*
Around this time in mid-2014, a group of people financially devastated by yet another corporate scandal decided it was their turn to speak up. They varied in age, background and education, but they all had one thing in common: they had been convinced to put money into an ill-fated managed investment scheme, or MIS, called Timbercorp, and had been left with massive debts on near-worthless investments.
Timbercorp, one of the most notorious of the GFC-era collapses, had toppled in April 2009. It had been one of the country’s biggest MISs, with 18,500 people putting money into $2 billion worth of supposedly tax effective olive, mango and timber projects over seventeen years. The precise structures varied, but essentially investors bought a portion of a plantation or olive grove. They would in theory reap the harvest proceeds in years to come and would also be given an upfront tax deduction for their investment. As well as being tax-effective, the products were enthusiastically supported by various Howard government ministers, who viewed the agribusiness MIS sector as a job-generator for regional Australia. Almost overnight, it seemed, small towns in Tasmania and south-west Western Australia found themselves surrounded by blue-gum plantations, and vast almond and olive projects were planted in irrigated parts of Victoria. It was an investment craze that was literally changing the landscape of parts of rural Australia.
The MIS products were sold, for the most part, by accountants and financial advisers, who earned big commissions, of at least 10 per cent, on the products. In many cases, investors borrowed to buy their MIS products, using specially tailored and marketed loans. ANZ Bank was a key provider of these investor loans through the financing arm of Timbercorp.
But things started to unravel in February 2007 when the Australian Taxation Office changed its tax ruling and banned upfront tax deductions on certain MISs. Timbercorp’s chief executive, Sol Rabinowicz, wrote to his board, warning that the tax ruling could delay crucial financing deals, causing ‘significant pressure on the short-term cash flow’.3
He was right. The flow of new money dried up. Profits started to dive, and in November 2008 the company flagged asset sales to pay down debts. In April 2009, crippled by a cash-flow crisis and secured debts of $750 million, Timbercorp called in administrators. When the company went under, 7511 investor-borrowers owed $478 million in grower loans.
On legal advice, some investors stopped repaying their loans and pinned their hopes on a class action. When that failed, their debts more than doubled, thanks to high penalty interest rates imposed on those who didn’t keep up their loan repayments.
Now the investors wanted to be heard. One group called itself the Holt Norman Ashman Baker Action Group (HNAB-AG), after the financial advisers who’d given them bad advice. Many were former clients of the ex-financial adviser and accountant Peter Holt, who was one of the biggest sellers of Timbercorp’s MIS products. Holt would later be described in Federal Parliament by Senator Sam Dastyari as a ‘crook, a criminal and a fraudster’, and was eventually banned as a financial adviser by ASIC in September 2012 for three years after failing to comply with numerous financial services laws. He was still allowed to practise in his accounting firm, though.
Members of HNAB-AG had been speaking with staff of Industry Super Australia, the peak lobby group for industry funds, and had met its deputy managing director, Robbie Campo. Campo wanted to give them a platform to have their stories heard. She and her associate Matt Linden had been aggressively lobbying to stop the wind-back of FoFA – in fact, most of the industry funds were doggedly opposing the wind-back of FoFA believing it to be detrimental to consumers. Industry funds philosophically disagreed with commissions, on the basis that they encouraged advisers to place clients in the products that paid the biggest commissions, which weren’t always the ones that best suited their needs. Campo and Linden decided to bring some victims to Canberra to demonstrate to politicians and the media the potentially traumatic impact of conflicted remuneration.
I was working at Four Corners on the ‘Banking Bad’ episode when Campo introduced me to Naomi Halpern, an HNAB-AG member who was one of Holt’s victims. He’d been her accountant for six years before he started to give her financial advice and suggested she put money into high-risk agricultural investment schemes by mortgaging her house and taking out a margin loan. She told me she wasn’t a sophisticated investor and so didn’t understand what was going on until the investments collapsed and she was left owing a fortune to finance companies. She said she had made it clear to Holt that she was a low-risk investor.
