Finance broker campaigner has pulled together one of the best pieces you’ll ever read on the web of connections and compromises in Australia’s finance industry as scandals break out all over the place
For all Eastern States eavesdroppers who are flocking to the Crikey keyhole – we can deliver the latest in the Royal Commission into the Finance Brokers Scandal in Western Australia. The first dramatic headline – “RIPPED OFF” – appeared in The West Australian appeared on Tuesday. The story was written by tenacious journalist Michael Southwell who for three years has followed the trail of shonky brokers, real estate agents, auditors, valuers and solicitors.
Television and Radio networks appointed special correspondents to relay back “startling revelations” to eager viewers and listeners. The first investor to enter the witness box was justifiably critical of his financial adviser. With good reason – apart from suffering substantial financial loss and 18 months of anguish, his adviser was the local preacher. This courageous investor passed away over the weekend and our sincere condolences to his family. I know he hung on to life in order to have his story told. Forty-eight investors have passed away during the past three years, and yes, I have met and tried to assist each one of them. What type of policies, standards and practices has been adopted by the regulatory authorities in this country, to allow these scams to proliferate causing so much pain, worry and stress?
Commissioner Ian Temby QC and counsel assisting have set the pace for the inquiry with consistent and persistent hard line questioning of witnesses, particularly the valuers. Only seventeen of the estimated 2500 dodgy projects will be examined. I have already criticised the Terms of Reference as being far too narrow, restricting the possible findings against the real culprits – the Ministry of Fair Trading and the Finance Brokers Supervisory Board – who caused this indelibly black chapter in WA’s political history. For three years the Real Estate Consumer Association (“RECA”) lobbied for a Royal Commission. The first “smoke-screen” inquiry – the Gunning Inquiry – immediately became branded as a whitewash, with no effective cross-examination of witnesses and without the assistance of key players in the investigations. The investors were not given the benefit of legal representation and vital legal opinions were suppressed by “just cunning” in the name of “public interest.”
The second inquiry – the Travers Parliamentary Inquiry – became constrained by time and resources, but did recommend a Royal Commission and compensation to be considered, as well as a detailed and intensive probe into the evidence provided. Temby has been instructed via the Terms of Reference, to ignore the Parliamentary recommendations. NO COMPENSATION – we do not wish to pay, do not mention the “c” word! Investors expected the Royal Commission provided by the ALP following pre-election promises, to be a wide-ranging probe into the scandal, which has caused an estimated $200 million to disappear from retiree bank accounts. Yet, horror horror: Mr Temby can only investigate the Ministry and the Board in terms of the adequacy of their conduct. Inadequacy is not a criminal offence although we do know a few bureaucrats and Ministers who could qualify for this description. The term has no legal standing. It means nothing. Yet for three years the ALP promised that “Labor will end the secrecy,” Labor will hand over all necessary documents and fund action to determine “liability of the State.” Oh how we have been duped, cry the investors who parted with their vote!!!
For investors to benefit from the Royal Commission the Commish would need complete freedom to make his own decisions – irrespective of whether the State could ultimately be found liable for the losses.
The real culprits – according to the current Premier Geoff Gallop and Attorney-General Jim McGinty in the heat of a torrid election campaign – were the regulatory authorities. Every week the Geoff and Jim show battered the Libs into submission that the Ministry of Fair Trading and the Finance Brokers Supervisory Board were to blame for this diabolical fiasco. Parliament witnessed debate after debate as the Opposition with claims of negligence and even culpable behaviour pounded Tricky Dicky Court, Dodgy Doug Shave and his wretched Ministry and Board. No argument from me on those words. At times I even typed the speeches penned by lawyer Doug Solomon for Labor’s Jim McGinty!
