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It’s yet another scandal in Irish financial services. The recent fine on Davy may be the biggest of its kind ever levied on a broker in Ireland, but the damage inflicted on the firm may yet be greater than the sum of €4.13 million it was penalised by the Central Bank.
An rogue personal gain by 16 employees at Davy Stockbrokers has left the firm paddling through stormy waters, as it tries to preserve its reputation and client base. Three of the highest ranking of those involved left the firm over the weekend, while all 16 members involved could yet face sanctions from the Central Bank. But what exactly happened at the firm, and what could happen next?
The trade
The case involves the sale of bonds in the then defunct Anglo Irish Bank back in 2014. When an investor buys a bond in a company, they’re effectively lending to that company, and are paid interest on this loan.
The broker was approached by a client, Northern Ireland property developer Patrick Kearney, to sell these on his behalf.
But rather than sell them into the market, the firm put together a consortium – the O’Connell Partnership comprising 16 Davy staff members – to acquire the bonds.
In effect, the senior staff at the broker sold the bonds to themselves, and did so without notifying the compliance function in Davy, something which is not allowed in stockbroking under EU rules.



Tánaiste Leo Varadkar.


Tánaiste Leo Varadkar has explained it as follows: “It’s as though you were selling your house, the auctioneer pretended to be trying to get the best price for you but was actually the buyer himself.”
So not only has the market not been able to determine what was the “best price” for your house, but the buyer has an obvious interest in keeping the ultimate sales price low.
The bonds were sold for 20.25 cent in the euro, realising €5.58 million.
Mr Kearney determined the price was less than their value, after being told another buyer would have been prepared to pay close to 60 per cent more. He sued Davy, ultimately settling his case in the High Court in 2016 for a figure understood to be between €2 million and €3 million.
The ultimate profit made by those involved in the partnership who acquired the bonds however, is not known. What is known is that a large tranche of these bonds were then sold on by the partnership to a New York fund manager, some three weeks after they were acquired. It’s understood that some in the group held onto their bonds for some years after.
The regulator’s view
The Central Bank then stepped up its investigation, and has taken some seven years to get to the point where the Central Bank fined the firm €4.1 million over the transaction. It asserted that, in allowing the trade to go ahead, the brokerage breached EU market rules by failing to identify and manage a potential conflict of interest with the client and by keeping its compliance team in the dark at the time.
Who are the 16?
The full list of those involved in the so-called O’Connell Partnership has not been disclosed. However, The Irish Times has established that the list includes Davy chief executive Brian McKiernan, deputy chairman Kyran McLoughlin, and head of bonds Barry Nangle – all of whom resigned over the weekend – as well as former chief executive Tony Garry and one-time head of institutional equities David Smith.
That list includes three chief executives of the firm on the list; two of whom were implicated in a previous scandal at the firm, back in 1993, when the broker was fined for Greencore shares which were bought by companies owned by some Davy senior executives.
What has happened those who were involved?
Up until Friday, the only sanction was at the corporate level, and the €4.1 million fine from the Central Bank. However, on Saturday McKiernan, McLaughlin and Nangle resigned with immediate effect from the firm.
Now the board of Davy, which includes chairman John Corrigan, a former chief executive of the National Treasury Management Agency (NTMA), which is responsible for raising the State’s debt, is undertaking its own review of the Central Bank’s findings. It will assess whether other cases of wrongdoing occurred at the brokerage.
The situation is complicated somewhat in that those involved in the trade are estimated to own at least a third of Davy, a business valued at about € 400 million. Departed chief executive McKiernan is understood to have a 13 per cent stake in the stockbroker.
On Sunday, the Minister of State at the Department of Finance, Seán Fleming, said this shareholding issue needs to be addressed “very promptly”.
“The issue of people who have major shareholdings in that company continuing to have a major influence on the operations, even though they may have resigned from their executive roles, is a matter than needs to be dealt with very promptly,” he said.



Minister for Finance Paschal Donohoe.


What will happen next?
As Minister for Finance Paschal Donohoe said at the weekend, now that the company has been sanctioned, the regulator can now focus on the behaviour of individuals involved. The Central Bank has a range of sanctions available, including fines and barring people from working in a regulated firm.
The Department is locked in discussions with the NTMA over Davy’s continued involvment in selling State debt as a primary dealer with a decision expected on Tuesday.
There is also the potential reputational damage the firm could face, which could see it lose clients. Clients such as Bank of Ireland have expressed concern about the transaction.
Given the pressure on the shareholding of the company, as outlined by Minister Fleming, the broker may also need to find buyers for a considerable stake in the company.