Is Brad Cooper the stupidest man to ever run a NASDAQ listed company? Read his evidence to the HIH Royal Commission and you be the judge!
Here, we’ve got more than 2,000 words – and that’s just from the first hour or so of crazy Coops’ testimony!
So, who runs a company if a director doesn’t?
Coops has a funny idea on who runs companies.
Q. What about The Kindness Foundation? Is that an entity in which you had an interest?
A. Yes – well, that’s actually – I don’t know how you define “interest” there because that was a charity and I remember the articles of that. I’m not sure if there’s shares, if it is defined as a company, because it was a charity.
Q. In terms of the people who were involved in running it, you were one of the people involved in running it, weren’t you?
A. Yes, I was, I was one of the people.
Q. Was Mr Adler also involved in running that?
A. Not in running it; he was on the board of it.
CRIKEY: What choo talkin’ about, Mr C? If someone on the board of directors of a company isn’t “running it”, who the heck is?
Me, myself and I
A little nugget from Coops on the definition of “me”:
Q. The organisation for the first week, was that conducted out of offices that were occupied by you?
A. By me, you are referring to myself?
CRIKEY: Phew – lucky we sorted that one out quickly. We could have spent days debating the point.
So, did they pay $10 a share or not?
This could quite possibly be the most confused testimony ever given in Australian legal history:
Q. Leaving aside Mr Adler’s personal interest, to the best of your knowledge, did FAI derive a benefit from its business association with you and entities with which you were associated, by which I mean to include HSI and FFC?
A. Yes, they did.
Q. And what was the nature of those benefits and when were they derived?
A. There is – in broad terms, Mr Martin, without wanting to loosely throw figures around, we had an internal calculation and that calculation showed that FAI Insurance Ltd made a profit of somewhere from what we could understand of around $50-$70 million from their association with that group of companies.
Q. When was that profit derived and how was it derived?
THE COMMISSIONER: Q. And who is the “we” that you mentioned there twice?
A. “We” being my executives at FAI Home Security, being my senior management team, calculated that that was the profits that we felt were generated. The range varied. Some said 52, some said 80, because we didn’t have access to FAI’s books. [CRIKEY: Hang on, it was 50 to 70 million a minute ago.] We derived those profits, to answer your question, if I can specifically, from mostly the sale of home security alarms, finance of those alarms and that was the main source of our business and that’s where the profits —
Q. Now the figure, did that include the notional profit to be derived from the value of the shares which FAI held in HSI?
A. Mr Martin, having mentioned we didn’t have access to their books, as a rough calculation, we had worked out the sale of the float, what roughly we were told came back to FAI, the share price at the time and the profits that we had generated in the business that traded. So there was a combination of profits. [CRIKEY: We’ve pored over this for hours and still can’t figure out what he’s getting at.]
Q. So the figure you mentioned earlier, $50-$70 million, did include a notional profit based on the value of the shares which FAI held in the listed American company; is that right?
A. Yes, that would be right.
Q. Just getting back to the $50-$70 million figure, prior to the float, were dividends declared by HSI to proprietors of the business?
A. Sorry, Mr Martin, prior to the float, when you say HSI, it wasn’t HSI. Can I just – so I’m not misunderstanding you.
Q. Well, I’m just trying to get to the components of the 50-70 million figure, and one component was the value of the shares. Do you have a recollection of what the order of magnitude of that component of the 50 to 70 was?
A. Are you asking, Mr Martin, before the float?
Q. No, no, I’m sorry. It is my fault. I’m confusing you – [CRIKEY: And Lord knows, Coops doesn’t need any help doing that.]
Q. You told us the 50 to 70 figure was worked out after the float; is that right?
Q. Now, of that, a component was increase in value of shares held in the floated company; is that right?
A. That’s not what I meant.
[CRIKEY: So, when you were asked “did [it] include a notional profit based on the value of the shares” and you emphatically answered “Yes, that would be right”, you didn’t actually mean it?!]
Q. Right. I must have misunderstood one of your earlier answers [CRIKEY: you and the rest of us, Mr Martin!] in that 50-70 million figure, was there a component attributable to the increase in the value of the shares held by FAI in the floated company?
A. No, Mr Martin, what I thought you meant and how I was answering it was that we took the shares at the time of the float, being $10, and I thought when you said – and I apologise and maybe it is me and I’m sure it is. I’m just trying to come to grips with that period, but we valued them in our own back-of-the-envelope calculation at a $10 figure. We didn’t value them at – because when the company was floated, the float took place, the shares were valued at $10, and that’s what we valued them at. [CRIKEY: What the…?]
Q. For the purposes of doing the calculation of FAI’s profit?
Q. Now, did FAI pay $10 for those shares?
A. No, they did not.
Q. So when you say $10, you are talking US$10, I take it?
A. Yes, Mr Martin.
Q. So FAI held a parcel of shares that you valued at US$10 for the purposes of the calculation of the $50-$70 million; is that right?
A. Mr Martin, I didn’t value the shares, the share market did.
Q. But for the purpose of the calculation, you took a value of US$10 for the shares held by FAI, didn’t you?
Q. But FAI hadn’t paid for them, had it, other than through its seed capital?
A. Mr Martin, I don’t believe that is correct. I believe they had paid for them. [CRIKEY: Hang on, dipstick! You just said “no they did not” pay for the shares a minute ago!]
