If the last six months have taught us anything, it is that Hollywood isn’t the only place where the bad guys lose out in the end. The 2007 BRW Rich List will remain a high watermark for CEOs who have since watched their fortunes disintegrate.

The collapse of Babcock & Brown adds Phil Green to the list of bad guys who have come unstuck. While Babcock is still trading and claims that it will make a profit of $750 million this year, the model is close to death. Institutions won’t invest another cent in a Babcock satellite which is contractually locked into to paying outrageously high fees to the parent and then trades well below its net tangible asset backing.

With the company unable to purchase and then spin-off new assets, its goodwill is virtually worthless (Allco and MFS investors will be well aware of that fate). If Babcock’s does fail, investors probably shouldn’t expect a refund on the $50 million in salary they have paid Green over the past four years.

However, Green certainly isn’t alone, the bad guys who have seen their empires crumble since the credit crunch last year include:

  • Eddy Groves: The ABC Learning Centres founder and CEO has seen his wealth evaporate from $325 million in 2006 to nothing. Groves built ABC to become the world’s largest listed child-care company courtesy of milking government handouts while constantly increasing prices for parents. (Groves also used ABC as a family money box, paying millions to his brother-in-law to maintain ABC centers in an un-tendered contact. Groves also paid excessive advice and underwriting fees to adviser Austock, in which Groves had a significant ownership stake). Groves blew it all when he thought he could conquer the US and purchased a couple of child care businesses from private equity funds in 2006. After ABC announced a terrible earnings result earlier this year, the shares tanked and Groves blamed short-sellers for the calamity. Even after Groves’ alleged company-saving deal with Morgan Stanley, ABC shares have slid a further 40 percent to only 97 cents.
  • David Coe: The Allco boss and former Malleson’s lawyer built a house of cards with a confusing and complicated inter-company structure backed by swathes of debt. The market finally had enough after Coe arranged a deal to pay himself $17 million for the sale of Rubicon to Allco. The disgraceful transaction was approved of by Rod Eddington and the other Allco independent directors. Coe was worth $380 million in 2007, his equity positions in Allco are now close to worthless. Coe still has is $30 million house which is believed to be in his wife’s name.
  • Phil Green: Green’s star has very quickly fallen, with the tax lawyer’s wealth dropping from $442 million in 2007 to around $100 million now. Given Babcock’s model is on life support, expect a further fall in Green’s bank balance in the months to come. Sadly for the Green family, this isn’t the first time trouble has befallen them. In 1998, Phil’s brother Max, who married into Melbourne’s wealthy Barron family, was murdered by jilted investors in Cambodia after conducting a massive fraud.
  • Michael King and Phil Adams: The two lawyers grew the MFS fund management empire from a small law firm on the Gold Coast. That should have been warning enough for investors to stay away. It wasn’t. In 2007, the two were worth $370 million – today, MFS (now called Octaviar) is worthless. The stock was suspended in January after King told the market the company needed another $550 million in capital. It hasn’t traded since and probably won’t ever again. Both King and Adams departed the scene a complete mess, with investors in MFS and its managed funds virtually wiped out. King still owns the $20 million Elysian Fields and doesn’t appear to be in a hurry to sell the property to pay creditors. Adams fled to Dubai in 2006 and hasn’t been sighted since.
  • Phil Sullivan: The City Pacific boss has seen his wealth drop precipitously from $146 million in 2007 to almost nothing now. Despite contrary assertions, City Pacific’s performance has been woeful, with its shares falling from $4.40 last October to only 45 cents. The company can’t sell apartments at its Martha Cove development and has taken legal action against Fairfax for defamation. A City Pacific subsidiary financial statements contained several basic arithmetic errors in a recent report to shareholders.

It may take a while, but it is a relief to see the market eventually sorting the good guys from the bad.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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