t01/kgb Gunning CHAIRMAN: Before we commence this morning ...€¦ · CHAIRMAN: Before we commence...

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CHAIRMAN: Before we commence this morning, I'd like to announce publicly that we are of course now accepting submissions with respect to the next board we're dealing with, the Real Estate Agency Board. But that doesn't mean that we're not available to accept submissions on any of the boards at any time that we are to inquire into and of course we are still accepting submissions on the board we are at present investigating, namely the Finance Brokers' Supervisory Board. Thank you. Yes, Mr Chaney? MR CHANEY: Thank you, Mr Chairman. Call Albert Henry Allen. ALBERT HENRY ALLEN sworn:ALBERT HENRY ALLEN sworn: CHAIRMAN: Yes? EXAMINED BY MR CHANEY: MR CHANEY: Mr Allen, you live at 47B Keane Street in Wembley?---I do. And you're retired?---I am. What did you do prior to your retirement?---Well, I was doing investing prior to my retirement. In order to assist the committee with its inquiry you have, in conjunction with the staff of the committee, had prepared a statement of the evidence you wish to give to the committee, is that right?---I beg your pardon? You've had a statement prepared of the evidence you wish to give to the - -to this inquiry?---I have, yes. Would you have a look at this document please?---Thank you. That I think is your statement which you've signed this morning?---That's right. It's accurate?---Yes, it is. Right. Can I invite you please to start reading the statement from paragraph 1?---Okay. Do you want me to stand or - - No. No, you can sit. CHAIRMAN: No?---I can sit. MR CHANEY: Stay seated?--- "Full name Albert Henry Allen, occupation retired,

address 47B Keane Street Wembley, telephone number 9383 9765. Date 28th of April 2000. My full name is Albert Henry Allen. I live at 47B Keane Street Wembley West Australia. I am 82 years old and I'm retired."

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CHAIRMAN: I got 83 here. That's a blooper?---Yes, but that's not till 9th - -till September, so give me the benefit of the doubt. "I started to invest money with finance brokers in mid-

1970. I used Clifton Partners, Saw James, Sampson and Association and I did not have any problems in these - -with these brokers. In 97 I wanted to invest some money and a friend recommended that I use Global Finance. I telephoned Global and arranged for Kim Woods who is a director", which is not mentioned here, "to come out and visit me. I made a total of two investments with the Global. I made most - - both investments as the trustee of a trust fund which I had set up for my - - for the future benefit of my daughter, Lee Allen-Baccoci?. The first investment was with a company called Kentucky Nominees, for a townhouse development in East Perth. The second investment was with a company called Riverland Heights Pty Ltd, for a subdivision development which I have lost my capital on in both instances. East Perth investment. In September 1997, I invested 200,000 in a pooled mortgage scheme for Kentucky Nominees Pty Ltd for the development of four units in East Perth. The loan was brokered by Global Finance. The information provided by Global in respect to this investment was contained in a letter from Global to myself dated the 11th of September 1997."

MR CHANEY: Yes. And that's attachment 1 to the bundle of documents?---Yes. Yes?---Okay. "In the letter Global advised me that the amount of the

total loan was 2.2 million, the borrower was Kentucky Nominees Pty Ltd, a development company owned by Nabal Sedek. The purpose of the loan was to build four residential units in Trafalgar Road, East Perth. The development was valued on the 2nd of June 1997 at 3,280,000." Whilst it's not mentioned here, I understand O'Connor was the valuer.

Right?---At that particular time. You didn't actually see the valuation?---I didn't see the valuation, but O'Connor was the man. He hasn't got the best reputation in the world: "The loan to value ratio was 63.9. My name would be

registered as first mortgagee on the whole title." The whole property I should say. "And when strata titles were issued, I would be registered as first mortgagee over unit 4. Unit 4 had a value of 1,300,000. The term of the loan was 12 months. Sedek has a strong financial

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position and has a net worth of 1,114,000. The builders would be Summit Homes, a reputable building company. This was a blue chip investment and carried Global's strong recommendation. Kim Wood had a chat to me about the investment and convinced me that it was a sound investment - - " excuse me " investment."

MR CHANEY: Can I just stop you there? That was when Kim Wood came to see you?---Yes, she visited me at my home prior to the signing up. What happened was she left the documentation with me, which I subsequently read, and do you want me to elaborate on what I saw there? Yes. Which documentation did you she leave with you?---She - - where I invested the 200,000 - - There's a letter dated 11 September, which is annexure 1, just go to the tab marked 1 on the top tab there?---Let me go through it, it's here. Yes. The 11th of September, that's the one. Yes. So she brought that letter with her?---She brought that letter with her. I see?---And all the information contained thereon - - therein was what I based my decision on. Right. So there was some plans and then the following pages, you'll see some plans - - ?---And all the following pages also accompanied that letter, yes. Yes. All right. Thank you. So in terms of the chat, did she say any more to you than what you've outlined was in the letter? What was the - - what did you discuss with her?---Word for word, I don't know after so much time that I could remember honestly what was discussed word for word. Yes?---But as - - Can you remember the substance of it?---At 83 I'm lucky I can remember where I live half the time. But, the fact is I don't remember word for word but I was interested all - - influenced by the fact that Summit Homes were building it, who were well-known to me. I was influenced by the loan to ratio, I was influenced by the glowing report as to Sedek's financial position. All of which proved to be false. CHAIRMAN: Did you know Sedek or anything about him?---I wish to goodness I had. I would never gone into it. But it was after the horse had bolted, that I virtually found out that his reputation's not very good round the town. MR CHANEY: Right, thank you, Mr Allen. I'll - -?---Okay. - - take you back to paragraph 9 of your

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statement?---Paragraph 9. "I did not do any of my own investigations prior to

making the investment. I relied exclusively on the information provided by Global, because they were licensed mortgage brokers", and may I add something here, at this juncture?

