Offshore Islands
Page 75
The sensational growth of his companies, Investec and Swap, could have gone to Kavanagh’s head in one way or another. However, the effect was to the contrary. Sean Kavanagh very soon came to recognise a South Sea Bubble in the making, one that the Bear market Cassandras had predict as inevitable. Their warnings were lost in the hysteria of the market, in the rush by every species of investor, great and small, panicked by the fear of missing out on the distribution of new riches.
He had unexpectedly joined the Britain’s top thousand richest people. Many of those held shares in start-up companies; the wealth was in paper money. Kavanagh would soon be forty-six and had firmly made the decision to stay rich. He had no use for paper money he wanted his wealth in real money, whatever it took to do that.
Unless money was spent it had no value. He had always had had pleasure in spending his money and had no intention of leaving it to the government or anybody else for that matter, with the possible exception of something for his brother. He had found a solution that helped him in his direst moment of need. As for the others if they wanted money they should make their own as he had always succeeded in doing in spite of the difficulties he had encountered.
His greatest fear was a reversal in the market situation, it always happened sooner or later. He reflected very carefully on the possible consequences of a potential crash, the timing, and how it would affect him personally. It would be too difficult to start again, he remembered his past misadventures in the property market, not forgetting his most recent experience in financing and investment, when his so called business friends dropped him like the pest.
He had no illusions as to the fickleness of human nature and how fortune could swing in both directions. If people started to lose their money he would be transformed from hero to villain overnight.
He was rich and he intended to stay that way, by whatever means it took. He could only count on himself when the dogs were set loose. He had looked after his two close friends and he did much soul searching as to whether he should confide in them the plans he was starting to explore.
Even though he very sincerely felt that he had fulfilled his past debts to both Jim and Phil, by the royal profits from their participation in his enterprises, he hesitated before deciding to sound them out on the eventuality of a crash and the idea of building a shelter fund together.
When he voiced his apprehensions as to the markets and the idea of setting up a shelter fund, he discovered the idea had already passed through their minds. Their reasoning was very simple; the quantity of money involved was so great, that never again in a lifetime would such an opportunity occur, not even in ten or twenty, or even a thousand, lifetimes.
They reasoned that the market was extraordinarily overvalued, more than at any time in the last one hundred and fifty years. According to statistics the price-earnings index ratio had already reached 33 and in January 2000 it reached 44, based on the Dow Jones Industrials.
Their shares in Swap were quoted on the FTSE New Technologies listing, where the price-earnings ratios made nonsense of any serious calculations, earnings were non-existent and prices were astronomical
If ever there was a bubble then this was it. Things were going to get hot, and it was inevitable that they were going to go through a turbulent period. It would be better to face the future crash whenever it came, richer rather than poorer.
They agreed that Kavanagh put into effect a contingency plan. With the greatest care he prepared to dispose of a significant part of their shares, so as to ensure that whatever happened their future they would not be financially endangered.
Over a period of six weeks he sold a large number of their shares in discrete small packages to offshore shell companies he had bought, all the transactions were carried out during the course of daily trading, these shell companies acted as a screen to avoid attracting the markets attention to himself. The shares were then sold on the London and Dublin markets equally discretely by the same companies he had bought for that purpose.
The proceeds were then transferred through several offshore bank accounts, disappearing to all intents and purposes into the ether, leaving no trace for those who could have tried to follow the trail.
Every single day, throughout the international banking system there were hundreds of thousands of electronic transfers, totalling over two trillion dollars, as a result it would have been like trying to find a needle in a haystack, or to determine who was doing what and for which reasons.
International stock markets and the banking system worked twenty-four hours a day, every day of the year, in almost two hundred countries and thousands of cities in the most surprisingly far flung corners of the globe.
Those shares in Swap traded on the market, exchanged hands almost every ten days in the frenzied atmosphere of the merry-go-round, the same furore had taken over the buying and selling of almost all other shares on the New Technologies markets. Kavanagh’s gains had been transferred to offshore accounts by means of the very tools that his company Investec had developed for its banking customers.
It was not clear to him whether he had carried out any illegal trading, after all they owned the shares and he had sold them, be it through his shell companies, to willing buyers on the open market place. Swap was in good health, even if overvalued, with a capitalisation totally disproportionate to its actual value, bearing no relation to its sales or profits. The market theoretically valued its future profits, whilst he was interested in the immediate profit he could make from the market value of Swap shares.
As Kavanagh’s profits from the sale of the shares flowed over the wires to the shell companies that he owned in George Town, Grand Cayman, another event was taking embryonic form that very same day.
In a quiet corner of a smoky pub, favoured by young couples, on St Patrick Street in Limerick City, Paddy O’Brien’s secretary, Mary Doolan, was engrossed in conversation with a new boyfriend, a good looking young journalist at the Limerick Echo. It was Friday evening and Mary had already downed an unreasonably number of strange concoctions, mixtures such as Tequila, Curaçao and Pineapple juice. She was so impressed by Padraigh Fitzgerald’s stories that she could not resist letting on to him on the inside secrets of the bank. Padraigh swore ‘on my mother’s death bed’ he would never let out a single word.
“It was the Irish Union Bank that set-up Kavanagh and it was myself who prepared the papers,” she whispered as he took her hand in his.
One detail led to another and it was a short hop to uncover the nature of Kavanagh’s virtual investment.
For the young reporter it had all the makings of a good muckraking scoop and his editor after discretely checking out a few details put the story on the front page of the Friday morning edition.
The NIB had been subject to one of the recurring bouts of public criticism, when a major American company, which had received large grants, had pulled out of the Shannon Airport Business Zone with the loss of 150 local jobs. The Kavanagh story reinforced one of the favourite themes of the Limerick Echo - the misuse of government funds.
That same Friday morning Kavanagh’s offices first, then his home were besieged by reporters, he was unaware of the sudden precipitation of events, as he was heading peacefully towards Belfast airport by car. In the boot was a light travel bag, into which he had slipped a thick envelope containing several thousand dollars in cash, with ‘his’ spare passport in the name of John Ryan, he was always careful when travelling abroad and liked to travel with sufficient of cash to cover any unexpected events. He was booked on a scheduled flight to Amsterdam, where he was to meet his partner Phil Moftan, as planned to discuss the results of the week’s transfer operations.
Within twenty-four hours of the news in the Limerick Echo, the national TV, Telefis Eirean, was reporting the story. It was transformed into a full blown political scandal with the NIB at the centre.
Reports of investigations into Kavanagh’s background quickly flowed in, these led over the water to Scotland and London. The next mor
ning the Financial Times reported the news of his disbarment under the Financial Services Act, which was spread across the front page and followed with details of his earlier misadventures in the property business.
Kavanagh was quickly labelled by the national newspaper, the Irish Times, as a crook, who had misused Irish tax payers money and what was worse was that after all was said and done, he turned out to be nothing more than a swindling Brit posing as a son of the Eirean Isle.
Immediately Her Britannic Majesties tax authorities became interested in him, he certainly owed them monies both from the past but more interestingly from recent transactions.
When the news broke that Kavanagh had unloaded his shares in Swap with the money evaporating into thin air, then his unexplained disappearance, the affair erupted into a financial scandal of a dimension not seen since the Mike Leeson and Barings Bank affair.
The dismayed government in Dublin saw their image of Ireland as a base for New Technologies and a Financial Centre tarnished, and the opposition after their blood.
It coincided with the sudden fall of the London Stock Exchange followed by that of New York, where the Nasdaq plunged to its lowest level of the year. World markets trembled in fear of contagion and of a financial crash in the New Economy and its darling, New Technologies.
Chapter 76
A Little Investigation