The Department of Finance and Central Bank conspired with Anglo Irish Bank in its advancing more than €2 billion in loans to Quinn companies for the unlawful purpose of propping up its share price, it has been alleged at the Commercial Court.

That conspiracy involved the department arranging for documents from Anglo to be “significantly amended” to disguise the true extent of its knowledge about what was happening in relation to the loans, the Quinn family claims.

The family of bankrupt businessman Sean Quinn want the Department and Central Bank, in their capacity as regulators, joined as co-defendants with Anglo in their action denying liability for those loans.

The family are alleging conspiracy, breach of duty and misfeasance in public office against those parties.

Martin Hayden SC, for the family, said documents showed officials in the department were aware at “every step” of the way from October 2007 of the difficulties being experienced by Anglo in dealing with the Contract for Difference positions built up by Sean Quinn in the bank.

In an affidavit, Aoife Quinn said the department arranged for documents to be “significantly amended” to disguise the extent of its knowledge that Anglo had unlawfully loaned vast sums to support its share price.

Ms Quinn said various documents, including material discovered by Anglo, showed the Deparment, Financial Regulator, the Central Bank and Anglo were all aware the bank was loaning huge sums to Quinn companies to meet margin calls on Contract for Difference positions built up by her father in Anglo.

While some documents asserted the loans were for “working capital purposes”, other documents, including trasncripts of phone conversations between various former Anglo executives, made clear their true purpose was to meet margin calls, she said.

After the bank was nationalised, the Department had arranged for alterations in a draft letter from Anglo’s new chairman, Donal O’Connor, to the Minister, she said. That letter was responding to the Department’s own request for a report on lending for the purpose of acquiring shares in the bank, it has been claimed at the Comemrcial Court.

The first draft of the letter involved a “categorical acceptance” Anglo was lending for the purpose of acquiring its own shares but the letter ultimately sent to the Minister for Finance, said exactly the opposite, she said.

The application to join the Department and Central Bank is opposed by Kieran Wallace, special liquidator of Irish Bank Resolution Corporation (formerly Anglo) on grounds including it will fundamentally alter the nature of the case. He has also alleged delay by the Quinns in seeking to have the two parties joined.

Mr Justice Peter Kelly began hearing the application this morning when he was told the Quinns have prepared a draft plenary summons outlining their claims against the Department and Central Bank.

In affidavits, Ms Quinn has referred to many documents, including transcripts of phone calls and emails between various Ango executives; the “O’Connor Report” of January 2009 reviewing transactions concerning the Quinn group; communications between her father and the bank and communications with the Department and Minister of Finance.

An applicaiton to Anglo’s credit committee dated June 3rd 2008 , stated Sean Quinn had requested the bank to provide €140 million funding. That document continued: “This is to be used to fund cash calls relating to the recent fall in the Anglo share price”, she said.

Anglo, she alleged, had knowingly drafted loan facility letters in an incorrect and false manner to suggest monies were advanced for “working capital requirements” when they were really being advanced to meet margin calls on the Quinn CFDs.

After Anglo was nationalised, its newly apointed chairman Donal O’Connor had written to then Minister for Finance Brian Lenihan on February 4th 2009, she said.

A previous draft of that letter had said: “As requested, I enclose a report on the extent of lending for the purposes of share acquisitions and contracts for difefrence generally and Anglo shares in particular”. This draft represented “a categorical acceptance on behalf of Anglo to having funded the purchase of its own shares”, she said.

However,the letter ultimaterly sent to the Minister, dated February 4th 2009, was amended to read: “The total extent of lending by the bank for the purposes of acquiring publicly quoted shares is €1.777bn. We do not lend for the purpose of taking positions in contracts for difference. Of the total, €918.6m related to lending for the purpose of acquiring shares in Anglo..”

It was difficult to marry the two drafts on this issue, Ms Quinn said. In her view, such “a significant change in wording” in response to the Minister’s request showed the Department of Finance dictated the terms of the response to its own request.

Her view was supported by a file note discovered by Anglo, dated February 3rd 2009, which set out the minutes of a meeting with various people including Ann Nolan of the Department and Donal O’Connor, she said. Under the heading “lending against bank’s shares”, that note stated: “DO’C provided a draft of the letter which is proposed wil be sent to the Minister tomorrow in response to his letter received late last week. AN agreed to read the letter and revert with any comments.”

It was clear the Department wrote to Ango about lending secured against its shares, Anglo drafted a letter for the Department, the Dept reviewed the Anglo draft and significanty amended it so it stated the opposite to what was in the original draft, she said.

This led to a heightened concern on the Quinns part the Department, knowing what went on in Anglo, “has actively engaged in seeking to cover up the true state of affairs in the knowledge of likely further legal proceedings”. The Minister’s knowledge of what went on was greater than the documents suggested as it was now clear they did not truly represent matters, she claimed

A letter from Donal O’Connor to Ann Nolan dated March 24th 2009 acknowledged working capital was really a reference to margin calls, she said.

Other documents discovered by Anglo made clear the regulator was apprised by Anglo of matters on an ongoing basis and knew it was lending to fund margin calls, she said. It seemed the regulator was prepared to tolerate this in the short term in the expectation the Quinn CFD holding would be diluted. The regulator was also aware of and actively participated in the design and execution of the “Maple 10” transaction involving Anglo making loans to its best customers to be used to try and dilute the Quinn CFDs, she claimed.

The hearing continues.