MR CHANEY: Yes?---If I was to put a - - go to a licensed electrician to put a power point in my house, I wouldn't expect to get electrocuted, would I? But if I wanted to invest with a mortgage broker, I would go to a licensed mortgage broker. I use the word licensed, because I didn't expect to get stitched up. I didn't expect to get electrocuted if I engaged the electrician. Furthermore I didn't expect to get ripped off when I went to a licensed mortgage broker. So someone - -someone failed down the track, namely, in my opinion the regulators. Okay? Thank you?---Where was I? 9: 10, I think?--- "I did not receive a copy of the valuation report

referred to in Global's initial letter of 11th September 97. However I have since found out the valuer was Ron O'Connor." I think we covered that. "My name was registered as a first mortgagee on the title deed. I received interest payments up to December 98. I later found out that the interest payments were coming out of the loan funds."

Can I stop you there for a moment? If you go to tab 1, that's the letter of 11 September, 97?---Yes. And on the second page of the letter, third paragraph?---Yes, interest payments on this loan? Yes?---Are considered - - undoubted Global Finance will retain full payments to investors which are held in trust to be paid monthly. Yes? Term of the loan. What did you understand - - you've said that you later found out that interest payments were coming out of the loan funds. What did you understand was the arrangement being described in this letter, that sentence you've just read out?---Well, having done mortgages for myself before, having built and done mortgages, I don't - - first of all let me back track. I don't know that I really, at the time, paid a lot of attention to that. Yes?---But then having said what I've just said, that I have done developments myself in the past, it's not an unusual thing to do for a developer to borrow the - - sufficient to cover the development and to cover the interest payments in

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the intervening period before - - because normally when it's sold up, well everything's balanced out. So I don't know, you could interpret that whichever way you like. MR CHANEY: Yes. Well, at the end of the day, it comes down to whether or not there's enough equity in the property to meet that?---To meet - - To meet the - -?---Excuse - - to meet the - - - - interest components as well as - -?---So if you're dealing with reputable developers, then there is obviously enough. In my instance, I always had - - I always had the - - paid for the land. I only borrowed, I only borrowed - - we're talking about me now. I only ever borrowed enough money to pay for the development and to cover the interest rates during the period of construction. Right?---And that was always adjusted then at the end of the day, when it was sold. And as a borrower, did you use finance brokers or banks?---Did - -we generally got it from the banks. Right. So you - - ?---In fact we always got it from the banks. Never ever went to individual lenders. And was it the case that the bank, in order to authorise a drawdown, would carry out fairly stringent testing?---Well, you see I always had a fair equity in it. Owning the land so there was never any problem. Yes?---It's - - I was just interested in the process that the bank went through to satisfy - -?---Yes. - - themselves before advancing funds?---Obviously, yes. Yes. And was it your expectation that there would be a proper - - a supervision of the drawdown process by the broker?---That's - - that's most essential, yes, yes. Right. I interrupted you I think at paragraph 13?---Where we up to, 10? No, 13?---13 now are we? Yes?--- "I did not realise that there was any problem with Global

until Global collapsed." That's correct. "At the time that Global collapsed, the project was about 70 per cent finished and remained so. On the 19th of February, Simon Read and Geoff Herbert were appointed as administrators

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of Global. Attached is a letter from P.B. Ashton Read dated 24th of February 1999, which confirms this attachment. On the 23rd of July 1999 Simon Read was appointed as a- -

MEMBER NEWMAN: Excuse me Mr Allen?--- - - "supervisor of Global". MR CHANEY: Yes, excuse me Mr Allen. MEMBER NEWMAN: I think you'll find that it was Geoff Herbert was appointed the supervisor, not Simon Read. MR CHANEY: It was administrators I think, at paragraph 15. MEMBER NEWMAN: That's - - "Simon Read and Geoff Herbert were appointed as administrators." MR CHANEY: I see, yes. MEMBER NEWMAN: But it was 16 - - MR CHANEY: Paragraph 16, yes. MEMBER NEWMAN: It was Geoff Herbert, not Simon Read that was appointed. MR CHANEY: Yes, I think the annexure 3 - - attachment 3 referred to in paragraph 16 confirms that, Mr Allen?---I stand corrected. Yes?---My apologies. Do you have a pen with you?---Yes. You might just, so that the record is accurate, delete in paragraph 16 the reference to Simon Read?---Simon Read. And put Geoff Herbert in there instead?---Okay. Thank you?---Shall I continue? Yes, please?--- "On the 23rd of July 1999, Simon Read was appointed as

supervisor of Global. Attached is a letter from P.B. Ashton Read, dated 28th of July which confirms this attachment. To date I have no received any of my capital or outstanding interest back. Problems with the investment. Global grossly misrepresented the borrower's financial position. Global didn't disclose that Sedek had been previously bankrupt. Both O'Connor and Colliers Jardine overvalued the property. Global misrepresented the loan to ratio value - - value ratio. Global paid interest out of the loan sum", which we've covered. "The

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builders were not Summit Homes as advised. Instead another company called Park Royal was hired to do the job."

