# Davy's fined €4m by Central Bank



## Brendan Burgess (2 Mar 2021)

https://www.centralbank.ie/docs/default-source/news-and-media/legal-notices/settlement-agreements/public-statement-relating-to-settlement-agreement-between-the-central-bank-of-ireland-and-j-e-davy.pdf?sfvrsn=5
		


The Central Bank’s investigation arose from a transaction a group of 16 Davy employees (the Consortium) undertook in a personal capacity with a Davy client (theClient) in November 2014 (the Transaction). Within the Consortium was a group of senior executives (the Committee). In permitting the Transaction, Davy prioritised facilitating an opportunity for the Consortium to make a personal financial gain over ensuring that it was complying with its regulatory obligations. The Transaction highlighted a weak internal control framework within Davy in relation to conflicts of interest management and personal account dealing. All of this served to create an elevated risk of *investor detriment.*

Following details about the Transaction becoming public four months after it occurred, Davy contacted the Central Bank to provide an explanation. At that stage, Davy failed to disclose the full extent of the wrongdoing. This lack of candour was treated as an aggravating factor in this


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## Brendan Burgess (2 Mar 2021)

The Transaction

In 2014, the Client opened an execution only account1 with Davy for the purposes of carrying out the Transaction and transferred bonds into Davy. The Consortium subsequently entered into an agreement with the Client to advance a loan to settle debt secured on the bonds and to buy the bonds from the Client at an agreed price. Davy took no steps to ensure that the Client was aware that the Consortium was comprised of Davy employees. No written disclosure was made to that effect.

The Transaction involved an off-market transfer.2 Following instructions, Davy transferred the bonds internally from the Client’s account to the Consortium’s account on System B. A payment was made by Davy, from Davy funds, on behalf of the Committee. This was repaid by the Committee later the same day. Three weeks later the Consortium sold a large tranche of the bonds to a fund manager. In the weeks prior to that sale, certain Consortium members engaged with interested buyers to provide a Davy “house view” on the value of the bonds. In so doing, the Consortium members drew no distinction between whether they were acting in a professional capacity (i.e. as broker) or personal capacity, as the seller of the bonds. The Central Bank’s investigation found this to be a particularly serious example of the many potential conflicts of interest that can arise between a firm, its clients and its employees, in the course of one transaction. 

There are two important features of the Transaction, as follows:

 (i) It was between Davy employees and a Davy client – this meant that Davy’s obligations under the MiFID Regulations in relation to conflicts of interest were triggered; and 

(ii) As a group, the Consortium members were dealing in their personal rather than professional capacity – this meant that Davy’s obligations under the MiFID Regulations in relation to personal transactions were triggered.


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## Brendan Burgess (2 Mar 2021)

When information about the Transaction entered the public domain, Davy contacted the Central Bank to provide an explanation. During the course of that first engagement, Davy provided vague and misleading details and wilfully withheld information that would have disclosed the full extent of the wrongdoing as was known to Davy at the time.

The Central Bank subsequently wrote to Davy identifying specific areas of concern and seeking additional information from Davy. In a letter of response, Davy once again failed to disclose the full extent of the wrongdoing as it was known to it at the time.

It was only after the commencement of the investigation that the Central Bank realised the extent of the inaccurate information provided. In particular, the information provided by Davy was presented in such a way as to make the involvement of certain individuals appear more central to the Transaction than in fact was the case. This has been treated as an aggravating factor in the case.


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## Steven Barrett (2 Mar 2021)

I don't deal with them and this is more confirmation that I am right.


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## Zebedee (2 Mar 2021)

Any individuals reprimanded?


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## Brendan Burgess (2 Mar 2021)

Zebedee said:


> Any individuals reprimanded?



That occurred to me as well, but apparently not.

Brendan


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## Sunny (2 Mar 2021)

That is just shocking. Well actually it probably isn't. Surely at this stage after what we have been through, we can name people involved with this type of conduct? They should never work in Financial Services again.


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## SiobhanK (2 Mar 2021)

It might just be too early - the Regulator has to prove participation before it can go after individuals....


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## Brendan Burgess (2 Mar 2021)

Sk1982 said:


> It might just be too early - the Regulator has to prove participation before it can go after individuals....





