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Wednesday, 11 December 2002
Page: 7710


Senator COOK (12:55 PM) —There would be very few Australians who have not been touched by the crisis in insurance over the last year or so, especially since the collapse of HIH Insurance in March last year. Many thousands of Australians were plunged into uncertainty, particularly in the housing sector, when they found themselves with no protection because their builder suddenly had no professional indemnity insurance. I am personally aware of one ordinary Australian couple with three kids who are looking down the barrel of a $180,000 mortgage but with no house to live in as a direct result of this scandal. Fortunately they have a family who were able to help them out during the interminable wait before a settlement could be reached with HIH.

There are myriad other problems in the professional and public liability insurance areas that have had a devastating impact on families, small businesses, professionals, community groups and local authorities, to name just some of the affected parties. Today I do not propose to go into further depth about those because I believe the problems are as well understood as the Howard government's tardiness in dealing with them. Madam Acting Deputy President Collins, I also acknowledge your excellent work in this matter.

However, it is self-evident to draw the link to the HIH collapse. I noted with interest some weeks ago that the liquidator of HIH, Mr Tony McGrath, indicated that he was going to sue the Commonwealth for $5.6 billion for their regulatory negligence, he alleged, in ignoring all the signs pointing to critical difficulties in HIH well before the collapse. Certainly there appears to be little doubt that there has been a massive failure on behalf of the Commonwealth to properly regulate the insurance sector. It occurs to me that if Mr McGrath is going after the Commonwealth for negligence in the collapse of HIH then perhaps he also ought to consider going after people who appear to have contributed directly to the collapse of HIH by their own conscious and deliberate actions.

One person he should be looking at directly is Malcolm Turnbull, federal treasurer of the Liberal Party, who we know, courtesy of evidence before the HIH royal commission, worked both sides of the street with the sale of FAI. We know that when he was interested in his company, Goldman Sachs, leading a consortium to buy HIH and to knock it into shape prior to refloating it, on-selling it with a huge fee, he came to the conclusion that FAI was only worth $20 million. Yet when he acted as an adviser to Rodney Adler, the CEO and principal shareholder in FAI, in the matter of selling it to HIH, he put its value in the vicinity of $300 million, which HIH ultimately paid. If he is buying the value is $20 million but if he is selling the value is $300 million. So there is the matter of $280 million that Mr McGrath, the liquidator in HIH, might also consider seeking to recoup from Mr Turnbull on behalf of the creditors and shareholders of HIH.

I must say that there are certain issues developing around Mr Turnbull's business dealings. I am aware of very serious questions concerning his share trading activities as a director, indeed as the chairman, of a publicly listed company called FTR Holdings. This is information publicly available on the ASX web site. I have today drawn the attention of the Australian Securities and Investments Commission and the Australian Stock Exchange to Mr Turnbull's apparent activities in respect of this company.

In the period between 11 December last year and 23 April this year, Mr Turnbull purchased 464,306 shares in FTR in 25 separate transactions. Section 1043A of the Corporations Act prohibits a person who possesses inside information from acquiring shares in a company to which the inside information relates. Inside information is defined as `information that is not generally available and that, if it were generally available, a reasonable person would expect it to have a material effect on the price or value of the shares in the relevant company'. As a general rule, good corporate governance requires that directors of a company do not deal in securities in the company except during certain limited periods after significant announcements about the company have been made public. A number of these transactions give rise to concern that Mr Turnbull may have breached not only section 1043A of the Corporations Act but also the corporate governance statement of FTR Holdings published in their annual reports both last year and this year.

On 17 December last year, Mr Turnbull lodged with the ASX a notice of directors' interest under section 205G of the Corporations Law declaring that he had acquired 89,720 shares on 11 December 2001. Just nine days after he had acquired the shares, on 20 December 2001, FTR announced to the ASX that its managing director would step down. An examination of the FTR share price indicates that the share price rose after that announcement. Between 10 January and 17 January 2002, Mr Turnbull purchased 88,494 shares, declaring those purchases to the ASX on 14 January, 17 January and 24 January. However, on 18 January 2002, FTR made an announcement to the ASX as to the write-down of non-core investments. Again, the share price rose immediately after that announcement.

Between 6 March and 8 March 2002, Mr Turnbull purchased 27,536 shares and on 11 March he purchased another 26,687 shares, declaring the purchase to the ASX on 12 March. But, on 11 March 2002, FTR made an announcement to the ASX releasing its half-yearly accounts. It is difficult to imagine that Mr Turnbull was not aware of the contents of the half-yearly report on the day of its release, at the very least, if not a few days earlier when buying 27,000 shares in the same company. It is difficult to discern the effect of that announcement on the share price. However, because of the proximity of the acquisitions to the announcements, all of these share acquisitions give rise to the obvious inference of insider trading. A further announcement on 30 January 2002, headed `WebCentral to service complex hosting market', relating to a subsidiary was clearly judged significant enough for FTR to disclose it to the market. This had no apparent effect on the market price of the shares. The actual effect of an announcement on the share price is not, however, conclusive proof of the price sensitive nature of the information announced and does not replace the `reasonable person' test I referred to earlier.