Were you ever consulted about that change?---No. MR CHANEY: By Global?---No. Never knew anything about it till after the whole thing went bad?---No, never knew anything. By the time I found that out it was too late, I'd signed and they had my money. Yes?---And I thought okay, well maybe they're all right, let's hope so, anyhow. So you knew that before the whole thing went bad, though, did you?---I knew that before it went bad, yes. Yes. I'm sorry, paragraph 24?--- "Global misled investors by strongly recommending this

investment. Investors syndicate. Subsequent to Global's collapse the investors formed a syndicate to assist in dealing with the liquidators solicitors and in organising the sale of the units. 26. The investor syndicate found out that in December 98 Kentucky Nominees had commissioned Collier Jardines to provide a concept valuation on the property. Colliers Jardine valued the property at completion for 4,600,000." Must have smoking grass.

Just before we leave that - - you provided a copy for the committee of that valuation, which is found under tab 4. Do you know what that was used for that valuation, or was to be used for?---No, not the faintest idea. Because by that time, by the time that valuation was provided, you'd already advanced funds?---Well and truly, yes. Well into it?---That valuation only came into my possession I think through the past secretary and chairman of the original committee who was sitting in the audience here at the moment. Is that correct? Well - - ?---Yes, that is correct. And - - but you don't know yourself for what purpose the valuation was to be used?---Not the faintest idea, no. Okay. Thank you. Can we go to para 27 please?---27? 27, yes, top of page 4?--- "In May 99 the investors syndicate commenced - -

commissioned Paul Conti of Time Conti Sheffield real

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estate and business agents to provide advice in relation to the sale of the property. On the 31st of May 99 Paul Conti wrote to the investors outlining possible options with respect to the sale of the property. In his letter Paul Conti estimated that the potential sale value of the property, if completed, would be 3,075,000. Conti told his - - told "- -

MR CHANEY: "Told the investors"?--- "The investors" it should be I think, "that the builder

had estimated that the cost to complete the project would be $829,970. On the 20th of August, 1999 First Charter Mortgage Services wrote to the investors detailing possible sale options. First Charter advised that if the property was to sell as is, then the sale price would be between 1 million and 1,200,000, minus advertising sales and other costs."

MEMBER NEWMAN: Mr Allen, who are First Charter Mortgage Services?---Well, they're a company that were at one time tried to raise money for us to complete the building through a firm of solicitors in the eastern states who were investors and were their clients, and they're a local company here, First Charter. But that had nothing to do with Global?---Nothing to do with Global whatsoever, no. Right, thank you. MR CHANEY: And they were engaged by the investors' group were they, to try to - - ?---That's right. - - assist in funding the completion of the project?---Yes. That's true. Yes. Right. Can you continue?---"First Charter." 31, I think, isn't it? Yes?--- "First Charter were also advised that the builder

required 300 - - 830,000 to finish the project, that the current outstanding debts on the property was 2 million - - " excuse me " - - 2,200,000 and that recent valuations on the property indicated that the property, if completed, would be worth no more than 3,200,000. On the 29th of October, 99, Landwest Project Management wrote to Paul Conti advising that in their estimate, the four units, if completed, would be worth a total of 2,450,000, and that they offered to buy the four units for 1 million."

Can I stop you there? Where did Landwest Project Management

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Pty Ltd fit into the scheme of things?---They got into the act by virtue that I contacted Paul Conti, and told him that you know, we're interested in getting - - selling the building on, and did he have anyone that was interested, and he did subsequently got on to these people and they put in these offers, but here again it didn't amount to anything in the long run. Yes?---They all bailed out. MR CHANEY: Thank you?---But that was another - -a second, like First Charter, another - - Yes?--- - - thing that never eventuated. Another organisation engaged by - - effectively by the investors group to try to find a solution?---Yes. Find a solution. In this particular case, Paul Conti was one that I was instrumental in - -though I'm not on the committee or anything, I was instrumental in trying to get him to - -because I know him, to get him to try and see if he could find something out for us, or do something for us. Yes?---Where are we now? 33?--- "On 2nd of November 99, Paul Conti wrote to the investors

advising that Landwest Project Management Pty Ltd was prepared to purchase the units for 1 million. Mr Conti recommended that the investors decide to put the property up for sale either by auction or public tender so that some competitive bidding could result."

By way of explanation, the project manager, like everyone else, knew we were in trouble and they were all trying to steal it off us, so we thought the best way to properly - - his suggestion was we should perhaps go to auction or either private - - what do they call it, private auction or public auction, yes. Yes?---Private tender or public - CHAIRMAN: Private tender, yes?--- "34. The property has not yet been sold." MR CHANEY: If I can just stop you there. The position is, is it, that the moment the interests of the investors are all identified, there's no question about who comprises the syndicate?---No. No way at all. So the issue is simply realising on the security in obtaining a maximum return?---Yes.

