The Austexx/DFO fiasco which appears to have reached a temporary stalemate will most likely lead to the end of Graeme Samuel’s tenure as chairman of the ACCC. And whatever you think of Samuel’s leadership of the ACCC, that is not a good thing for Australia.

Unlike the United States, in which public service is a common outlet for those who have created or been born into great wealth (recent examples include Michael Bloomberg, Elliott Spitzer, Arthur Levitt, Ross Perot, Mitt Romney, various Rockefellers and the Kennedy family), Australia has too few of its wealthy leaving the corporate sphere to serve the public. Graeme Samuel and Malcolm Turnbull are two of the rare examples.

There are usually two public benefits when financially successful people are appointed to high-profile public roles. First, they have substantial business expertise which can benefit the community, but also they have what is known in the US as ‘go to hell money’ — rich enough to make decisions which are in the public interest and not worry about personal financial consequences. In short, they can tell their detractors to ‘go to hell’.

Unfortunately for Samuel, it appears his ‘go to hell’ accounts has decreased by around of $30 million due to gross mismanagement of his beneficial interest in various DFO shopping outlets.

Like his predecessor Allan Fels, Samuel has been a polarising chair of Australia’s peak consumer protection body. The ACCC’s pursuit of the late Richard Pratt splintered Melbourne’s Jewish community, with Pratt claiming criminal charges against him were launched by “Graeme Samuel’s ACCC”. The most glaring errors made by the ACCC appear to be its acceptance of CBA’s takeover bid for Bankwest and Westpac’s acquisition of St George. However, those two takeovers, which have led to a substantial lessening of competition in Australia’s already concentrating banking sector, were somewhat excusable in light of the prevailing global financial crisis.

The ACCC also appears to be conceding that it erred in relation to the banking deals given its far tougher stance on NAB’s bid for AXA Asia Pacific. (Samuel last week stepped aside from deliberating on the NAB offer after the Austexx controversy blew up and a perceived conflict arose, as NAB is a major lender to Austexx.)

But back to Samuel’s problems. The former lawyer (Samuel was a mergers amd acquisitions partner at the then Phillips, Fox & Masel when he was only 26) turned investment banker (an executive director of the Australian offshoot of Hill Samuel before it became Macquarie Bank) branched out on his own in 1988 to form Grant Samuel. At the same time, Samuel was building up an extensive portfolio of private property and business investments, largely in conjunction with David Wieland and David Goldberger.

In 1997, the Davids, already very wealthy courtesy of the Solo and Liberty petrol chains, created DFO on cheap land it owned adjacent to Moorabbin Airport in suburban Melbourne. DFO didn’t invent the ‘factory outlet’ concept — the Mills Corporation had been operating very similar factory outlet stores in the US since 1985 — but Wieland and Goldberger had very rapid success with their outlets at Moorabbin and later Brisbane and Essendon Airports.

Samuel, who was a neighbour and business associate of Wieland and Goldberger, invested in four of the successful DFO outlets (Spencer Street, Homebush, Essendon and Brisbane). It is believed his $15 million stake had grown to be worth upwards of $45 million by the time he was appointed chairman of the ACCC in 2003. But to avoid any conflicts, Samuel created a ‘blind trust’ to oversee his financial affairs, claiming “I am not a director, I have no knowledge of what Austexx is doing … mine is a passive shareholding interest and no member of my family is involved in running this interest”.

The explanation was somewhat disingenuous. Even though Samuel had no control over Austexx’s affairs, he was well aware that a substantial amount of his wealth was tied up in the property company. It’s understood Samuel may have tried to sell his stake back in 2003 but the complicated corporate structure of Austexx made such a sale unviable.

Samuel then made what appears to be the gravest financial error of his life, appointing his former protégé, Geoff Porz, as one of the trustees of his blind trust. According to the Australian Financial Review, Porz’s father was a friend of Samuel and he’d later employ Porz to work at Grant Samuel. The AFR noted “Porz had been taken under Samuel’s wing and the pair had been very close”.

Logic dictates that Samuel, whose business savvy is largely unquestioned, would most likely have pushed to have Porz appointed at Austexx ostensibly to protect his own financial interests. At the same time, Porz was also one of three trustees of Samuel’s blind trust (along with Andrew Kroger and former union boss Bill Kelty). Samuel presumably believed Porz’s major conflict of interests was for his own benefit — and that his former protégé would consider his obligations to Samuel above those of Austexx.

This does not appear to have occurred.

It is widely understood that Samuel was under the impression his stake in the DFOs was limited to the four successful outlets (Samuel owned a quarter of the holding company which owned only those properties). DFO’s South Wharf (Melbourne) development and the other unsuccessful sites were established well after Samuel was appointed to the ACCC.

The problem for Samuel was that, unbeknownst to him, Austexx used its successful assets (which Samuel owned a stake in) as collateral to fund its new developments. If the new projects were successful, this wouldn’t have been a problem — unfortunately for Austexx, too much debt and poor management meant trading conditions at South Wharf and Cairns led to the banks seeking to enforce their security over the other assets.

So in short, Samuel’s assets were pledged as collateral for other assets which Samuel had no interest in. Even if those assets were successful, it doesn’t appear that Samuel would have personally benefitted. It is no surprise that an associate of Samuel claimed the loans were “appalling” and “outrageous”. The problem for Samuel is that the person who signed off on the loans is believed to be none other than the man he likely appointed to Austexx — Geoff Porz.

In what appears an almost tragic tale, the man Samuel thought was representing his own personal and business interests turned against him. Porz appears to have not only erred in his mis-management of DFO, but also caused substantial financial loss to Samuel. (Samuel’s losses are tempered somewhat because his original stake in Austexx had already been repaid, so his losses are actually ‘forgone profits’).

But the greatest loss suffered will be to Australia. Too few successful businesspeople enter public service, and it’s unlikely that Samuel’s experience will provide any great encouragement for others to leave their assets blindly in the hands of third parties.