In September 2014, I was introduced to a whistleblower from Timbercorp who was willing to expose ANZ’s role as its financier. The whistleblower requested anonymity because he was still working in the banking industry. I discussed the story with my colleague Ruth Williams, who at that time was Saturday business editor at the Sydney Morning Herald and The Age. She was ideally placed to work with me on it because she had a forensic investigative style and had covered Timbercorp and Great Southern from their rapid expansion in the early 2000s to their spectacular collapses, as well as the messy aftermath.
The whistleblower gave us an old laptop brimming with confidential emails, spreadsheets of broker sales and secret commissions, and internal documents, all of which vividly brought to life the final months and weeks of Timbercorp. Long before the company collapsed, its executives knew it was in trouble. A May 2007 email from a senior executive in the company’s horticulture operations reported that a number of Timbercorp projects were not delivering on forecasts. The 2006 olive harvest was expected to achieve just 44 per cent of the original forecast; the 2007 mango harvest would achieve just 52 per cent of forecasts. ‘Please treat this email as strictly confidential,’ the email said.
Both Timbercorp and ANZ were aware of these issues, yet they didn’t notify the market or investors. Timbercorp kept selling its products harder than ever and, although it was struggling to refinance its high levels of debt, ANZ kept approving loans to new investors in the schemes. The internal documents showed that ANZ lifted its ‘grower loan facility’ for Timbercorp by $6 million to $26 million in February 2007, to $45 million in April 2007, then to $60 million in November 2007. Eventually, in February 2008, it raised it to $150 million. Some of the 2008 projects signed up for by investors would never be planted. But the debts still had to be repaid to the banks.
The mess raised questions about the role of banks in such schemes. It also raised alarm bells about ASIC, which had known the Timbercorp schemes were flawed but had done nothing. The research houses that had given a positive rating to the products in return for a payment from Timbercorp were also complicit, along with the financial planners who flogged Timbercorp investments to people based on those positive ratings. Many of the investors who bought the products didn’t understand what they were buying.
Based on the documents, the whistleblower’s evidence and the compelling stories of the victims, we knew we had a story that had the potential to make a real difference. And it wasn’t just about Timbercorp, it was about the way the entire financial advice industry operated – and how too often the modest financial ambitions of ordinary people were trashed by advisers chasing fat commissions.
The first of our Timbercorp articles appeared in The Age and the Sydney Morning Herald on 8 November 2014.4 It opened by quoting an email from Timbercorp boss, Sol Rabinowicz, to his chief financial officer, John Murray, referring to a meeting they’d attended earlier that day with executives from ANZ during the final weeks leading up to Timbercorp’s collapse. The email said, ‘Hmmn! At least this hasn’t shaken my view as to the extent to which banks can f*ck you over and why bank debt should always be the least preferred option.’
Murray emailed Rabinowicz back saying, ‘Summary is that they will vary the facilities to achieve what they want, but expect it to be very expensive, many roles for ANZ going forward and very tight controls on how much toilet paper you use when you have to have a crap.’
The point that ANZ had made loud and
clear to Murray and Rabinowicz during that 8 October 2008 meeting was, according to Murray’s email: ‘Some stakeholders will need to get burnt.’
Our articles also quoted Sam Dastyari, who had met with ANZ’s most senior officeholders and come away with a feeling that they had ‘obfuscated, denied and tried to minimise their own involvement’. He added: ‘The bank has a corporate, moral and social responsibility that it isn’t meeting.’
Meanwhile, Timbercorp’s liquidator, KordaMentha, was quietly working behind the scenes on behalf of creditors, including ANZ, issuing seventy writs a week to Timbercorp investors who still owed hundreds of millions of dollars in debts to the bank.
Timbercorp was a compelling reminder of the inherent danger of watering down the new protections proposed by the FoFA reforms, and our articles added momentum to a call for a new Senate inquiry hearing, scheduled for 12 November 2014 at Melbourne Town Hall, which would be attended by Senators Sam Dastyari (Labor), Peter Whish-Wilson (Greens) and Nick Xenophon (independent). Dozens of Timbercorp victims, including Naomi Halpern, organised to get there early with placards, before moving inside to watch the action. Some victims had already emailed or spoken to crossbench senators Jacqui Lambie and Ricky Muir, outlining their stories.