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But the problem is the building's not finished, is that it?---The building's what - - the building's 70 per cent finished at the moment, yes. Yes. Thank you. So in terms of your ultimate outcome, at some point you should receive some return on your capital, but just what percentage of the return that is - - remains uncertain?---It depends how long I live. CHAIRMAN: It's a good incentive for you. MR CHANEY: I'm sure it'll have to be very delayed to beat your death, Mr Allen, if I may say?---Yes, you're right. 35?---35: "In February 98 I invested 100,000 in a pooled mortgage

scheme to a company called Riverland Heights Pty Ltd, the loan was brokered by Global Finance. The information provided by Global in respect of the investment was contained in Global's letter to myself dated February 99, attachment 9. In this letter Global advised the amount of the total loan was 2,650,000. The borrower was Riverland Heights Pty Ltd an investment and development - - " excuse me " - - company owned by Tom Lowers?. Tom Lowers would provide a personal guarantee over the loan. Tom Lowers had a net worth of 8 million to 10 million." Incidentally, later he's quoted as being 12 million in the paper. The purpose of the loan was to assist with the acquisition and development of a 174 acres of land for an 81 lot subdivision known as Riverland Heights Estate. The development was valued at 4,250,000. The loan to value ratio would be 64.2 per cent. My name would be registered on the title - - " excuse me, "on the title deed. The terms of the loan was 12 months, the investment was considered extremely viable and profitable, and virtually risk free."

Can I stop you there? Did you know anything of Mr Lowers other than what was told to you by Global?---I didn't know anything more at the time, and if you read some of the correspondence which no doubt you have read regarding the documentation given to us, he was - - it was a glowing report, the dazzling Dutchman they called him. In fact - - ?---The only one that was dazzled was me. The last document in the bundle I think is an attachment to your - - ?---Yes. - - letter to the committee. Just have a look at that, make sure it is in the bundle. The bundle I've given you - - ?---The last. - - the very last couple of pages. Go behind - - from the

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last couple of pages in the bundle, attached to the last - - to tab 15?---Well, yes, I got it here. That's the Dazzling Dutchman - - ?---That's the Dazzling Dutchman. - - article which comes from some Malaysian industry journal, is that - - ?---Yes. Well, that was in what? 98, wasn't it? January 97 is the date at the bottom of the article on the very last page?---Yes, but the - - we signed up in when - - MR CHANEY: Yes, February 98?---Yes. Yes?---Excuse me. Well, subsequently I went up and had a look at the property, as an observer with the previous secretary and chairman of the investors committee, to have a talk with Lowers. Bear in mind I was only an observer. And he was worth 8 to 10 million, 12 months - - in 98, and in 99 he's broke. So where did all the money go? So I would say that the report was totally misleading. Yes?---Totally misleading. And the article that you've provided to the committee, was that given to you by Global?---By Global? Yes, it all came in - As part of the proposal?--- - - a documentation initially when I signed up with them. Yes. Thank you. Can you go back to paragraph 38 of your statement?---A total of 38 investors. "Global didn't register all the investors as first

mortgagees on the title deed." Only one investor, a Mr Masters, plus Global Mortgage Investments", they were the only two on the title as I understand it. "Were registered on the title. After Global collapsed PB Ashton Read registered a further five I'm told." Now I don't know about that. "I was told a further five investors on the first mortgage, as first mortgagees on the title. However I am still not registered." And if you can bear with me for a minute, there's something here I wanted to refer to.

Yes?---With regarding to Ashton Read. Wrong one. I'm sorry to hold you up. No, that's all right?---But there's that much paperwork here. And I've only brought half of it with me. Anyhow, as I understand it - - I can't locate it at the moment - - I've got it here, but I can't find it. Well, perhaps after you - - ?---Perhaps we can come back to

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it. - - finished giving your evidence, we can look for it, but you know what the thrust, the point you want to make, while we've got it in context?---Well, yes, I do. The point is that the Ashton Read were given instructions to put our name on the title. But they didn't do it. By the - - who gave the instructions?---By the court. I see?---And I don't know why it wasn't done. To short circuit things, can I refer to the secretary - - MR CHANEY: What we'll do I think is complete your evidence, Mr Allen. We'll then be taking a break anyway, we can then have a look at it and - -?---Okay. - - if necessary recall you or just tender some documents?---Fair enough. Right, where were we? Para 40?--- "I received interest payments up to December 98. I later

found out that Global was paying me interest out of loan funds." We've gone through that, haven't we? "I didn't discover there was a problem with this investment until Global collapsed. Problem with the investment. Global lied about financial position of the lender. The property was overvalued and the loans value to - - the loan to value ratio was overestimated. The proposed subdivision was never completed." We are talking about Riverland of course now.

Yes. And all of the money borrowed for the project was advanced, was it?---How would I know that? I don't know what they did with it. You don't know, all right?---No. Could have gone anywhere. Well, yes, but in terms of it's not still sitting in a trust account?---No. At Global, is that right?---It's probably down south somewhere in someone's pocket: "Global told me that I would be registered as a first

mortgagee on the title deed. However, my name was never registered. A licensed valuer did not do the valuation. There was only an appraisal done by Colin King, who was a real estate agent in York and was the Hooker agent there."

Now can I just ask you about Mr King's involvement, because we've heard of him being a borrower in relation to some subdivisions. Did he have any interest in the Riverland

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development?---No. No. But he was a borrower as I understand, it in some other projects. Yes?---But I don't know about that. I was only interested in my two. Right. So the terms of the valuation, that's - - have you ever seen that valuation?---No. So all you know about it is there's reference to a value in of the letter of offer?---Yes. Thank you. Can you return to - - ?---48? MR CHANEY: 48 please?---Yes. "Subsequent to Global going into liquidation, the

investors formed an investor syndicate and instructed a solicitor called John Byrnes to handle it".