Q. Well, in the $50-$70 million figure, was there any component attributable to the value of the shares which FAI held in the floated company, Home Security International?
A. Yes, there was, the $10 figure I mentioned before. [CRIKEY: So if you’re including the $10 as a profit, that must by implication mean they had paid nothing for the shares, right?]
Q. And I suggest to you that of the $50-$70 million figure that was arrived at, almost $40 million of that was to be attributed to the value of FAI’s shareholding in HSI; do you agree with that?
A. I don’t know if your figure is correct, Mr Martin. What I do know from my recollection at that time, if I go back then, that when the company was floated, and I think you mentioned that they kept a shareholding of 45 per cent, they sold off the rest of the company and took cash for that. So I believe that it would be a matter of record somewhere that you could establish the cash component and then the share component and as they owned 100 per cent and they did own 100 per cent at the time or just pre-float, they took cash and shares and profits and that is how we came up with our figure on that basis. [CRIKEY: What?!]
Q. At the time of the flotation, the capital subscribed by subscribers went to the company – by “the company”, I mean the company being floated, that is HSI, not FAI – didn’t it?
A. My understanding is the money went to FAI Insurance Ltd.
Q. And it was based on that understanding that you and your executives arrived at the figure of 50-70 million; is that right?
Q. And would I be right in thinking what the profit derived from the process of flotation that you’ve referred to was the lion’s share of that estimate of 50-70 million?
A. Sorry, Mr Martin, could you ask me that again.
Q. Would I be right in thinking that the profit that you believed FAI had derived from the floatation of the company was the lion’s share of the estimate of 50-70 million?
A. Yes. [CRIKEY: Finally!]
Q. Home Security had not passed on the profits from the sale of home security alarms and the financing of those home security alarms in the form of cash repayments to FAI, had it?
A. Again, Mr Martin, I apologise. I don’t understand. I don’t understand the question.
Q. You said earlier when I asked you about the source of the 50-70 million profit, that it was derived from the sale of alarm systems and the financing of them. The proposition I am putting to you is profits derived from the business activities of the venture stayed with the venture and were not in fact up streamed to the investors such as FAI; do you agree with that or disagree with that?
A. There were two periods, Mr Martin, when FAI owned all of the company. I understood that they took all of the profit. So I don’t know what you mean by the word “upstreamed”. [CRIKEY: Did HSI pay a dividend or return capital, numbskull?!]
Q. All right. Is it your understanding that FAI actually took profit out, rather than reinvesting it in the expansion of the business?
A. Mr Martin, I didn’t have access to their accounting, so I don’t know how they accounted for it.
CRIKEY: But you had access to HSI’s books, so you’d know if they’d paid a dividend to FAI! Cooper really is a nong.
You still couldn’t understand it after your lawyers explained it to you?
Q. At the time of flotation, were there any limitations imposed upon the sale of shares by those who were involved in promoting the company, by a listing exchange?
A. I’m sorry, Mr Martin, I apologise. I’ve got – there’s a noise [construction site outside] here. I’m just trying to —
Q. I will repeat the question, if it helps. At the time of the float, were there any limitations upon the sale of shares imposed on the promoters of the company by the exchange upon which the company floated?
A. Mr Martin, would you please explain, if you don’t mind, what you mean by “limitations”?”
Q. You have sometimes heard the word used in connection with floatations, “escrow” provisions; are you familiar with that term?
A. Yes, I am.
Q. What it means commonly in an Australian context, is the Stock Exchange will often impose an escrow requirement upon promoters, so they are not able to sell their shares during a period after the flotation of the company; are you aware of that?
A. Yes, I am aware of that too in Australia.
Q. Was there any, leaving aside the terminology which may not have travelled across the Pacific, but leaving aside the terminology, was there any equivalent provision imposed at the time of the flotation of Home Security International in America?
A. Mr Martin, to the best of my recollection, there was – I can’t answer for FAI, but for, in my case, I’m not sure of the American law and with the options, in specific to options, there was an escrow period and that may not be the word, but that was the same situation.
Q. Leaving aside the options, was there any escrow period imposed on your shares that you can recall?
A. I can’t recall the American law on the details exactly of that, no. [CRIKEY: Didn’t you just say “there was an escrow period”?]
Q. Am I right in thinking in your earlier answer, you had no knowledge of what the arrangement was in relation to FAI’s shares?
A. I think you, Mr Martin, said they had 45 per cent.
A. And I recall a figure like that being something like that being what they held.
Q. Did you know whether there was any limitation upon their capacity to sell those shares?
A. No, I don’t know.
Q. You were involved in the float at the time, weren’t you?
A. Yes, I was.
Q. And you were on the board of the company that was floated, weren’t you?
A. Yes, I was. [CRIKEY: So surely you’d know what conditions there were on the float?!]
Q. Did you know at the time whether there were any limitations imposed and have you now forgotten or did you never know?
A. The American law was very foreign to me. I tried to read the prospectus a couple of times and had a couple of lawyers walk me through it and I struggled with it. [CRIKEY: No shit, Sherlock!] I don’t know of what FAI’s – if there was a period of escrow, if that’s the word – I don’t recall it. And, Mr Martin, if I may say, I’m not trying to be difficult in answering the question, but I don’t know that law.
Q. Were you the person principally responsible for the organisation of the float of Home Security International in America?
A. Would you, Mr Martin, help me by defining “principally responsible”?
CRIKEY: It’s going to be a long day!