The judge in the Anglo Irish Bank trial has ruled that a State agency led two former executives of the bank into error and illegality, and said it would be unjust to imprison the men.
Judge Martin Nolan adjourned sentencing of Anglo's former head of lending in Ireland, Patrick Whelan, and the bank's former finance director, William McAteer, to assess suitability for community service.
McAteer, 63, of Rathgar, Co Dublin, and Whelan, 52, of Malahide Co Dublin, were convicted by a jury on 17 April, following a 48-day trial.
They were found guilty of giving illegal loans to ten developers to buy shares in the bank; a breach of Section 60 of the 1963 Companies Act.
The judge said the attitude and behaviour of the Financial Regulator had complicated the issue of sentencing.
He said it would be unjust to imprison the two men when a State agency had led them into error and illegality.
He said it seemed to him the Financial Regulator was more interested in solving the problem of Seán Quinn's interest in the bank through risky investment products than in complying with the technicalities of the law.
The judge said the explicit purpose of the loans at the centre of this case was to stabilise the share price of Anglo.
He said the bank's higher executives and probably the Financial Regulator feared that if the share price was not stabilised, it would have a disastrous effect on the financial health of the banking system in Ireland.
But he said this was a blatant affront to Section 60 of the Companies Act, no matter what the motivation was or what necessity was perceived.
He said both men were executive directors of the bank and had an obligation to ensure the bank behaved in a lawful manner and they had signally failed to do this.
They had a duty to stop this scheme he said.
But the judge said to deal with the men justly he had to make certain findings.
He said he found the problem which the scheme sought to fix was caused by Seán Quinn's "investment strategy" in Anglo.
He said David Drumm was the instigator of the scheme to lend money to the Maple Ten.
In particular, he made findings about the role of the Financial Regulator.
He said Con Horan, who was the official in the Regulator's office responsible for the banks, did his best when he gave evidence and he said his memory was reasonably good.
He said it seemed to him the situation Anglo found itself in frightened and disturbed Mr Horan and he was anxious that Anglo should sort the situation out.
The judge said Patrick Neary the Chief Executive of the Financial Services Regulatory Authority, seemed to have limited recall and seemed to have difficulty recalling vital events.
He said both Mr Horan and Mr Neary must have known from March 2008, when an agreement with the Quinn family was first drawn up, that it was intended that Anglo was going to be lending money to buy its own shares to unwind Mr Quinn's position in the bank.
The judge said it was "incredible" that the Financial Regulator did not take advice from colleagues in other State agencies about the legality of this.
He said it was incredible that red lights did not go off in the Regulator's office at this stage.
He said it seemed they were more anxious to solve the problem than to comply with the technicalities of the law.
Judge Nolan said the regulator apprehended dire consequences if the Quinn position was allowed to fester and Anglo became totally embroiled in it.
He said by not taking action and not warning the bank, the regulator had given a green light to the bank to lend money for the purpose of buying its own shares.
He said anyone in Anglo probably came to the conclusion that there was no legal bar to the bank lending for the purpose of acquiring its own shares.
He said he was totally surprised that the Financial Regulator did not give some warning to Anglo and that he was not sure if the Financial Regulator knew in July 2008 that there would be some lending to the Maple Ten, but the Regulator did know there would be lending to the Quinns at least on a short-term basis.
He said it seemed the Regulator did not realise there was a breach of Section 60 or chose to disregard it. The judge said he could not be sure which.
In relation to the legal advice obtained by Anglo Irish Bank, the judge said it was not necessary for him to decide what that legal advice was.
He said the vital issue was what McAteer and Whelan thought it was.
He said they perceived they had been given a green light from law firm Matheson Ormsby Prentice and solicitor Robert Heron.
He said he could not be certain that Whelan and McAteer knew what they were doing contravened Section 60 of the Companies Act.
He was surprised a more definite warning was not given by Mr Heron.
The judge said he did not believe there was any venal motive on behalf of McAteer or Whelan.
He said they were not motivated by avarice, greed or pursuit of profit.
It was a genuine if misguided attempt to save the bank, he said.
However, he said nonetheless it was a breach of the law and necessity did not give parties the right to break the law.
Saying that it would be incredibly unjust for the court to impose custodial sentences in these circumstances, he added that explicit warnings should have been given by State agencies and the solicitors involved and they were not given.
He said this was not a victimless crime as anyone buying Anglo shares in July 2008 would not have been aware of the true state of the bank.
Judge Nolan adjourned the case until 31 July to allow the probation services to compile reports on the men's suitability for community service.
Statement issued by Central Bank
The Central Bank issued a statement this evening.
It said: "The Central Bank notes the Court's comments on the Irish Financial Services Regulatory Authority's actions at the time of the Anglo Irish Bank share purchase transaction in July 2008.
"The Central Bank has substantially strengthened Ireland's capacity in financial regulation and supervision over the past number of years and introduced sweeping changes in supervisory practices.
"It is confident that the shortcomings identified by the Court would not recur today."