On 4th April 2000, McGinty warned Parliament of a nasty project arranged by Clifton Partners (aka Knightsbridge – linked to Saxby Bridge) known as “Meadowsprings Fairway Resort”, describing the project as “rotten to the boots”. The Royal Commission hot shot, Tony Siopis asked me to provide him with a run down on RECA investigations. At the time I was happy to oblige. At the request of the Attorney General, I provided a list of fifty of the grimiest projects – an easy task with plenty to choose from. I explained to Tony that the worst project was without doubt Meadowsprings and should be placed “top of the list.” Over $8 million had been gathered from unsuspecting retiree mortgage-investors and also shareholders. The valuations ranged from $6 million to $15 million for the same resort, and there are doubts as to its saleability in the near future. Local agents believe offers of $4 million would be over-optimistic. The liquidators noted “Meadowsprings had been insolvent from day one.” The Royal Commission was instructed by the Attorney General to narrow the “RECA” list down to 17 projects. Mr Temby selected the 17, but omitted the contentious “Meadowsprings.” WHY? Those keen enough to dig into the two Single Responsible Entities approved by ASIC will find the ex Prem’s brother, the ex head of the Stock Exchange, two lawyers who Chair one of the Ministry Boards and who are also employer’s of Mr Temby’s son, whose client happens to be the sister of one of the dodgy brokers. Crikey, Perth is a small place, and it is hard to find suits who are not related in some way to someone who is involved in the “deal.” It is more than possible the Commish is unaware of the links. If this is so, may we suggest Ian, that you place Meadowsprings at the top of the official list as we suggested in the first place – please!
Meanwhile, the first week at the Royal Commission provided the media with plenty of fuel for the scandal watchers. John Ward – colourful director of First Charter – has been well known to Fair Trading during the past decade, due to monstrous complaints of over valuation of loans and high default rates, when installed as Gamel Ward, and previously attached to Bowfort Holdings and Geneva Finance in the late 80’s.
Westonbirt Park, a disastrous development financed by First Charter Mortgage Services, certainly gave an insight into the devious goings on in the finance broking industry. Solicitors and directors involved, must be eagerly waiting their “turn on the stand.” Valuations ranged from $810,000 to $4.29 million – the usual model. Over $3 million in loans were arranged and promoted by a non-licensed financial adviser/ lay preacher in the Seventh Day Adventist Church. Only one investor scored a first mortgage – the others were coerced into a second mortgage. The property sold to one of the previously bankrupted rogue borrowers for $850,000. The second mortgagees suffered a 100% loss. One young investor, with a baby to support, had recently been widowed and had given all of her ‘compensation’ money to the preacher. Another couple had given the entire proceeds of their farm and are left with nothing. It took fourteen months for Centrelink to finally assist the farmer couple and process their claim for “benefits.” The adviser “confessed to being guilty of improper behaviour, 05failed to warn them of the risks, 05..acting as a broker without a licence.” He faced a “torrid time” from Mr Temby, who suggested there were breaches of the Finance Brokers Control Act and placed him on notice to expect to hear from the Board. Heavy stuff! Fines under the FBCA amount to $500 and/or disqualification of a licence he did not possess in the first place! I am sure the preacher is praying for the soft option. He admitted receiving $25,000 as a commission for his part in fleecing the flock. His problems escalated the following day when the authorities discovered he had received two commissions instead of just one. Sounds like a slight case of perjury developing. Temby asked: “negligent is not too strong a word is it, 05..all right careless?”
On day five: Ron O’Connor – valuer extraordinaire and the dodgy brokers’ mate – found himself once again on the stand. He has already been charged recently with other offences and found guilty a few years ago for misappropriating trust monies. He must be getting used to the usual stardom associated with these ongoing inquiries and gatherings. Ron is quite a celebrity – the lenders were lined up for autographs, perhaps not! Interesting family connections: brother Ed became a borrower in the brokers fiasco and brother Robert starred in the latest Four Corners edition on Tax Effective scams as one QC responsible for questionable “QC Opinions” which failed to impress the ATO. Just another barrel of victims who owe monies to the ATO and also financial consultants and their associated finance companies. We warned last year of the “links all over the place.” This family have a habit of claiming “not not not responsible.”