> I think that the Central Bank makes it clear in the last line that they are not going after individuals.



However, it's quite possible that the Central Bank has let the staff involved know that they will not be approved for any further senior positions.

Brendan


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## Steven Barrett (2 Mar 2021)

Was this not an individual driven transaction? Surely they should be gone after as there are clear conflicts of interest in being on the other side of a transaction involving clients funds. To think that they thought it was alright beggars belief.


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## SiobhanK (2 Mar 2021)

I would at least have thought that the Committee member who misled Davy Compliance would be at risk?


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## Bedlam (2 Mar 2021)

Gives new meaning to Davy's Advertising Tag Line

"Davy it's not just Business. it's Personal"


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## Bluefin (2 Mar 2021)

Following on from SBarretts comment above, is it wise to be using Davy for share dealing activities?. 
There costs for execution only accounts are quite expensive and the only reason I have my account with them was mainly based on their reputation.


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## jpd (2 Mar 2021)

Did the original sellers of the bonds get any compensation?


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## Silvius (2 Mar 2021)

Bluefin said:


> based on their reputation.


What is their reputation? They certainly put out a lot of publicity but as far as I know their reputation within the industry is one of the worst. I've heard a few brokers say it's a case of 'anyone but Davy'.


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## Steven Barrett (2 Mar 2021)

Bluefin said:


> Following on from SBarretts comment above, is it wise to be using Davy for share dealing activities?.
> There costs for execution only accounts are quite expensive and the only reason I have my account with them was mainly based on their reputation.











						Man awarded €2.1m over Davy's 'deliberate neglect'
					

A "very vulnerable" young man with intellectual and other difficulties having suffered two strokes by the age of ten has been awarded €2.1m by the High Court against stockbroking firm J & E Davy over its "deliberate neglect" of him resulting in substantial investment losses.




					www.rte.ie


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## Bronte (2 Mar 2021)

Surely people in Davy should get fired for this.

And if this is what they do that gets found out, what else do they do that we don’t know.


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## Bluefin (2 Mar 2021)

There's been many threads on AAM about stock trading platforms...the impression that I've gotten is that there's always been concern over firms that charge very litte commission on trades.. What is one to do!


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## sunnydonkey (3 Mar 2021)

16 people is not rogue trader territory. It speaks about the company culture. Every one of those 16 should have questioned their involvement in the transactaction.
I have had no time for Davy since watching their involvement with Elan.


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## Steven Barrett (3 Mar 2021)

As per The Irish Times, members of the consortium included the chief exec, deputy chairman, head of bonds, former chief exec and one time head of institutional equites. This is something that was right at the top of the organisation. 

Disclosed in the Central Bank report, when the client and his financial advisor approached Davy, they dealt with an employee in getting the deal in place. It was agreed that the profit would be split between the client, the financial advisor and the Davy employee, a clear breach of Mifid regulations. That employee was also part of the consortium that was on the other side of the table, but he never saw the need to tell the client?!!

Also, this was 2014 and there's still trading in Anglo bonds going on?!!!! 












						Minister urges clarification from Davy after record €4.1m fine
					

Top figures at stockbroking firm involved in bond deal that fell foul of conflict of interest rules




					www.irishtimes.com


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## sunnydonkey (3 Mar 2021)

I begin to think this penalty was way too soft.


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## Steven Barrett (3 Mar 2021)

sunnydonkey said:


> I begin to think this penalty was way too soft.


Penalties in general are too soft and are usually lower than the gain that the company has made from breaking the rules.


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## NotMyRealName (3 Mar 2021)

A scorpion wants to cross a river but cannot swim, so it asks a frog to carry it across. The frog hesitates, afraid that the scorpion might sting, but the scorpion argues that if it did that, they would both drown. The frog considers this argument sensible and agrees to transport the scorpion. The frog lets the scorpion climb on its back and then begins to swim. Midway across the river, the scorpion stings the frog anyway, dooming them both. The dying frog asks the scorpion why it stung despite knowing the consequence, to which the scorpion replies: "I couldn't help it. It's in my nature."

Perhaps we shouldn't expect anything different........


