Powers v Greymountain Management Ltd [(in Liquidation)]

• Jurisdiction: Ireland
• Judge: Mr. Justice Twomey
• Judgment Date: 28 October 2022
• Neutral Citation: [2022] IEHC 599
• Court: High Court
• Docket Number: Record No. 2018/7326P

Between

William Thomas Powers

Plaintiff

and

Greymountain Management Limited (In Liquidation), Ryan Coates, Liam Grainger, David Cartu and Jonathon Cartu

Defendants

[2022] IEHC 599

Record No. 2018/7326P

THE HIGH COURT

COMMERCIAL

International fraud – Personal liability – Incorporation – Plaintiff seeking an order against the defendants making them personally liable for the funds which had been lost as a result of an alleged fraud – Whether the defendants were personally liable for the plaintiff’s loss

Facts: The first defendant, Greymountain Management Ltd (Greymountain), had its registered office at Ulysses House, Foley Street, Dublin 1 and an administrative office in Willow House, Pearse Street, Gorey. The use of this Irish company was a critical factor in the structure and overall success of an alleged international fraud worth €186 million. This was because Greymountain was a key middleman in a chain of payments which defrauded unsuspecting members of the public, primarily based in America, out of millions of euro. An order was sought against the directors and shadow directors making them personally liable for the funds which had been lost as a result of the alleged fraud. While uncontroverted evidence was provided to the High Court that some €186 million in credit card payments from the large number of ‘investors’ in the fraudulent scheme flowed through the accounts of Greymountain, these proceedings were concerned only with a relatively small group of 35 investors, who claimed to have lost a total of $4,638,584.45. The hearing in this case concerned just one of those plaintiffs, who claimed to have lost $124,027 as a result of his dealings with Greymountain. This was because on the 25th June, 2020, O’Moore J ordered that this litigation proceed in the name of one plaintiff only, Mr Powers. The alleged fraud arose in the context of a scheme where individual ‘investors’ were led to believe that they were trading in financial instruments known as binary options. However, no evidence was produced to the Court that binary options were ever purchased on their behalf and unchallenged evidence was provided to the Court that their money was converted to the use of the third and fourth defendants, Messrs Cartu (the Cartu brothers), shadow directors of Greymountain.

Held by Twomey J that the Cartu brothers were personally liable to Mr Powers for the return to him of the sum of $124,027, in particular because of their role in knowingly syphoning off the funds of Greymountain, which had led to Greymountain not being able to discharge its liabilities to Mr Powers. The Court found no evidence to suggest that the first and second defendants, Mr Coates and Mr Grainger (directors of Greymountain), were aware that the Cartu brothers were syphoning off Greymountain’s funds.

Twomey J held that Mr Coates and Mr Grainger were both in complete dereliction of their duty to be aware of what the company, of which they were directors, was doing (whether that was something that was legal or illegal). Twomey J held that they abrogated their responsibility as directors to the Cartu brothers who used that opportunity to defraud investors. The Court concluded that this impropriety and dereliction of duty on their part was of such a degree as to justify both Mr Coates and Mr Grainger being held personally liable to Mr Powers for the return of the sum of $124,027.

Relief granted.

JUDGMENT OF Mr. Justice Twomey delivered on the 28 ^th day of October, 2022

SUMMARY

1 . The following sad and very personal email is what Irish corporate fraud looks like in real-life terms:

“ Can anybody help me with the withdrawing of €210,882 and wire it to my Beobank account; see attachment. Please understand that my life has become unbearable; daily I am having stress; I can't believe this is happening… these were all my savings from myself and my children. Please proof me that all of this is not a scam.” (Emphasis added)

This is an email from a member of the public to Greymountain Management Limited (“Greymountain”), which has its registered office at Ulysses House, Foley Street, Dublin 1 and an administrative office in Willow House, Pearse Street, Gorey. As will be seen, the use of this Irish company was a critical factor in the structure and overall success of an alleged international fraud worth €186 million. This is because Greymountain was a key middleman in a chain of payments which defrauded unsuspecting members of the public, primarily based in America, out of millions of euro.

