A HIGH Court judge has dismissed the “pathfinder” action by Century Homes co-founder Gerard McCaughey over expected losses from an Anglo Irish Bank-backed investment project involving the purchase and renovation of two New York hotels.
Mr McCaughey was among about 50 “high net worth” Irish individuals, including a number of developers, who invested an average $1 million (€689,000) in the fund in 2006.
The court’s decision has adverse implications for 22 similar actions by other investors. About $620,000 of Mr McCaughey’s investment was provided via a loan from Anglo.
Mr Justice George Birmingham yesterday found there was no evidence of fraud by Anglo in relation to how the investment was promoted and managed. He also dismissed all other claims by Mr McCaughey concerning the investment. Some of the issues raised by the plaintiff turned out to be “balls of smoke”, he said.
The bank’s brochure concerning the investment and a commitment agreement signed by investors contained warnings addressed to potential investors, he also noted.
The brochure warned of a risk that works would not be completed on time or on budget. Its final section, under the headline “Important Notice”, warned “this investment could be subject to sudden and large falls in value and an investor could lose the entire value of their investment”.
Mr McCaughey, “a sophisticated and experienced” businessman, now clearly regrets his investment decision “but investor remorse does not provide a basis for a successful legal action”, the judge said.
“Had the hotels been disposed of at a time when they had increased in value very substantially and had a profit been recorded, his attitude might well have been different,” the judge added.
“Unfortunately that didn’t happen and it appears that the plaintiff is now facing a loss on his investment.”
That was “sometimes the lot of those who participate in high risk investments,” the judge said. Just because an investment fails to deliver hoped for returns, that did not mean another party was culpable and still less did it provide a basis for concluding there had been fraud on anyone’s part.
Having delivered his 95-page judgment, the judge adjourned the case to October when he will deal with costs and other issues. The case ran for several weeks, with legal costs expected to amount to several million euro.
Mr McCaughey, with addresses at Sandymount, Dublin, and Manhattan Beach, California, had sued Anglo Irish Bank and the Anglo-owned Delaware-based Mainland Ventures Corporation over the Anglo Irish New York Hotel Fund, a private equity investment.
Both defendants were sued for $23 million over alleged fraudulent and/or reckless concealment and/or misrepresentation concerning the fund, set up to buy and renovate the Beekman Tower Hotel and Eastgate Tower Hotel in Manhattan. The defendants denied the claims.
The investors had claimed a brochure given to them in September 2006 aimed at encouraging them to invest in the hotels fund failed to disclose key risks involved and amounted to “conscious and deliberate dishonesty”, but the judge rejected those claims.
In his judgment, Mr Justice Birmingham found a professional investor declaration signed by Mr McCaughey in connection with the investment was “valid and effective” and also ruled that warnings and other provisions included in a commitment agreement signed by Mr McCaughey in September 2006 precluded him from pursuing claims other than fraud.
Having analysed all the evidence, he went on to conclude there was no evidence of fraud.
The judge noted the project had not proceeded as intended, principally because the cost of the planned renovation was far greater than originally contemplated.