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## NoRegretsCoyote (3 Mar 2021)

Brendan Burgess said:


> The Transaction involved an off-market transfer.2 Following instructions, Davy transferred the bonds internally from the Client’s account to the Consortium’s account on System B. A payment was made by Davy, from Davy funds, on behalf of the Committee. This was repaid by the Committee later the same day. *Three weeks later the Consortium sold a large tranche of the bonds to a fund manager. In the weeks prior to that sale, certain Consortium members engaged with interested buyers to provide a Davy “house view” on the value of the bonds.* In so doing, the Consortium members drew no distinction between whether they were acting in a professional capacity (i.e. as broker) or personal capacity, as the seller of the bonds.
> 
> 
> During the course of that engagement, *the Committee member misled Davy Compliance by not providing relevant information in relation to the type of transaction contemplated – the most glaring omission being a failure to tell Davy Compliance that it was a personal transaction involving a group of Davy employees*



This is all framed as a compliance failure by Davy, which it undoubtedly was. This is what the Central Bank does. It is a supervisor that primarily looks at systems, not an investigator that looks at individual actions.

There is another way of describing what went on here. I am not going to do so because I don't want to defame anyone, but it's pretty clear if you read between the lines.


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## Zebedee (3 Mar 2021)

“The Central Bank determined the appropriate fine to be €5,900,000, which was reduced by 30% to €4,130,000 in accordance with the settlement discount scheme provided for in the Central Bank’s Administrative Sanctions Procedure”

why did they get 30pc discount given “lack of candour” “misleading information” etc? I had thought the discount was given if they were cooperative and saved the CBI time and money. Maybe they did in the end.


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## cremeegg (3 Mar 2021)

Now that the Central Bank has finished its work, will An Garda Síochána be investigating ?


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## NoRegretsCoyote (3 Mar 2021)

cremeegg said:


> Now that the Central Bank has finished its work, will An Garda Síochána be investigating ?


It took place in 2014. Davy settled in 2016 with the client.

CBI is *only 5 years later* producing a report which could be prejudicial to any criminal prosecution.

Could it be that AGS (and maybe DPP) have decided no prosecution is feasible? It's plausible that this is how long it took and the CBI have had the findings on ice for that time.


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## MrEarl (4 Mar 2021)

I'm just amazed that no one has had to walk the plank, over this.


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## Steven Barrett (4 Mar 2021)

Zebedee said:


> “The Central Bank determined the appropriate fine to be €5,900,000, which was reduced by 30% to €4,130,000 in accordance with the settlement discount scheme provided for in the Central Bank’s Administrative Sanctions Procedure”
> 
> *why did they get 30pc discount* given “lack of candour” “misleading information” etc? I had thought the discount was given if they were cooperative and saved the CBI time and money. Maybe they did in the end.


Prompt payment discount. They probably wrote the Central Bank a cheque right away.



cremeegg said:


> Now that the Central Bank has finished its work, will An Garda Síochána be investigating ?


They won't be investigating. The client sued them in court and the Central Bank have fined them. 

I don't even know what law, if any, was broken.



MrEarl said:


> I'm just amazed that no one has had to walk the plank, over this.


This is coming from the very top, with the chief exec involved in it. There is a culture in Davy to make money at every opportunity. 

The 4 non exec board members are carrying out an investigation. It will be interesting if they found anymore staff transactions on "System B"


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## Itchy (4 Mar 2021)

MrEarl said:


> I'm just amazed that no one has had to walk the plank, over this.



You'd have to take the head off the snake then.



SBarrett said:


> It will be interesting if they found anymore staff transactions on "System B"



Those deals are kept in drawers not on systems!


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## Steven Barrett (4 Mar 2021)

Itchy said:


> Those deals are kept in drawers not on systems!


You didn't read the Central Bank report I take it?


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## Itchy (4 Mar 2021)

Correct!


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## Wollie (4 Mar 2021)

Interesting to read that Brian McKiernan, Davy's boss, who was also centrally involved in the infamous transaction, revised the wording of an email to staff yesterday.  In the first version, he wrote "While there are no findings of actual conflict of interest or customer loss ..".  That  clause was dropped in the second version:  "There were significant shortcomings in how the transaction was conducted, particularly in the context of the policies and controls relating to the management of potential conflicts of interest".   Was the change of wording due to CBI intervention?