At the hearing, a former Timbercorp executive called Andrew Peterson reinforced the findings in our article, alleging that ANZ had continued to lend to Timbercorp Finance despite the company’s problems. ‘They would have had to see how the projects were going, the default loan book, how Timbercorp was going forward,’ Peterson told the inquiry.5
Peter Whish-Wilson issued a press release after the hearing saying, ‘Never before have I seen so many people turn up and watch a Senate inquiry public hearing. Today alone justifies the efforts by the Greens to instigate this inquiry. I want to thank all the victims of the Timbercorp collapse who braved the inquiry to give their heart-wrenching evidence. Today is just the beginning. We have only just begun to lift the lid on the systemic failures and misconduct evident in the collapse of dodgy MIS schemes.’6
*
It was at this point that Dastyari, Xenophon and Whish-Wilson decided to mount a last-ditch effort to sink Cormann’s financial advice regulations. With just two additional votes still needed, Dastyari and Xenophon focussed their efforts on two crossbench senators who had shown sympathy for the Timbercorp victims, Jacqui Lambie of the Palmer United Party (PUP), which had done a backroom deal with the government in July 2014 to support its wind-back of the FoFA reforms, and Ricky Muir, who had won a seat for the Australian Motoring Enthusiast Party.
On the weekend of 15–16 November 2014, while all eyes were on the G20 in Brisbane, Dastyari caught the red-eye flight to Burnie in Tasmania to spend the day with Jacqui Lambie. Since the PUP had made its July 2014 pact with the Coalition, Lambie’s relationship with Palmer had deteriorated and she had made a few comments in parliament indicating she regretted her decision to support the deal. Dastyari recalls: ‘Nick was saying to me privately, “There’s something there . . . She’s almost there.” So I felt like I had to go over [to Tasmania] and basically bring her in from the cold. Her big fear at that point was being alone. She hadn’t been in the Senate long, and she was afraid.’
Dastyari and Lambie spent the day discussing various issues, including why it was so important to stop the regulations to wind back FoFA going through. ‘I treated [Lambie] like I would treat a soft delegate at an ALP conference,’ Dastyari recalls, ‘and gave her the emotional assurance that she was going to be okay. The commitment we gave her was we would only get her to come across if we knew we were going to win.’ By late Sunday afternoon, Dastyari had convinced Lambie to vote against the Coalition’s regulations.
By Monday, Xenophon had also managed to get Muir on side. After a series of victims had contacted him, including Naomi Halpern, Muir also regretted his initial decision to side with the government. He was a former forestry worker from Gippsland with firsthand knowledge of the impact of Timbercorp and had a few constitutents who had lost everything.
With the two senators on board, Dastyari’s team, who called themselves the Coalition of Commonsense, now had enough votes to stop the regulations in the Senate on 19 November, as long as there were no last-minute changes of mind. Xenophon’s plan was not to let Muir out of his sights the night before the vote. He and Dastyari took Muir out to dinner at a Chinese restaurant in Canberra and plied him with alcohol. ‘It was the classic ALP strategy of get him pissed off his face so he couldn’t do any other deals,’ Dastyari recalls.
At 8 pm Xenophon called Cormann to give him a heads-up about what was to play out the next day. Cormann listened as Xenophon told him there would be a vote to disallow the regulations, meaning that Labor’s original FoFA laws would retain their full power. Dastyari remembers, ‘We’re sitting there and Ricky’s phone starts ringing, and it’s Cormann. [Ricky] had thirty missed calls from Mathias Cormann. Then Clive [Palmer]’s calling him. The whole time, I’m trying to get Nick to distract him, so I can turn his phone over so he can’t see who is calling and his phone is just ringing and ringing and I’m saying, “Have another drink.”’