Yes, so he's looking after things at the moment, regarding all of Riverlands investors. MEMBER NEWMAN: Mr Allen, could I check Mr Byrnes' surname, and spell it? I think it's John Byrnes, B-y-r-n-e-s, but can I just confirm whether that's correct?---I think that's the spelling of his name, your Honour. MR CHANEY: In fact the letter in annexure 10 demonstrates the fact it's Byrne, B-y-r-n-e, no "s"?---Yes. So I think that's right. Yes?---Yes, it's B-u-r-n-s in here, I'm sorry about that. Do you want me to continue. Yes, please?--- "On the 1st of December 1999, John Byrne wrote to the

investors advising that we would try to get a court order that all investors be registered on the first mortgage on the title attachment 10. On the 24th of February 2000, John Byrne wrote to investors detailing his attempts to get the first mortgage registered. Attachment 11. On the 11th of February PB Ashton Read wrote to John Byrne advising that there appeared to be no mixing of funds by Global in respect to Riverland investments. PB Ashton Read also advised that they were keeping an amount of 79,961.40 in the their trust fund for the project." I - -for that reason I can't understand why our names are not on the title, because there's no mixing of funds.

Yes. MEMBER BLIGHT: Mr Allen, were you ever given a reason as why your names were not - -by anybody?---No.

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No?---None at all. "Attached to this statement are copies of circular letter

to Global investors from Global investors coordinating committee dated 17th of November 99 and March 2000. Attachment 13."

MR CHANEY: I think you missed a paragraph 52?---Did I? Yes?---Well, that's understandable. Can I ask you to read it, just for the record?--- "If the investors are successful in getting their names

registered on the title deed then we will attempt to sell the property", if we can find a lunatic to buy it.

MEMBER NEWMAN: Mr Allen, has there ever been any suggestion to you from PPB Ashton Read that the reason why your names are not now being registered on the title would be that if they - - because the loans were apparently advanced to Riverland before the registration on the title, if they now register the title it would be giving you a preference over other creditors?---Not to my knowledge, no. Right, thank you?---Shall I continue, sir? MR CHANEY: 54, please?--- "Attached to this statement are copies of three letter

received from Global investors coordinating committee dated the October 99, 26th of May, 99 and undated, attachment 14."

Mr Chairman, I don't wish to take you to those in detail now?---55? Yes, please?--- "On the 8th of March 2000 I made a submission to the

Gunning committee of inquiry. Attachment 15. General comments. I have not had any dealings with the Ministry of Fair Trading or Finance Brokers' Supervisory Board."

And why is that?---Well, from what I've been told by other people who have written to them, without mentioning names, they've had very little response. I have a letter here from Dr Liz Constable, who did write to the finance brokers board, which I don't think I've mentioned in the correspondence, and her inquiries here, the letter back from Doug Shave's department perhaps highlights some of the reasons why we don't even bother to engage their help, because I don't think we can do much - - having too much success.

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Well, what's the date of the letter?---The date of this letter is the 11th of May. This year?---Yes. Do you want me to give it to you to read first up? Could I just have a look at it please?---I've highlighted here some of the things that are likely to be pertinent. CHAIRMAN: You're referring to Dr Liz Constable, your local member?---That's right, sir. Yes. MR CHANEY: Yes, well, perhaps if you could make any observations to the committee that you wanted to make in relation to that letter?---In regarding to the highlighted - - Yes - - ?--- - - the parts I've highlighted? Well, whatever you feel the committee should take account of?---Yes. Okay. CHAIRMAN: What's the date of the letter for a start?---11th of May 99, sir. Thank you?---And Doug Shave has said here, and I'm only reading part of it: "I can appreciate the reasons why your constituent would

expect the ministry to warn the public about Global Finance. However, under the circumstances known by the ministry at the time I issue - - to issue a public warning about Global Finance based on only two complaints received could have placed the ministry at risk of litigation." I can't see how that's going to happen. "The alternative may have been to give a general warning to the public without mentioning Global Finance. This has the effect of warning all investors, potential and existing, about all finance brokers. Such action would seem somewhat unreasonable given that a vast majority of finance brokers conduct their affairs in an appropriate manner with their clients."

Well, you then have six brokers that are under a cloud. Do you want me to mention their names? CHAIRMAN: Well, I think we know them?---You know them. Okay. So I think that was totally inappropriate. I think he should - - something should have been done, perhaps we wouldn't have lost as much money as we have today. Just bear with us, something else here I think. It doesn't - -that's not important I don't think. Okay. Shall we proceed? MR CHANEY: Well, Mr Chairman, I tender that letter. May I

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just have it back please? CHAIRMAN: That letter of the 11th of May that's just been referred to is exhibit 67. MR CHANEY: Thank you. Actually, the day - - the date is 1st of May?---Liz Constable's letter is the 11th of May is it? No, that's 14 May. There are actually - - I'm not sure that we need Dr Constable's letter, we might remove that and take the minister's response to Dr Constable and it bears a date stamp under the signature of 1st of May 99, there's another date stamp on the first page of 4 May, 99, that presumably is a receipt date. That's a letter from the Minister for Land, Fair Trading, Parliamentary and Electoral Affairs to Dr Constable. CHAIRMAN: Well, that's the important one. MR CHANEY: Yes. CHAIRMAN: That's the 1st is it? MR CHANEY: That's the 1st, yes. CHAIRMAN: Very well. EXHIBIT 67 Mr Chaney DATE 1.5.99 Letter from Mr Doug Shave to Dr Liz Constable MR CHANEY: Now Mr Allen, I think we had - - you'd read paragraph 56 before I interrupted you?---Okay. "I have not had any dealings with the Ministry of Fair

Trading or the Finance Brokers' Supervisory Board." I did cover that, I said I felt it was useless on the information I'd received from other people who had tried to do something through those avenues."