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## Dave Vanian (4 Mar 2021)

Wollie said:


> Interesting to read that Brian McKiernan, Davy's boss, who was also centrally involved in the infamous transaction, revised the wording of an email to staff yesterday.  In the first version, he wrote "While there are no findings of actual conflict of interest or customer loss ..".  That  clause was dropped in the second version:  "There were significant shortcomings in how the transaction was conducted, particularly in the context of the policies and controls relating to the management of potential conflicts of interest".   Was the change of wording due to CBI intervention?



The initial wording shows just how well the €4 million lesson was actually learned.    Still trying to convince the troops that nothing wrong was done and by extension, it's okay to do this sort of thing. 

I seriously doubt that he simply had a change of heart and decided to change the e-mail text himself.  Does Ireland have a road to Damascus for him to walk down?  More likely that he has a mole in his organisation.


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## NoRegretsCoyote (4 Mar 2021)

There is more detail in the Currency from Tom Lyons it seems.

Behind a hard paywall though.

_Driven by money: how the “Davy 16” was assembled and how the Anglo bonds deal was pulled off_​_Within hours of agreeing to sell his Anglo bonds, Patrick Kearney knew something was wrong. But it was too late. Driven by personal gain, a group of 16 people at Davy had secretly pulled off a financial coup. But who were they, and how did the deal come together?_​


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## Gordon Gekko (4 Mar 2021)

The fine seems very light to me.

Appian were fined around €450k for having systems and processes that left them open to a cyberfraud.

My understanding is that Davy have €80-100m sitting in cash and might make €25m a year.


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## Brendan Burgess (4 Mar 2021)

Here is a bit more about the case taken by Patrick Kearney against Davy's









						Central Bank investigating Davy over bond sale
					

Developer Patrick Kearney bought Anglo Irish Bank bonds on advice of stockbrokers




					www.irishtimes.com


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## Gordon Gekko (4 Mar 2021)

People made lots of money on those bonds.

With a par value of 100, lots of bank bonds were changing hands for far less than that.

Davy seemed to pay around 20 for these when there was a buyer at 30.

So lots of money to be made, especially when the State in effect redeemed some at 100.


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## Steven Barrett (5 Mar 2021)

Wollie said:


> Interesting to read that Brian McKiernan, Davy's boss, who was also centrally involved in the infamous transaction, revised the wording of an email to staff yesterday.  In the first version, he wrote "While there are no findings of actual conflict of interest or customer loss ..".  That  clause was dropped in the second version:  "There were significant shortcomings in how the transaction was conducted, particularly in the context of the policies and controls relating to the management of potential conflicts of interest".   *Was the change of wording due to CBI intervention?*


Yes


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## NoRegretsCoyote (5 Mar 2021)

More detail from Joe Brennan:



> Remaining junior Anglo bondholders, including whoever ultimately owned the notes at the centre of the O’Connell Partnership trade, *were made whole at the end of 2019 as IBRC’s liquidation generated higher proceeds than had been expected when the plug was pulled in early 2013.
> 
> Sources say that some of the 16 continued to hold the Anglo bonds for some years after the 2014 trade*. A spokesman for Davy declined to say whether any still held bonds when IBRC’s liquidators effectively took them out at par value



That looks like a 5x profit if they held to maturity!

Sure, there was risk involved, but it seems that the guys who sold out after a week still made 50%.


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## Brendan Burgess (5 Mar 2021)

Do we know how much the Davy's Partnership paid for the bonds? 
Do we know how much profit they made? 
Did they have to compensate the client with a €2m payment? 
And then pay a €4m fine. 

I wonder if they still cleared a profit on the transaction?


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## NoRegretsCoyote (5 Mar 2021)

Brendan Burgess said:


> Do we know how much the Davy's Partnership paid for the bonds?
> Do we know how much profit they made?
> Did they have to compensate the client with a €2m payment?




It's in the Irish Times Article. 



> The bonds were sold for 20.25 cent in the euro, realising €5.58 million. ........Kearney claimed in his legal action that the price secured significantly undervalued the bonds. While his case was settled in early 2016 – for a figure understood to be between €2 million and €3 million – the Central Bank was only getting started.







Brendan Burgess said:


> And then pay a €4m fine.
> 
> I wonder if they still cleared a profit on the transaction?



