fraudster on its staff
• It failed in its duty to inform current customers and potential investors of the low standards of honesty at Friends First.

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