Yes?--- "57. I have heard that the ministry received

complaints about Global and didn't follow them up. 58. I did think the - - "

CHAIRMAN: I don't think? MEMBER NEWMAN: The wording is "I don't think"?---I beg your pardon? CHAIRMAN: Just read that again, 58? You said "I did think"?--- "58. I don't think that the - - " no, it must be 57,

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15.5.00 A.H. HENRY XN 118

sir. MR CHANEY: 58. We've got 57 done?---Sorry, you want 58 now. I beg your pardon. I thought you wanted to read the other again, 57 again. CHAIRMAN: Sorry?--- "I don't think that the Finance Brokers' Supervisory

Board should be investigating its own industry members." Okay?

Yes?--- "59. There is very - - there is every indication that

there was an unmistakable collusion between brokers, valuers and developers".

MR CHANEY: Thank you?---Can I go home now? That's not just yet. Mr Chairman I tender the statement with attachments of Albert Henry Allen. CHAIRMAN: Mr Allen's statement etcetera will be exhibit 58 - - 68. EXHIBIT 68 Mr Chaney DATE (Unstated)EXHIBIT 68 Mr Chaney DATE (Unstated) Statement of Albert Henry Allen with attachments MR CHANEY: I have no further questions. CHAIRMAN: But are you going to possibly recall Mr Allen after the break, or have you covered that now? MR CHANEY: Yes, I'll see what he wants - - what document it was he was looking for and see if there's any need to recall him. I don't know whether my friends - - CHAIRMAN: Mr Allanson?---Looks like I will be 83 before I leave here. Mr Allanson? MR ALLANSON: I won't be cross-examining. CHAIRMAN: Mr Hooker? MR HOOKER: Not for me, sir. NO CROSS-EXAMINATION CHAIRMAN: Thank you. Well, it may not be called back Mr

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15.5.00 A.H. HENRY XN 119

Allen, if you're lucky?---Okay. Thank you very much indeed for coming along?---It's been a pleasure. Yes, it's lovely to see you again - - ?---It's good to see you again. - - after 30 odd years?---I wish it was under different circumstances. Yes, I'll say. They were good fun - - ?---It's been a long time. It was good fun in those days?---Yes. CHAIRMAN: Lovely to see you haven't lost your sense of humour?---Thanks very much. Right. We'll adjourn for a few minutes?---Thank you. WITNESS WITHDREW SHORT ADJOURNMENT

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15.5.00 D.J. WILSMORE XN 120

UPON RESUMPTION: CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Call Donald John Wilsmore. DONALD JOHN WILSMORE affirmed:DONALD JOHN WILSMORE affirmed: EXAMINED BY MR CHANEY: MR CHANEY: Your full name is Donald John Wilsmore?---Yes. And you live at unit 8, 106 Start Street Carlisle?---Correct. You've assisted the inquiry by having a statement prepared of the evidence you wish to give to the inquiry?---I have. Could you look at this document please? That's the statement with its attachments prepared in conjunction with officers of the inquiry?---Yes, this is actually sworn an affidavit, was for the Supreme Court but the evidence of course is the same. Yes. And there is a covering - - the affidavit is one of the documents in the statement which appears on the front of that bundle?---Yes. Can I ask you Mr Wilsmore to commence reading the statement from paragraph 1, on the first page?---Right. "My full name is Donald John Wilsmore. I reside at

unit 8/106 Star Street, Carlisle. I'm a former police officer and retired sales representative. I first became involved with finance brokers after my father died in December 97. At that time I inherited an investment he had made through Clifton Partners. The investment had already been going for about 2 years and matured 1 year later in approximately December 98. At that time I decided to reinvest the money in a loan managed by Graham Grubb finance broker. I had read Mr Grubb's ads in the West Australian newspaper which offered better terms and conditions than Cliftons had. I have outlined my dealings with Grubb in full in an affidavit which the solicitor acting for Mark Conlan prepared to assist in the presentation of their case to the Supreme Court".

CHAIRMAN: Now Mr Wilsmore, I'd like to take you to that affidavit, which is under tab 1. That was - - that affidavit's now been sworn and filed in the proceedings to which it relates?---Yes. It sets out I think the, in some detail, your dealings with Grubb Finance and the background to it?---Yes. Can I ask you to read the document please, starting from

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paragraph 1?--- "In late 98 I had an investment with Clifton Finance,

which was due to mature. As a consequence I kept a lookout in the newspaper for people advertising that they wanted to borrow money and used to read finance brokers' advertisements. In November or December 98", actually it was early December, "I saw an advertisement placed by Graham Grubb finance broker which referred to an investment opportunity on first mortgage security, and gave an attractive interest rate. As a result of reading the advertisement, I rang the telephone number in the ad and asked for details of the investment. I was put through to a David Coxon."