Also in the article:



> A spokesman for Davy declined to comment on the size of the settlement or whether it was borne by the firm or the consortium of 16. He also declined to say whether the €4.1 million fine in the firm would ultimately be recouped from individuals or if any of them have been – or will be – sanctioned.


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## Brendan Burgess (5 Mar 2021)

> The bonds were sold for 20.25 cent in the euro, realising €5.58 million. ........Kearney claimed in his legal action that the price secured significantly undervalued the bonds. While his case was settled in early 2016 – for a figure understood to be between €2 million and €3 million – the Central Bank was only getting started.



That doesn't answer my question exactly. 

But is it something like the following?

Davy's paid Kearney €5.6m at 20 cents in the euro.
They sold them for 30 cents in the euro, so the selling price was €8.4 
So they made a profit of about €3m on the transaction.
They settled for between €2m and €3m , so that probably accounted for the entire profit that they had made. 

So the overall loss was the €4m fine. 

Brendan


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## Steven Barrett (5 Mar 2021)

Brendan Burgess said:


> That doesn't answer my question exactly.
> 
> But is it something like the following?
> 
> ...


But the fine was against Davy, the company. The profit on the transaction was made by individuals. I would presume Davy also paid the court settlement. 

Which beggars the question, did the individuals get to keep their profits and get Davy's to pay any fines and settlements as a result of their actions?


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## NoRegretsCoyote (5 Mar 2021)

Brendan Burgess said:


> They settled for between €2m and €3m , so that probably accounted for the entire profit that they had made.


The fact that there is so much management ownership of the place makes this very hard to untangle.


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## trajan (5 Mar 2021)

Brendan Burgess said:


> However, it's quite possible that the Central Bank has let the staff involved know that they will not be approved for any further senior positions.
> 
> Brendan



Sure those "staff" are high enough as they are.
The Central Bank itself has become a fangless wolf as regards regulation due to its primary role in stabilizing the economy and assuring liquidity and solvency to the principal components of the financial system.
It's clear that an independent Financial Regulation Bureau is needed - one that is wholly separate from other state bureaux (e.g. Dept of Finance, Central Bank, NTMA, etc) in both its independence of decision, personnel past history, policy, consultational framework and funding.

We can all now see why the Central Bank of Ireland *lobbied* so hard to obtain control over the financial regulatory functions in the early 2000s.
Back then I felt it so strange to hear any state bureau would publicly lobby via the media and other channels for controlling another state organ whose only value lies in its independence. It wasn't just unseemly like the recent practice of ex-civil servants writing 'frank' memoirs on their times under such-and-such ministers with a few personal observations slung into the mix; it was also completely at odds with the whole purpose of the new bureau. Just goes to show how ministers ignorant of the ABC of macroeconomics can be so easily spooked by a jargon peddler in a grey suit.


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## Brendan Burgess (5 Mar 2021)

Folks

I really do want to leave this thread open.

But if people continue to make careless defamatory remarks, I will have to close it. 

Brendan


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## MrEarl (5 Mar 2021)

SBarrett said:


> But the fine was against Davy, the company. The profit on the transaction was made by individuals. I would presume Davy also paid the court settlement.
> 
> Which beggars the question, did the individuals get to keep their profits and get Davy's to pay any fines and settlements as a result of their actions?



As things stand, that's my read of the situation - the individuals in the "syndicate" made the profit, but Davy as a seperate legal entity, has incurred the costs. 

Notwithstanding the fact that Davy is probably owned by quote a few of the sixteen staff members, its wrong that Davy as a firm, is the only party to suffer the consequences here. 

Assuming that Davy as a firm, doesn't dismiss the sixteen individuals (or whatever number of them remain on staff), what else can happen? 

I also find myself wondering if we'll see any tightening up of our legislation, as a result of this transaction?


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## NoRegretsCoyote (5 Mar 2021)

trajan said:


> The Central Bank itself has become a fangless wolf as regards regulation due to its primary role in stabilizing the economy and assuring liquidity and solvency to the principal components of the financial system.


Germany has a financial regulator (BaFin) which is completely separate to its central bank. Wirecard still happened.


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## RedOnion (6 Mar 2021)

"_Three senior Davy figures have resigned from the financial services firm days after the Central Bank issued it with a €4.13m fine.