These are serious matters that go to the heart of the issue of corporate governance and the suitability of Mr Turnbull to hold positions in public companies and, for that matter, public office. Additionally, Mr Turnbull appears to have breached both ASX listing requirements and Corporations Act requirements to disclose share-trading activities promptly to the market. On 15 March 2002, Mr Turnbull purchased 2,500 shares in FTR, but this was not disclosed to the ASX until 26 March, outside the ASX's five-day disclosure requirement. On 23 April 2002, he bought 4,586 shares but he did not disclose this purchase to the market until 13 August, well outside the ASX's five-day requirement and the 14 days required by the Corporations Law.

These may be comparatively minor breaches in themselves, but let us look at the pattern that is developing. We have his advice to Goldman Sachs on the value of FAI and his advice to Mr Adler that the same company at the same time was worth $280 million more—that is, 15 times more when he is selling than when he is buying. And we have his share-trading activities as a director of FTR Holdings in a manner apparently not consistent with either the requirements of the letter of the law or a reasonable person's expectation of the spirit of the law. A decade ago, when Mr Turnbull was in the peculiar position of advising Westpac on the matter of Channel 10 and Hudson Conway in their bid for Channel 7 whilst all the time being on the board of Channel 9, he was described in the Financial Review as having `Chinese walls in his head' and believing they were impenetrable. This belief may still sustain him, although other mere mortals appear not to share it.

In July this year he announced that he was going into the managed investment business. This would ordinarily be an unremarkable extension of his business empire. After all, he is a businessman and he is entitled to go into business in any sphere he likes. But last year he was engaged by the then Minister for Financial Services and Regulation, Mr Hockey, to conduct a review into the Managed Investments Act. The report that came from this review was widely regarded by industry players and stakeholders as barely adequate. It raised far more questions than it answered and really did not progress matters at all. Indeed, a detailed search through the media since the time of the release of the Turnbull review has revealed that it sank virtually without trace, despite the wide general interest in the whole matter of managed investments. Reportage of it in the 12 months since its release has been limited to one small article in the Financial Review.

This, of course, raises a question about Mr Hockey. He does not appear to have chosen an inquirer who knew the subject and could serve the public interest by making substantial and effective recommendations. Mr Hockey appears to have simply tossed a brief to a Liberal Party mate. What the taxpayers paid for was the education of young Malcolm, not a penetrating or constructive insight into the managed investment sector. If the review had progressed the issues, it might have rated a column inch or two at least somewhere in the business pages of the broadsheets. Mr Turnbull seems to have got enough of a flavour of the managed investment business to know that he wanted to be in that business himself.

So much for Mr Turnbull's education, but what about education generally? This year Mr Turnbull strongly advocated the wholesale deregulation of education funding. Interestingly, the Minister for Education, Science and Training, Mr Nelson, attacked him for these views, leading to a stand--off between the Liberal Party chief fundraiser and the education minister—a dispute that Mr Howard had to step in to settle. Should Mr Turnbull's views on education be adopted, it would lead to the massive redistribution of funding away from public schools into private schools. One can conclude that there is one rule for Mr Turnbull and another for the rest of us.

In a speech at Sydney University in September, Mr Turnbull bemoaned Australia's low birth rate since the brain drain and what he referred to as our `inflexible workplace relations system'. He called for the scrapping of the family support system and its replacement with a flat, non-means tested $4,000 payment per child per year, irrespective of need or other circumstances. He also strongly advocated a slashing of tax rates for the rich, promoting the US tax system where the top tax bracket is not reached until earnings are $300,000 or more. This gives him a first in the `fairies at the bottom of the garden' economics course. It puts him in the magnificently contradictory position of simultaneously advocating tax cuts and spending increases. Certainly, there was no mention of what services were to be cut to pay for either the extra handouts to families above the current thresholds for family payments or the tax cuts for the rich. He also called for even more deregulation of the workplace relations system, as if there was not enough casualisation of the workforce as it is, and as if it is not hard enough already for Australian workers to be good workers and good parents. So, once again, he is in the contradictory position of advocating a return to traditional family values at the same time as further casualising the work force to make it much harder for those same traditional families to juggle work and family commitments.

You have to say there is a mass of contradictions here. When it suits Mr Turnbull, he wants a return to traditional family values, but not if it affects employment. He wants a tax cut at the same time as he wants spending increases. He wants to shift the burden of education off the taxpayer and onto families, but he is happy to have his own education in his new line of business financed by taxpayers. These are contradictions in his advocacy of public policy. To that extent, he is no different from many Liberals who try to work both sides of the street and have it both ways. Labor, of course, reserves the right to always point out the hypocrisy of that position. Mr Turnbull's behaviour in respect of FTR Holdings warrants further investigation, and I have today drawn it to the attention of the appropriate regulatory agencies. His behaviour in respect of FAI deserves the full attention of the HIH liquidator, and I would urge him to take similar action against Malcolm Turnbull to that he has taken against the Commonwealth.