The penalty was levied on the stockbroker in relation to a bond deal where a group of 16 staff sought to make a profit without telling the client for whom it was acting or the firm’s compliance team.
The fine is a record for an Irish stockbroker. Davy has refused to confirm the names of individuals involved. But The Irish Times has established that the list includes Davy chief executive Brian McKiernan, deputy chairman Kyran McLoughlin, head of bonds Barry Nangle, former chief executive Tony Garry and one-time head of institutional equities David Smith.
Mr McLoughlin, Mr Garry and Mr Smith declined to comment. Mr McKiernan and Mr Nangle did not respond to efforts to secure comment.
“The behaviour that has been detailed by the Central Bank of Ireland in relation to Davy falls gravely short of the standards of behaviour that are expected of leaders in position of financial responsibility,” said Mr Donohoe.
The case relates to the handling in 2014 of the sale of bonds in the defunct Anglo Irish Bank by Northern Ireland property developer Patrick Kearney. The transaction was the subject of a High Court action that was settled in 2016.
Mr Kearney was loaned money by Anglo in 2009 to buy junior bonds in the bank that had a face value of €27 million, according to court documents. Loans secured on the bonds were subsequently sold to an affiliate of US debt investment firm CarVal. Mr Kearney engaged advisory firm LeBruin Private in 2014 to help him deal with the debt.
Following discussions involving Mr Kearney, LeBruin and Tony O’Connor, a Davy employee at the time, it was decided that Davy would sell the bonds to discharge Mr Kearney’s €2.36 million debt to the CarVal unit and leave a profit to be divided between him, LeBruin and Davy.
The bonds were sold for 20.25 cent in the euro, realising €5.58 million. The consortium of 16 Davy staff would later emerge as the buyers of the bonds, unknown at the time to Mr Kearney or to Davy’s own compliance function.
Mr Kearney claimed in his legal action that the price secured significantly undervalued the bonds. While his case was settled in early 2016, the subsequent Central Bank investigation found that Davy breached European Union rules by failing to take all reasonable steps to see whether a conflict of interest arose in relation to the trade.
The consortium circumvented Davy’s personal account dealing framework, with its compliance function first becoming aware of the transaction months later as some details became public.