As the Davy scandal unfolded last week, culminating in Saturday’s departure of its CEO and deputy chair, it was impossible not to think of James Haughey.

Haughey was an orphan and double-stroke victim. In 2014, he told the High Court that he was left in “financial ruin” by the stockbroker after he invested a €5 million inheritance in trading in contracts for difference (CFDs), a highly speculative and risky form of share dealing.

Haughey was just 20 when he started trading with Davy in 2005. He told the court that he barely knew what CFDs were, but that they ultimately cost him more than €3.8 million on Ryanair CFDs. The loss resulted in several of his properties being repossessed by Bank of Ireland.

Haughey’s witness statement, combined with his testimony during the trial, painted a devastating picture of the broker – from its culture to its modus operandi.

He met the broker in 2005 to buy shares in Jurys Doyle. He ended up playing the markets through CFDs after being encouraged to “join the big boys’ club”.

“Forms were flashed in front of me, which I was told were standard forms which just required my signature,” Haughey told the court, adding later in his testimony: “I signed blank because I trusted Davy implicitly.”

At one point, he had exposure to losses of €30 million on products that he – and many more sophisticated investors – did not properly understand.

Enticing an unsophisticated investor into a speculative play is bad enough. But the circumstances make it much worse. Haughey had two strokes by the age of 10 and was orphaned at 17.

In a witness statement, he said he had “permanent cerebral damage manifest by slurred speech, slowness of thought and periods of confusion”.

When his parents died, he said he had “few relations and little family support”. He said he suffered from depression and hopelessness.

Haughey was 21 and in a psychiatric hospital when the riskiest CFD trades, in Ryanair shares, were made.

Bravely and to his credit, Haughey stood up to the broker and sued it for alleged breach of contract, breach of fiduciary duty, negligence and “unjust enrichment”. The High Court judgment was damning. Davy was ordered to pay Haughey €2.1 million in damages after Mr Justice Peter Charleton strongly rejected the evidence given by Davy and said it showed “an insufficient level of care” to Haughey.

Davy, according to a written judgment by Judge Charleton, was guilty of “negligence and manifest breach of contract through deliberate neglect” in all its dealings with Haughey who had “alarming degrees of impairment” from his health condition.

The judgement states:

“No reasonable stockbroker would have allowed James Haughey into this kind of trading because no reasonable stockbroker could reasonably have predicted a good outcome over time for him as a client. In terms of time, a reasonable stockbroker would have looked at where James Haughey was at financially and in terms of employment and in terms of source of income and in terms of whether assets needed to be fostered as opposed to speculated and would have asked how long the money he had was to last. All such questions on the evidence in this case would have indicated the same result.”

Gavin Daly covered the case extensively The Sunday Times. On Twitter last week, the journalist and author drew uncomfortable parallels between the Haughey case and the Anglo bond scandal.

“At the time, Davy said it would “assess all learnings” from the case,” he said adding: “I covered the ‘Davy orphan’ case at the time. Judgment was delivered in April 2014 and I remember (naively) thinking there would be severe embarrassment and reputation damage for the broker. By late 2014, Davy management was doing this bond deal that just got them fined €4.1m.”

Daly makes a pertinent point. Davy talked about cultural reform in the past. And yet, within months of a devastating High Court action, its most senior executives were engaged in a scheme to personally profit at the expense of a client, a transaction that would lead to a rebuke and a €4.1 million fine from the regulator and eventually lead to the resignation of three men who were in on the deal – the chief executive Brian McKiernan, the deputy chairman Kyran McLaughlin, and head of bonds Barry Nangle.

Power brokers and personal statements

It is difficult to overstate the power that McKiernan and McLaughlin have yielded over Irish corporate life in general, and Davy in particular. Within the broker, they set the tone and the culture – and have been doing so for decades. They may be gone, (although they remain heavy shareholders) but it will take more than their exits to cleanse Davy and restore its reputation.

Let’s look at the manner of their departures. Both – along with the head of bonds Barry Nangle, who also resigned on Saturday – had sought to ride out the storm. Initially, the firm did not want to issue a public statement. When it came, the statement was sententious. Having been masters of the universe for so long, the patrician hierarchy thought they were untouchable.

McLaughlin and McKiernan both issued personal statements about their resignations.

This is McLaughlin’s statement in full: “This morning I spoke with the Chairman of J+E Davy to confirm that I am bringing forward my planned full retirement from the company next year and am now retiring from my role as non-executive Deputy Chairman of the company with immediate effect. Having previously stepped back from a full-time role in 2018 this will bring a close to my long association with Davy in an executive or leadership capacity.”

The statement made no reference to the scandal or his role in it, never mind an apology.

This is what McKiernan said:

“I have today informed the Board of J&E Davy of my resignation as CEO and director of the company. I regret my role in a transaction in 2014 and I am very sorry for the hurt that it has caused to the reputation of Davy and its people.

“I have decided to stand down from my role as my continued presence in light of the extended commentary on those events is damaging for the company and my colleagues.

“I have had 30 great years at Davy. In that time, I have had the privilege to work with and enjoy the support of wonderful clients. I am very proud of the Company, the people, and the great work that they do for clients.”

At least he apologised, but his line about “extended commentary” tells its own story. Yes, it may well have been the commentary that forced his hand, but his involvement in the transaction should have been enough to convince him to go without people pointing it out to him. McKiernan is blaming the commentary, and not himself.

It is clear Davy is not able to cleanse itself. So, it is incumbent on the regulator to keep probing Davy. If it needs new powers to do this, legislation should be passed. So too must the proposed Senior Executive Accountability Regime (SEAR), which aims to hold individual executives responsible.

After all, the Anglo bond scandal was not an outlier. If you want to get a sense of the culture that permeates at a high level in Davy, just look at the case of James Haughey or the resignation statements of its former bosses Brian McKiernan and Kyran McLaughlin.