MR CHANEY: Did - - if I can stop you there, did Mr Coxon identify the role which he played in Grubb?---Representing Graham Grubb as a sales rep. Thank you?---Okay. "I had a conversation with David Coxon over the phone

in which he told me some things about the advertisement, including the fact that it was something to do with a vineyard. He said he would post details to me. Soon after that I received in the mail a letter from Graham Grubb Finance Broker dated 8 December 98, and a glossy brochure about Karri Oak Vineyard mortgages. I annexe a copy of the letter and a brochure here to this file. Included in the material was a document headed 'Private first mortgage lending mortgagees cashflow guarantee. Question and answers.'"

Now I'd like to take you to that document. Well, first of all to the brochure, that's found at page 12 of the affidavit, the numbers are in the top right-hand corner. That document headed - - do you have it?---This is the coloured brochure? Yes. Headed "Graham Grubb Finance Broker"?---Yes, yes. And it introduces the mortgage - - or the investment in the first paragraph there. "A combination of Ted Avery and Ted Holland, as

viticulturists combined together with the innovative and professional directors behind this premium vineyard, which is now fully planted, represents excellent security for first mortgage investors. I recommend this viticultural mortgage offer and underwrite it with our exclusive cashflow guarantee."

The viticultural mortgage, which is in bold there, did that mean anything to you?---Purely it was a wine investment.

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Right. And then there's reference to the cashflow guarantee?---Yes. MR CHANEY: And that's the subject of that questions and answers document which is found at pages 14 onwards, is that correct?---Yes. Is that a document which you had regard to? What part did this cashflow guarantee play in your decision?---I don't think it was the dominating factor. It was important. I felt that if there was a problem by the mortgagor that Grubb guaranteed to make the payments on time. Basically that. But that wasn't the prime cause for my investment. Right. While we're on it, what was - - what were your motivating factors?---The fact he was licensed finance broker, registered by the Finance Brokers Registration Board. And I felt I had some safety there. There's no way I would have invested otherwise. Yes. And the questions and answers, are found at pages 15, 16, and 17?---Mm-hmm. Now for 15, if I can just take you there for a moment, it says in the - -about half way down the page, there's the question "What if Graham Grubb Finance Broker is no longer around to manage my mortgage or does not honour the cashflow guarantee agreement"?---Yes. "Answer. The simple answer here is that the mortgage investment is always held in your name. Should any of the above events occur, the cashflow guarantee agreement would be subject to notice of termination. You would then be able to manage the mortgage investment yourself or appoint another manager, solicitor or adviser to manage you." So it seems to be suggesting that the answer is that if the guarantee is not met, that your remedy is simply to terminate the guarantee and take over the mortgage yourself. Did that - - were you aware of that at the time you went into it?---Obviously I read it, took note of it, but it didn't probably play a huge important part in my determination to invest with Grubb. Yes. CHAIRMAN: Well, what did play the big part, you - -?---The fact that he was a licensed mortgage broker, your Honour, and as I say, licensed by the Finance Brokers Board, who, if they'd been doing their job, would never have been trading in December of 98 when I invested. Yes, I was just wondering, that's perhaps a little with hindsight, would it be fair in saying that?---Saying which? That the Finance Brokers Board concerned - - ?---Well, I

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didn't know that at the time, of course. But what about this here? You could take it over yourself, if it went bad, you're on the title, first mortgage - - ?---I hadn't put much important onto that particular point. I was never ever registered on the title as it turned out anyway, so - - CHAIRMAN: No, that's another thing altogether?---Yes, which slightly makes a problem. Very well, thank you?---Right. MR CHANEY: And the next question on that page, "What documentation is involved? Answer, the cashflow guarantee agreement is essentially a limited power of attorney management agreement allowing Graham Grubb Finance Broker to collect the interest payments on your behalf and in return Graham Grubb Finance Broker is obliged to pay you the guaranteed rate of interest as agreed when the mortgage investment is deposed", and so you were effectively handing over whole control of the money and its return to you in exchange for receiving your guaranteed interest?---Basically, yes. And you were confident to trust him?---Well I knew it was the intent that if the mortgagor was late with payments, Grubb would pay them, and as he'd been in business for 25 years, I felt some sort of security there. Were you told whether or not this was any sort of new type of arrangement, or did you understand this was the way he'd carried on his business for 25 years?---I just understood I was registered on title, as a mortgagee, with up to a maximum of 65 per cent borrowing ability. Yes?---I felt quite secure in that regard. But as I say, it didn't work out that way. All right. Thank you. Can we go back to paragraph - - well, I'm sorry, be four - - just so that I can - - ?---Five I think would be next one. Yes, but I just wanted to go back to some - - no, I'm sorry. I'll get to it later. Carry on with 5 thank you?--- "I did not have any - -" well this is personal contact

"- - with the Ministry of Fair Trading or Finance Brokers' Supervisory Board - - "

No, I'm sorry, we're - - go back?---Gone ahead? That's 5 of - - ?---I'm sorry, of the affidavit. Of the affidavit?---Right.

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"After I received the letter dated 8th of December 98

and had read the brochure and the questions and answers, I telephoned Graham Grubb Finance Broker, again and spoke to Mr Coxon. I asked him whether there would be one lot of 50,000 invested or two lots of 25,000. He said it could be either way and I asked him if there was a valuation but I can't recall what he told me." I must have been satisfied anyway. "I asked him what percentage of the property's value was being borrowed because I thought you couldn't borrow more than 65 per cent of the value."