The Coalition of Commonsense agreed to meet early the next morning at Xenophon’s office and wait until it was time to front the media in a press conference and then vote. When Muir walked into Xenophon’s office he looked frazzled. Xenophon was sitting behind his desk, papers piled everywhere, but he was hyped up, aware that history was about to be made and he was the chief architect. They were about to make headlines.
Until the vote took place, however, everything was on a knife’s edge. Cormann had been completely flatfooted and politically outmanoeuvred but he was still working the phones. He rang and reminded Lambie and Muir of their obligation to honour the agreement they’d made in conjunction with Clive Palmer and the government in July to support the changes to FoFA. Muir had signed the motion in the Senate a day earlier, which signals that a decision has been made and a vote will be cast, but reality was starting to hit. He asked if he could stay in Xenophon’s office instead of fronting the media. ‘He’s saying, “I’ll vote for you guys”, then all of a sudden he says, “Can’t I abstain?”’ Dastyari recalls.
‘You are going to be dragged kicking and screaming,’ Dastyari told Muir half-jokingly.
They knew if Muir didn’t do the press conference they would lose him in the vote. They needed to lock him in. ‘It was like a scene from Reservoir Dogs,’ Dastyari says. ‘We planned to go the long way and catch the cameras as a “Fuck you” to Mathias . . . It was the world’s best presser [press conference].’
Later that morning the vote took place, with Lambie and Muir citing the human stories stemming from Timbercorp’s demise as the reason for their change of heart. ‘I will not allow the Liberal Party and their supporters to wind back consumer protection at a time when the financial advice industry has been shown to act in a scandalous manner,’ said Lambie.
The high fives were now coming from Industry Super Australia, the Coalition of Commonsense and the many victims of financial abuse. The regulations had been scrubbed out and the original FoFA reforms would remain in force.
The wealth management mouthpiece, the Financial Services Council, hit the media with predictions of chaos and a ‘legal quagmire’ which would lead to disruption and unnecessary costs and reduce the affordability and accessibility of financial advice. But the headlines focussed on the ambush of Cormann’s proposed regulations by Labor and the Greens. It was a watershed moment: not only had FoFA caused the PUP’s Tasmanian senator to break with Clive Palmer, forever altering parliament, but financial advice and bank misconduct had made it into the mainstream. Momentum for change was building.
Chapter 10
Trouble on the Death Star
NAB’s dirty secrets
‘HI ADELE, MY NAME is “John”. I work at NAB in the Wealth/MLC division.’
So began a fresh scandal, revealed by an insider at NAB who felt compelled to contact me
after seeing wrongdoing and a culture of cover-up inside the bank. It was February 2015, three months after FoFA had been saved, and I had effectively become the go-to person for whistleblowers in the financial services industry after the attention the CBA, Macquarie and Timbercorp scandals had received. In addition, the bravery of Jeff Morris had triggered a chain reaction, encouraging other whistleblowers to contact me with further stories of wrongdoing. It was a terrible indictment on the corporate regulator whose job it is to investigate misconduct.
The NAB insider said he didn’t trust the bank’s internal whistleblower hotline, as a couple of colleagues had used it and had ended up losing their jobs. Nor did he trust ASIC. He said he had seen what had happened to Morris, as well as too many staff moving between the financial services sector and ASIC. He considered me a safer option because I had no vested interest. He’d also been impressed by the way I’d stood up to Gina Rinehart’s attempts to obtain the identities of my sources after I’d written her unauthorised biography.
The NAB whistleblower wrote, ‘John isn’t my real name. I can’t reveal my identity and require maximum discretion. I have a wife and children. The cultural atmosphere at NAB at large is “toxic” and “volatile”. All I hear about are . . . psychopathic behaviours – “winning is everything” type of behaviours.’ He went on: ‘This is a CBA disaster waiting to happen and [I] am amazed how and why the regulator isn’t all over this . . . I’m providing this information because a lot of us are frustrated with the “motherhood” statements and lack of commitment by management to take these issues seriously – as is evidenced by the contents of reports I’m going to provide [to] you.’
Banking Bad Page 13