For all those who thought watchdogs are good value, we asked John Kobelke, the new Minister for Fair Trading if he would fund RECA, after five years of being left in the “no assistance zone.” His answer – straight from the pen of dodgy Doug Shave’s previous bureaucrat whiz kids – “my advisers inform me that there are other organizations who do the same work as you do Denise.” My answer: “oh really Minister, I presume we are discussing the investigations of $200 million defaulting loans and assisting 7000 retirees caught up in the scandal, may I ask which organisations are we are referring to?” Learned answer: “the Tenants Advisory Service.” Poor old John is the new kid on the block. He is obviously stuck between Tenants and Lenders; lost $200 bond monies and lost $200,000 investment portfolios – and besides these bureaucrats at Fair Trading are very adapt at getting rid of unwanted or tiresome Ministers who sneak around upsetting their “Magic Circle Club.” For four months, RECA members and solicitor Doug Solomon have attempted to secure supporting documents necessary for the retirees’ challenge in seeking compensation from the State Government. The ALP pre-election policy, stated that Labor will end the secrecy. Our request met with the obligatory claptrap: the bureaucrats have decided, once again to claim “legal professional privilege,” even though this particular excuse cannot be used to conceal a crime. Our “Magic Minister” melded in beautifully, conveniently denying the request, and suffering memory loss on all pre-election promises and principles.
Ministers here in the West, are definitely “West Ministers” who believe in the “in-house” principles of “melding of the powers.” Separation of powers is deemed as unfriendly and not in the best interest of the public service. The latest melding occurred on Friday: the Ministry of Fair Trading has melded into a Ministry of Consumers and Employment. Since many of my retirees have been forced back into hard labour, wearing the arm-band “unimportant consumer,” we can see the benefit of trundling everyone into the same basket of equal opportunity. We could even set up a “job auction” for the over 75’s. The Government is promising special training programmes – to protect oneself by jumping into “investment” shelters whenever shonky brokers are bombarding the towns. The ALP approach to reconstructing democratic processes could best be described as “spectacular aged reform.” The Federal ALP must be wondering what is going on in the West. Federal Libs must be jumping for joy.
The lawyer responsible for assisting RECA and hundreds of retirees in the broker scandal, Doug Solomon, is certainly unimpressed with the new Premier. Dr Gallop, at a media doorstep, expressed regret that McGinty’s favourite speechwriter, had chosen not to co-operate with the Royal Commission. Truth is, no one from the RC had ever contacted Doug. Considering Solomon had been the most knowledgeable person counselling parliamentarians, regulators, enforcement officers and liquidators on appropriate courses of action during the past three year saga, the question begs to be asked, why was he not consulted by Temby? The truth is that Solomon and I have spent three years investigating these scams and volunteering hours of work each day to uncover the truth. The Ministry has only empty files. They did not engage in investigations because they claimed, falsely, theta the Act was defective. The seventeen files, which the Commish is currently going through, are from ASIC with assistance from the chief inspector of the Fraud Squad. For the past three years, Solomon and I encouraged all clients and members to go to ASIC and the Fraud Squad and take in their documents. We had copies but so did the regulatory authorities. The files which are already in the hands of Temby, are the direct result of our work – freely given to the State to assist in the tracking down of all those responsible.
For the Premier to brand us both as “unco-operative” is grossly unfair, but we are not surprised. We are totally focused on activities, which we hope will lead to the recovery of losses for most victims. My personal commitment is to raise funds to sue the State Government, not waste time at another inquiry which can only look at 17 cases and not find criminal liability against the State. I know what happened, I campaigned for justice, I spent every weekend on “house calls” to the aggrieved, I campaigned for a Royal Commission with wide Terms of Reference and no Ministerial interference. We were sold a pup. One investor witness starred straight down the barrel of the camera and said “the Ministry of Fair Trading and the Boards are criminally negligent and liable for what has happened and they should pay compensation immediately.” He’s a voter, he should know!
