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CHAPTER 9

THE FINANCIAL ANALYSIS OF CASE 2
EXPOSING FRAUD

9.6.4There should be No Euphemism for Fraud
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The grounds on which Irish Life / First National are guilty of fraudulent misrepresentation, as related previously in Section 9.6.3, stem from the fact that they wilfully shut their eyes to the fundamental financial facts or purposely abstained from inquiry into those facts.


There is absence of honest belief in the truth of their representations.


Such misrepresentation has equivalence to male fide active concealment with intent to deceive.



The critical matters of Internal Rate of Return, Risk, and Reward for Risk taken, would, if truthfully disclosed, put a wholly different complexion on the positive representations made by the Financial Institutions in their ‘Endowment Mortgage  —  Repayment Mortgage’ Quotation Comparison.


(See Section 7.4.3: The Duty to provide the Information Necessary to an Informed Decision.)


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But Irish Life / First National did not limit their deceptions to male fide active concealment.



To ENSURE that the Endowment Mortgage would be seen in a more favourable light than the Repayment Mortgage, they actively applied their expertise to distort the truth.



Their positive representations are FALSE.


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Irish Life / First National employed a fraudulent misrepresentation of facts to induce my wife and I to enter into an Endowment Mortgage Contract with them. They effected this fraudulent misrepresentation by male fide false and misleading statements. (See Section 9.4 and Section 9.5.)


Irish Life / First National, intentionally, and with bad faith, applied their financial expertise to contrive to make the Repayment Mortgage look less attractive than it actually is, and to contrive to make the Endowment Mortgage look more attractive than it actually is.


By ignoring the most fundamental precept of financial analysis, the Time Value of Money, they effected very subtle deceptions of the borrower / investor.


Remember!
— It is fraud intentionally to give a false impression and induce a person to act upon it, even though each fact stated taken by itself may be literally true. It is possible by stating a thing partially to make a statement which, in the sense that it must be known it will be understood, is really false. (See Section 2.3.2: Fraudulent Misrepresentation.)


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(a)

Irish Life / First National applied their financial expertise, by using the Arithmetic Average of mortgage interest Tax Relief, to contrive to give the false impression that the Equivalent Monthly Cost (i.e. the Total Net Monthly Outlay) of the Repayment Mortgage is more costly than actually is the case.


(b)


Irish Life / First National then augmented (by a multiple factor of 240) the deception perpetrated in their representation of the Total Net Monthly Outlay, by contriving a comparison between the Endowment Mortgage and the Repayment Mortgage on the basis of another ‘merely arithmetic’ calculation, the Total Net Outlay Over Term.


This ‘merely arithmetic’ calculation has no meaning whatsoever in the context of a truthful Financial Analysis and, again, gives the false impression that the Repayment Mortgage is more costly than actually is the case.


(c)


By using such a contrived entity as the Total Net Outlay Over Term as part of the representation of the Comparison between the Endowment Mortgage and the Repayment Mortgage, a completely false impression is given of the relative value of the Projected Surplus After Loan Repaid.
Again, the most fundamental precept of Financial Analysis, the Time Value of Money, has been totally ignored.


(d)


The ultimate deception, enabled by ignoring the Time Value of Money, is that Irish Life / First National could extol the Early Repayment Term as a major benefit of the Endowment Mortgage relative to the Repayment Mortgage.

They contrived the representation wherein their comparison of the Benefits pertaining to the Endowment Mortgage and the Repayment Mortgage showed that:

(i)

by choosing a Repayment Mortgage our loan of £40,000 @ 11.85% p.a. would be repaid in 20 years for a Net Outlay of £346.71 per month.

(ii)

by choosing an Endowment Mortgage our loan of £40,000 @ 11.85% p.a. would be repaid in 18 years for a Net Outlay of £341.23 per month (assuming a unit growth rate of 10.75% p.a. less a management charge of % per month).

This is a false and misleading statement intended to induce the borrower / investor to choose the Endowment Mortgage. The completely false impression is given that, for £5.48 per month less, the Endowment Mortgage also offers the prospect of surpassing the Repayment Mortgage by repaying the mortgage loan 2 years earlier. This represented virtue of the Endowment Mortgage above the Repayment Mortgage we have shown to be ABSOLUTELY UNTRUE.


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The positive representations of Irish Life / First National in their Mortgage Quotation Comparison regarding the Total Net Monthly Outlay, the Total Net Outlay Over Term, the Projected Surplus and the Early Repayment Term give a false impression that both dissuades the borrower / investor from choosing the Repayment Mortgage and persuades him to choose the Endowment Mortgage. These misrepresentations induce the borrower / investor to enter into an Endowment Mortgage Contract with Irish Life / First National.


It cannot be denied, given the financial expertise of Irish Life and First National, that these representations were made either with a conscious knowledge of their falsity or with a conscious ignorance of their truth.



No reasonable man could in the circumstances infer that Irish Life / First National had an honest belief in the truth of their representations.


It would stretch the use of euphemism beyond its elastic limit to classify the Mortgage Quotation Comparison of Irish Life / First National as anything other than An Absolute Fraud.


(See Section 2.3.2: Fraudulent Misrepresentation. See also Section 2.8.1: The Right to Revoke the Contract, and Section 2.8.2: The Measure of Damages as a result of a successful Action based on the Common Law liability under Fraudulent Misrepresentation.)

 

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