5 August 2011 No Comments by The Northern Standard

Well-known Monaghan businessman Gerard McCaughey has lost a legal bid to secure damages amounting to €46 million from Anglo Irish Bank and an American subsidiary for alleged fraud and neglect relating to an investment that was made in two New York Hotels.
In a 95-page ruling delivered to the High Court on Wednesday of last week, Mr Justice George Birmingham dismissed the action taken by the co-founder and former chief executive of Century Homes, stating that “investor remorse does not provide a basis for a successful legal action”.
It is understood that Mr McCaughey was one of about 50 “high net worth” investors who put an average of $1 million each into the Anglo Irish New York Hotel Fund in 2006. Mr McCaughey’s investment is believed to have included about $620,000 provided via a loan from Anglo.
It was also reported Anglo is now seeking to recover legal costs of about €4 million from Mr McCaughey. Mr Justice Birmingham has adjourned the case to October and indicated that he will deal with costs and other issues at that stage.
The Anglo project had involved the purchase and renovation of the Beekman Tower Hotel and Eastgate Tower Hotel in Manhattan, but it is understood that the cost of the planned renovation work had been much higher than originally anticipated.
The High Court’s decision augurs poorly for 22 similar actions that other investors had planned to take against the bank.
The High Court judge found that there was “no evidence” of fraud by Anglo in promoting and managing the investment. Other claims by Mr McCaughey were also dismissed by the judge, who said some of these had turned out to be “balls of smoke”.
Warnings about the risk involved had been included in a commitment signed by the investors, Mr Justice Birmingham noted. These included a warning in the brochure that “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 was a “sophisticated and experienced” businessman, who now clearly regretted his investment decision, “but investor remorse does not provide a basis for a successful legal action.”
The judge also suggested that McCaughey’s attitude might have been different if the hotels were disposed of at a time when they had increased substantially in value. But this had not happened, and it appeared that the plaintiff was now facing a loss.
Continuing, Mr Justice Birmingham said this was “sometimes the lot of those who participate in high risk investments”. But if an investment failed to deliver hoped for returns, that did not mean another party was culpable.
“Still less does it provide a basis for the belief that there has been fraud on anyone’s part,” he added.
Mr McCaughey, who had addresses at Sandymount, Dublin and at Manhattan Beach, California, had sued Anglo Irish Bank and the Anglo-owned Delaware-based Mainland Ventures Corporation over a private equity investment known as the Anglo Irish New York Hotel Fund.
His action had sued both for $23 million and alleged that there had been fraudulent and/or reckless concealment and/or misrepresentation concerning the fund.
In rejecting these claims, Mr Justice Birmingham found that a professional investor declaration signed by Mr McCaughey was valid, and he 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, the judge concluded that there was no evidence of fraud.
In subsequently stating its determination to pursue Mr McCaughey for costs, Anglo said it was seeking to “minimise the expense of this action to the taxpayer and the State”.
In 2005, Mr McCaughey sold Century Homes to the Cavan firm Kingspan for €98 million. The Anglo-led investment had agreed to provide $50 million for the hotels project, but the renovation costs had climbed from an initial estimate of $32 million to about $100 million.
The project had been spearheaded by New York businessman Timothy Haskin, who also subsequently failed in a bid to secure $75 million in damages from the bank.
In the 2002 general election, Mr McCaughey stood unsuccessfully for the Progressive Democrats in the Cavan/Monagnan constituency.

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