2 . On one level, this case is about a technical point of company law, i.e. whether a company is a separate legal person from the people that control, or should control, it. Thus, it considers the role of passive directors, who take no active role in a company and how this aligns with ‘ the whole notion of proper corporate regulation’ ( per the Court of Appeal). On another level, it is important when considering these technical issues regarding inanimate corporate entities, to bear in mind that proper corporate regulation has very real and serious effects on members of the public.

3 . It is against this background that this Court will consider whether directors/shadow directors should be able to evade responsibility for their company's actions by hiding behind the veil of incorporation. In this case, an order is sought against the directors and shadow directors making them personally liable for the funds which have been lost as a result of the alleged fraud. To date, no Irish court has held that the veil of incorporation should be pierced in order that directors are held personally liable for the acts or omissions of their company in a case like this one. This is because of the well-established principle from Salomon v. Salomon [1897] A.C 22 that a company is a separate legal person from its directors.

4 . However, in the High Court case of Dublin County Council v. Elton Homes Ltd [1984] ILRM 297 at p. 301, Barrington J. stated that:

“ If the case were one of fraud…the court might be justified in lifting the veil of incorporation and fixing the directors with personal responsibility”.

5 . While lifting the corporate veil is not to be done lightly, it seems to this Court that if the circumstances of this case do not justify piercing the corporate veil and affixing the directors and, in particular, the shadow directors, with personal liability, then it is difficult to think of other circumstances which might justify making directors liable for the acts/omissions of their company.

6 . While uncontroverted evidence was provided to this Court that some €186 million in credit card payments from the large number of ‘investors’ in the fraudulent scheme flowed through the accounts of Greymountain, this case is concerned only with a relatively small group of 35 investors, who claim to have lost a total of $4,638,584.45. Indeed, while the current proceedings concern 35 plaintiffs, the hearing in this case concerned just one of those plaintiffs, who claims to have lost $124,027 as a result of his dealings with Greymountain. This is because on the 25 ^th June, 2020, O'Moore J. ordered that this litigation proceed in the name of one plaintiff only, i.e. Mr. William (Bill) Powers (“Mr. Powers”).

7 . In brief, the alleged fraud arose in the context of a scheme where individual ‘investors’ were led to believe that they were trading in financial instruments known as binary options. However, no evidence was produced to this Court that binary options were ever purchased on their behalf and unchallenged evidence was provided to this Court that their money was converted to the use of the third and fourth defendants, Mr. David Cartu and Mr. Jonathan Cartu (the “Cartu Brothers”). Mr. David Cartu is a shadow director of Greymountain and he is currently resident in Dubai, but he has an address both in Israel and in Georgia. His brother, Mr. Jonathan Cartu, is also a shadow director of Greymountain and he is resident in Israel.

8 . The fraud was initiated by people operating from a call centre in Israel, who contacted individuals, based mainly in America, to induce them to ‘invest’ in binary options. However, the ‘engine’, or a key component, of the fraud was the veneer of legitimacy which was provided by the fact that the recipient of their credit card payments, Greymountain, was a company incorporated in Ireland/the EU. Because the recipient of their funds was an Irish company, the ‘investors’ were thereby given the impression that their funds were in the hands of a company apparently subject to regulation in Ireland/the EU, and not in the hands of individuals resident in Georgia or Dubai or a company incorporated in Belize. These were some of the actual recipients of those funds. This deception is at the heart of what appears to have persuaded these ‘investors’ to part with their money and not be immediately concerned about the security of that money.

9 . Greymountain took credit card payments from unsuspecting ‘investors’ (who wrongly believed they were investing in binary options) and passed them on, less Greymountain's commission, to the Cartu Brothers and other persons who were allegedly trading in binary options on behalf of the ‘investors’. The fraudulent scheme was structured with an Irish company at its core because the ultimate beneficiaries, of the payments received from ‘investors’, would not have been able to receive credit card payments themselves. This was because the recipient of the credit card payment (Greymountain) needed to be based in the EU to have a payment processing agreement with a bank (known as an “Acquiring Bank”). The Acquiring Bank is in effect a ‘middleman’ that receives the money from the credit card company of the ‘investor’, such as Visa or Mastercard, and then forwards the money to Greymountain. Greymountain, as a company subject to regulation in Ireland/EU (unlike the Cartu...