There are few better places to be a corporate criminal than Australia. Aside from the fact that all sorts of misdeeds appear to go without charge (ASIC is yet to lay one criminal charge from the collapses of Allco, Babcock & Brown, MFS and Centro), when charges are brought, the penalties for even heinous financial crimes appear somewhat light.

Yesterday, Graeme Hoy, the Geelong-based mastermind of Chartwell Enterprises, was sentenced to 13 years jail, in what was claimed to be the longest ever white-collar term of imprisonment in Australia. This term will be reduced to nine years if Hoy is paroled. The Chartwell story is a classic Ponzi scheme, along the line of infamous US fraudster Bernie Madoff. The only difference was that Madoff was able to keep his fraud running for decades, while Chartwell only lasted six years. ( Ponzi schemes, named after the infamous conman, Charles Ponzi, involve existing investors being paid a return using capital contributed by new investors, rather than retained profits of the enterprise. Such schemes also result in substantial “payments” to the promoter).

To simplify what happened, Hoy raised money from investors, and then stole it and spent it on nice things for himself, such as a Rolls-Royce, yacht and waterfront apartment. To keep up the façade of running a reputable investment firm, Hoy employed a team of 40 traders and used numerous outside brokers. One wonders what those traders were actually doing all day, as it was later revealed that at the time of its collapse, Chartwell didn’t own any financial investments. (Between 2007 and 2008, Chartwell accepted more than $21 million in investments, but traded a mere $429,000). It is estimated that Hoy’s crimes caused a loss of about $55 million.

In sentencing Hoy, Judge Terry Forrest noted that Hoy had “caused incalculable damage to decent people whose only fault was to believe your lies”. Hoy’s dishonesty appears to last up until the very end, with Forrest also finding that Hoy “assured other investors as late as April 5, 2008, only days before the inevitable collapse, that their money was still very safe”.

But just in case you thought Hoy’s penalty was harsh, in comparison to others, it appears he was very lucky. Madoff, whose crime led to great losses, but essentially involved a similar level of criminality, was sentenced to 150 years in prison (a term he is reasonably unlikely to serve, given he is 72). Conveyancer Robert Ewen Day, ironically also based in Geelong, previously held the record for the longest white-collar sentence when he received a 13-year term for fraud $12 million. A far lesser sum than was misappropriated by Hoy.

Of course, one would feel more sorrow for the victims of Hoy’s fraud if they weren’t motivated by what appears to be extraordinary greed, laced with a healthy dash of stupidity. It is believed that some Chartwell investors were promised returns of upwards of 100% while Hoy is understood to have told another that the firm was a “money-printing factory” that delivered an average return of 200%. Leonie Wood in Fairfax reported this morning that one Chartwell investor, Barbara Muller, invested hundreds of thousands of dollars with Hoy after being promised returns of upwards of 60%. Even after quarterly dividends were missed, Muller “invested” a further $750,000 with Chartwell.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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