Two years on and the global financial crisis has claimed two major casualties — corporate managers and equity investors. Many executives once thought of as masters of the universe, have been exposed as overpaid charlatans who have gotten rich on generous equity grants and irresponsible use of leverage. Fortunately for many executives, they collected a large wads of cash along the way, so all that has been lost is a reputation — while not ideal, the loss is somewhat mitigated by harbour views.
The real victims of the unfolding crisis have been equity investors — some naïve, others utterly stupid and some simply unlucky.
Below is Crikey’s list of GFC Casualties, a roll-call likely to expand in the coming years:
Allco Finance Group. Allco Finance Group was placed in administration in November 2008. Sixteen months earlier, the company had a market capitalization of more than $3.5 billion. Only months before its death, Allco purchased property fund manager, Rubicon, for more than $330 million from several related parties (including founder, David Coe and Gordon Fell). The acquisition netted Coe and Fell more than $40 million in cash and contributed to Allco’s ultimate demise. ASIC are believed to be investigating Allco directors over the acquisition, as well as the incorrect financial statements.
Babcock & Brown. The company once dubbed Macquarie Bank’s “Mini-Me” was worth $10 billion in July 2007 and managed assets worth exceeding $70 billion. Former CEO, Phil Green, collected $30 million in cash while other Babcock executives also received generous total remuneration, including Eric Lucas ($45 million), Peter Hofbauer ($47 million) and Rob Topfer ($36 million). Shareholders were left with nothing after the company was formally placed in administration in March this year. Secured creditors continue an informal liquidation of the business with operating company, BBIPL continuing to operate.
MFS. The white-shoe fund manager created by Gold Coast lawyers, Michael king and Phil Adams, was placed in administration in January 2008 under the weight of more than $1 billion debt. MFS was once valued by the market at more than $3.2 billion. King appeared to operate under a “buy high, sell low” principle. Not only did investors in MFS lose everything, but MFS’ Premium Income Fund’s 10,000 unit holders expect to eventually receive somewhere between 14 and 45 cents in the dollar. ASIC is believed to have investigated MFS’ collapse but have not taken any action to date. ASIC is also not believed to have taken action against the MFS directors who were also financial planners who recommended clients investor in the company’s stricken funds.
Westpoint. Property group collapsed in 2006 leading to investor losses of more than $300 million owed to 3500 investors. ASIC have launched numerous legal actions in relation to the collapse, with more than 16 financial advisers banned and action being taken against auditor, KPMG, as well as directors, including Norm Carey. In May 2008, former Westpoint promoter, Neil Burnurd, received a 12-month suspended sentence for obtaining financial advantage by deception after claiming he was a director of the fictitious, Kebbel Investment Bank.
Storm Financial. The financial planning business run by charismatic couple, Emmanuel and Julie Cassimatis, was placed in administration in January 2009. Storm encouraged clients, many of whom were on relatively meager fixed incomes, to assume significant margin loans and invest in market based investment products. Unsurprisingly, this strategy was unsuccessful after the equity-market fell by more than 50 percent. The $2.4 billion collapse is being investigated by ASIC, with the corporate watchdog previously obtaining a freezing order over a $2 million “dividend” that was paid to the Cassimatis’ one month prior to Storm being placed in administration.
Bridgecorp. The property investment company collapsed in July 2007, costing 18,000 (mostly New Zealand based) investors more than $450 million. The money raised by Bridgecorp had been lent property developers on a short-term, high-interest basis. Unsurprisingly, many of those loans were not repaid. While ASIC had previously obtained orders preventing Bridgecorp from raising funds in Australia, the regulator is not believed to be taking any action in relation to the collapse.
ABC Learning Centres. Eddy Groves’ market darling was placed in administration in November 2008. The company was once valued by the market at more than $4.5 billion but was forced to restate earnings figures and declare a $437 million loss in July 2008. ABC eventually collapsed under more than $3.5 billion in debt. It was later discovered than almost one-third of the company’s child-care centers were unprofitable. ASIC questioned Groves and former CFO, James Black (who also served as Groves’ long time personal accountant) over financial disclosure irregularities but is yet to lay any charges.
Between 2003 and 2007, ABC is believed to have paid upwards of $100 million to companies associated with Groves’ brother-in-law, as well as more than $40 million to Austock, an investment bank which is partially owned by Groves. Groves stake in ABC was once worth more than $300 million, but was reduced to nothing after the former milk-man was margin-called out of his equity stake. Groves is still believed to retain an interest in an internet gaming company as well as various property assets.