State Parliament witnessed a few livelier moments this week: Dan Sullivan (Deputy Leader of the Libs) raised the matter of “compensation for the victims of the finance broking scandal,” the ALP pre-election policy promised to “fund the legal costs for determination of State liability” and also to “end the secrecy” and provide “all hidden legal opinions and supporting documents.” The Premier’s response put paid to any rumours that we may have a caring and sharing government. When asked if the Government intends to provide compensation: “No we are not, 05.of course we are not!” and further on: “There is no State liability, 05, 05there is none my friend!” The Prem was then asked: “How does the Premier know there is no state liability?” Answer: “point to a decision which says there is. There isn’t any and you know that’s the case.” So we now know the reason the Temby Royal Commission will be restricted to finding the Ministry and Board acted in “inadequately.” Already the words from the Commish are being articulated in a soft approach when referring to the brokers, valuers and financial planners: “inappropriate conduct,” or “grossly improper behaviour.” Moral terms rather than legal terms. When part two of the Royal Commission commences later this year, delving into the activities of the Ministry and the Board, the Premier will be able to reiterate his commitment to broken election promises by frustrating any attempt by the Commish to engage in genuine determination of state liability. The Government will not fund the investors’ solicitor to cross examine witnesses, nor will it permit Mr Temby to “go over old ground” of evidence given by the bureaucrats in the Gunning “just cunning” Inquiry, and will limit the Commissioner’s findings to a ridiculous adequacy test.
Meanwhile RECA members in Tassie have been doing a little delving of their own. Following on from the Senate Inquiry into the Tasmanian Law Society, the have been offered a December 2002 payout by Garrison Financial Planners. Naturally, many investors were unimpressed. Sensational revelations of the Corporate watchdog “doing deals” with the Law Society and the AG, in July 1999, in order to protect those responsible for the losses, must send shivers down the spine of all constituents. No wonder retirees are prepared to do battle with the Federal Government and ASIC. One-Tel, HIH, CNAL, the Tax scams, the First Mortgage scams – and there are one or two other corporate homes made of straw. There’s never an ASIC when you need one!!!
The new HIH Royal Commissioner, Justice Neville Owen is well known in Perth. An excellent choice if one wants to drag out the result as long as possible. N. O. Justice – is one nickname bestowed upon him by long suffering retiree victims of the finance brokers scandal. Whenever the victims ask for a verdict from the dear Justice the answer is NO – not today. Nice guy, very fair, but it’s a shame about the waiting period. Justice Owen was given the task of listening to two years of hearings and trials relating to the mortgage scandal, so he is eminently qualified to hear such cases. It’s just that he has a timing problem. I remember sitting with retirees in court in February 2000, and Justice NO gave scathing remarks to the State paid lawyers acting for the liquidators. He said “I do not intend to tolerate any more delays – these people have suffered long enough and I intend to bring this matter to a conclusion as soon as possible.” The State had maliciously involved the mortgagees in an ill-conceived battle between the registered and the unregistered mortgagees, causing more distress to the victims, who lost their income in April 1999 on the collapse of Grubb Finance. Another $2 million of State funds wasted on frivolous cases. The case was finally brought to trial in September 2000. Nine months later we are still waiting for the written findings from the good Justice NO. In January, he announced in Court that the registered mortgagees had won, however they cannot reclaim their capital until Justice Owen delivers the finding. One farmer is suffering depression because of the delay and others are simply not coping. I then discover Justice Owen is at least 14 months behind on other cases. Another case dealing with Global Finance during the past 16 months has recently been handed over to another Judge.
Five weeks ago I complained to the Attorney General on all of the above regarding Justice Owen, and suggested he not take any more cases until he delivers a few verdicts. McGinty remarked it was “unacceptable.” RECA members initiated action against ASIC in relation to matters of concern with Knightsbridge Finance. Justice NO appeared once again – taking on the matter as a fresh case. It was fairly straight forward seeking orders. He advised we would have the decision by the “end of the week” – two weeks ago. And we wait. Justice Owen is due to start the Royal Commission into HIH in less than two months time. How is he going to clear the backlog of cases which have already been heard? RECA members have been writing many letters of complaint regarding Justice Owen and his timing difficulties to the Chief Justice Malcolm, who is less than impressed on the volume of letters. And we wait. HIH could take ten years at this rate. I wonder who made this recommendation? Obviously someone wanted a Justice who was skilled in creating strategically long delays. Our standards are slipping. No wonder the Nation needs watchdogs watching the watchdogs.