CEO Brian McKiernan, deputy chairman Kyran McLaughlin and head of bonds Barry Nangle will leave the company immediately"


Www.independent.ie/business/three-senior-figures-resign-from-davy-after-central-bank-41m-fine-40165544.html_


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## Steven Barrett (6 Mar 2021)

SBarrett said:


> But the fine was against Davy, the company. The profit on the transaction was made by individuals. I would presume Davy also paid the court settlement.
> 
> Which beggars the question, did the individuals get to keep their profits and get Davy's to pay any fines and settlements as a result of their actions?


Apparently this is correct. The company paid the fines and settlement and the individual's kept the profit. Nice work if you can get it.


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## MrEarl (6 Mar 2021)

RedOnion said:


> "_Three senior Davy figures have resigned from the financial services firm days after the Central Bank issued it with a €4.13m fine.
> 
> CEO Brian McKiernan, deputy chairman Kyran McLaughlin and head of bonds Barry Nangle will leave the company immediately"
> 
> ...


While good to see, they've only left because the story has now hit the headlines. 

The individuals who participated in the transaction still need to be made answer for their actions.


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## trajan (6 Mar 2021)

NoRegretsCoyote said:


> Germany has a financial regulator (BaFin) which is completely separate to its central bank. Wirecard still happened.



Yes. But a lot more things would happen were the CB and FR to be the same bureau.


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## trajan (8 Mar 2021)

I don't get something here.
In 1999 Kyran McLaughlin resigned over this Liechtenstein thing






						Top broker quits over leaked tax trust files
					

MILLIONAIRE Kyran McLaughlin last night dramatically quit as joint chief executive of Davy Stockbrokers and resigned from the board over leaked family tax trust files.




					www.independent.ie
				




But then *he apparently seems to have been allowed retain his shareholding* in the stockbroking firm. Why, since he was no longer working there and thus not entitled to share in the _future growth_ of the firm, didn't Davy's other shareholders simply buy McLaughlin out ? That is what usually happens in most private companies.

Then when Bank of Ireland sold its 90% stake in J & E Davy back to the broker's management in 2006, we see that McLaughlin re-emerges as an even bigger shareholder and senior executive in the brokerage which he shamed but a few years before . . .






						BoI to sell Davy back to its management
					

Leading broker worth ?300m in the surprise MBO deal




					www.independent.ie
				




It all looks like McLaughlin's resignation from Davy in 1999 was just a very temporary thing in his own mind; and seemingly in the mind of the other seniors at Davy too. It is almost like politics in a way: a grand gesture resignation, a decent interval to spend more time with the family - and for the wider public to lose focus on the past event - and then a triumphant return to the saddle.

Davy is not just another old broker in the Dublin Stock Exchange.
Davy is not just another old market-making broker either.
Davy is the bond broker to the Irish State - the broker who represents us citizens.
A firm employing people who abuse the public trust should have no part in the investment or trading of public funds.
It looks like the CB report on this matter is about as far as this matter will go as regards censure or punishment.
But in my personal opinion, the O'Connell Consortium or whatever they are called should all do hard time in jail for what they have done to the public trust in financial markets in this country.

And the crying need to reform regulatory practices in Irish financial markets has to be addressed.


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## Brendan Burgess (8 Mar 2021)

Despite repeated requests, some posters seem to think that they have a right to post defamatory comments. 

So I have to close the thread.

Brendan


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## Brendan Burgess (8 Mar 2021)

*NTMA withdraws J+E Davy authority to act as Primary Dealer *



The Board of the National Treasury Management Agency (NTMA) has withdrawn J&E Davy’s authority to act as Primary Dealer in Irish Government bonds with immediate effect.



The Board reached its decision based on its assessment of the very serious findings relating to the firm that were made by the Central Bank of Ireland last week and following engagement with investors in Irish Government debt over recent days.



A primary concern for the NTMA is to maintain the reputation of Ireland as a sovereign issuer in the bond market and the orderly functioning of the market for Irish Government debt. In this context, the NTMA believes that the behaviour described in the Central Bank findings falls substantially short of the standards expected from market counterparties, peers and colleagues in the bond market and is potentially damaging to Ireland’s reputation as a sovereign issuer.


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