Timbercorp. The agribusiness company founded by accountant Robert Hance collapsed in April with debts of $900 million swamped by assets of $595 million. Timbercorp’s administrator, KordaMentha, stated in an affidavit to the Supreme Court that Timbercorp Securities Limited was “hopelessly insolvent” and had “no funds on hand”. 14,000 Timbercorp shareholders have lost the entire value of their equity holdings (the company was once capitalized at approximately $1 billion) while the fate of 18,500 MIS investors (or growers) is looking increasingly grim.
Great Southern Plantations. Like fellow agribusiness operator, Timbercorp, Great Southern slid into administration in May after accruing debts of more than $600 million. While Great Southern founder, John Young, was able to cash out more than $30 million worth of shares in 2005, shareholders and investors were not so lucky. Great Southern receiver, McGrathNicol, stated that the responsible entity of Great Southern’s schemes, Great Southern Managers Australia (GSMA), is believed to have insufficient reserves and no chance of securing additional funds to continue in its role of managing the group’s 45 schemes. 43,000 grower investors sunk more than $2 billion into managed investment schemes run by Great Southern over the past decade. The likely returns, if any, for these investors is unknown.
Beechwood. The building company was placed in administration in April 2008 owing creditors more than $20 million. The collapse is understood to have left 300 home-buyers with semi-completed homes and 400 subcontractors owed upwards of $10 million.
Australian Discount Retail. The private equity-owned retail chain collapsed in January 2009 owing more than $201 million. ADR owned various discount outlets, including Crazy Clark’s, Go-Lo, Sam’s Warehouse and Chickenfeed. ADR had been acquired by Catalyst Investment Management and CHAMP Private Equity formed ADR in November 2005 for $200 million. The new owners paid themselves a dividend of $100 million in 2007 but the firm was placed in receivership shortly after losing $8.18 million for the period ending 30 June 2008.
Bill Express. Was placed in administration in July 2008 with debts of more than $250 million, including a $50 million liability to ANZ. The collapse of Bill Express left more than 3000 newsagents forced to setup alternative payment networks. Legal action is understood to be being considered against former auditors, KPMG and Pitcher Partners.
Commander Communications. Commander collapsed in August 2008 after being unable to convince its banking syndicate to extend debt of $300 million. Commander had approximately 3,000 small creditors. Two years prior Commander boasted a market capitalisation of more than $600 million.
Ventracor. In March, Ventracor was placed in administration by its directors. 17,500 mostly small shareholders will most likely lose their entire holdings. At its peak, Ventracor boasted a market worth of almost $1 billion.
Opes Prime. Possibly the greatest debacle of all the corporate collapses, with more than 1,200 highly-leveraged investors losing a significant portion of their security holdings when Opes collapsed. Opes Prime ended up being the corporate equivalent of a Benny Hill chase, with colourful Melbourne figure, Mick Gatto, making a desperate (and ill-fated) bid to recover assets from Opes’ Singaporean subsidiary. Secured creditors, ANZ and Merrill Lynch progressively sold the equities held as pooled security by Opes for a total loss of approximately $560 million. ANZ and Merrill subsequently offered Opes clients approximately 40 cents in the dollar as a payout to avoid litigation.
Lift Capital. Was placed in administration in April 2008 with debts of $650 million. Much like Opes Prime, Lift pooled clients share portfolios, which were believed to be worth around $800 million. Administrators were called in after financier, Merrill Lynch, refused to provide further funding. It is understood that Lift’s 1,600 clients will lose around half of the value of their holdings.
Fincorp. Raised $200 million from 800, mostly small investors to fund various property developments. An administrator was appointed in April 2007. ASIC noted in August 2007 that it had successfully applied for freezing orders to ensure assets of various individuals and companies associated with Fincorp are not shifted or dissipated to the detriment of creditors and investors and is examining any potential wrongdoing. Secured creditors expected to receive 30 cents in the dollar, unsecured creditors expected to receive nothing.
Australian Capital Reserve. Administrators appointed in 2007 owing $330 million to 7000 investors. ACR raised money from the public in the form of unsecured notes and loaned those funds to related parties to conduct property development. ASIC announced that they were investigating the collapse and last issued a media release in August 2007. To date, no charges had yet been laid.
Chartwell. The Geelong-based Ponzi scheme collapsed in May 2008 with debts of more than $50 million. Criminal charges may be laid against Chartwell executives, Graeme Hoy and Ian Rau. It has been alleged that Chartwell funds had been used to fund Hoy and Rau’s lavish lifestyles, including $2 million on home renovations and $100,000 for a life coach.