MR CHANEY: Can I stop you there?---Sure. Why did you - - do you think that was some sort of legal limitation on the - - ?---Well, I have been in real estate, of course, and was - - used to be limits on investment properties in up to 65 per cent of valuation, otherwise they had to be mortgage insured. Yes. All right. Thank you?--- "I asked him what percentage of the property's value

was being borrowed, because I thought you couldn't borrow more than 65 per cent of the value. I can't remember what he told me but I was satisfied with what he told me and so I decided to go ahead and I said that I would send 50,000 when I received the cheque from Clifton Partners. I also asked him when the interest would be paid and if there was any tax benefit from the investment and I was told no. He also told me the loan was for an 8 months term and he confirmed that I would have a registered first mortgage over the property, which to this date I still don't have. The brochure said that there were 325 mortgages, each of 25,000. According to paragraph 6 of the letter of 8th of December 98, the total net equity in the land certificate of title volume 1069 folio 416, was 8.4 million. I was satisfied from my conversation with David Coxon that there was sufficient security for me to be repaid, and that I would have a registered first mortgage. As a result I told him I would invest the money when I received the cheque from Clifton Partners. On the 16th of December 98, I received a cheque from Clifton Partners to the sum of 50,000 and some odd dollars. I took the cheque into the office of Graham Grubb Finance Broker and asked for Mr Coxon. I saw him and told him who I was and told him that I decided to invest. I told him I had the cheque from Clifton Partners for 50,000 and some odd dollars, and gave him the cheque. He gave me a receipt. On the receipt he wrote that 50,000 was to be put into first mortgage investment and the odd dollars to be refunded with interest. There's a copy

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annexed to this file. Mr Coxon gave me a letter from Graham Grubb Finance Broker dated the 10th of December 98, which confirmed my investment. In item 5 of the letter we changed the date from the 10th of December 98 to the 16th of December 98, because that was the day I came in. I did not get the letter until I came into the office on the 16th of December, 98. With the letter was the document called a deed of appointment. I signed the deed of appointment on 16 December 98 and gave it to Mr Coxon. Annexed is a copy of that." And also a copy of the deed of appointment and I confirm that this is my signature on this document.

MR CHANEY: All right. Could I ask you to go to page 20 of the affidavit?---All right. And that's the deed of appointment?---It is. And that was the document which effectively was the consideration against which you received the interest rate guarantee?---Yes. Virtually giving him power of attorney, as I understand. Yes, and paragraph - - clause 1.1 there, involves your appointing the broker as this agent in relation to the agreement for the following purposes. Negotiating and giving full force and effect to the loan by the lender of the sum described in the schedule hereto. So you knew you were appointing him as your agent?---Yes. I take it that you considered that he would represent your interests, and protect your interests as your agent?---Of course. And that you were client?---I do. Right. Can I ask you please to go back to paragraph 14 of the affidavit, page 5 of the affidavit?---Right. Read on? Yes, please?--- "In paragraph 12 of the letter of 8 December 98

reference is made to the fact that all legal documentation would be prepared by Grubb Legal. I discussed this with Mr Coxon. He told me that Grubb Legal would be told to draw up the mortgage over the property with my name on it, so that I would become registered as the first mortgagee, or as a first mortgagee. He did not say how long it would be before I received my copy of the mortgage. In January 99 I received a letter from Grubb Legal dated the 25th of January 99 which had with it a copy of mortgage G976925, and there's a copy annexed here."

Yes?---

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"A copy of the letter and copy of the mortgage

document that came with it. The mortgage was in the sum of 3.6 million. When I received the letter dated the 25th of January 99 I read the mortgage. I can't say that I understood it fully. I know that my name wasn't on the mortgage, and I understood that it couldn't be because I hadn't signed any mortgage documents. I telephoned Grubb Legal and told them that I had received their letter and the mortgage details and asked when I was going to be registered as the mortgagee. I cannot recall whether I spoke to a man or a woman. I subsequently rang Grubb Legal on a number of occasions to ask where my mortgage was and when I was going to become registered. On a date I cannot recall I was sent a transfer of mortgage and asked to sign it. I signed it in the presence of Dulcie? Higgs and returned it to Grubb Legal. Subsequently I rang Grubb Legal again on a number of occasions and asked when I was going to get a copy of the mortgage. One time that I rang was the 21st of April 99, and the woman to whom I spoke said that the transfer was being registered that day, and that the girl was at the titles office as we were speaking. Copy of the transfer duly annexed here. Subsequently I received a letter from Department of Land Administration dated the 17th of June 99 and a copy of a requisition to Grubb Legal, both attached here. I understood the letter from DOLA and requisition to Grubb Legal meant that there wasn't sufficient moneys left in Oakleigh Acquisitions, which was a company owned by Grubb to transfer my investment in as there was only $38,000 worth of shares or money left on the title."

MR CHANEY: Yes, now can I just ask you to stop please and turn to page 46 of the affidavit?---Yes. This was in June - - this is the letter to you dated 17 June 1999?---Yes. Saying: "I attach a copy of a requisition that was forwarded

to the solicitors Grubb Legal who lodged a transfer to you of an interest in the mortgage. I am concerned that you may not have been advised of the contents of the requisition and I wish to give you an opportunity to take action you consider appropriate before I reject the transfer for failure to comply with the requisition."

And at this stage, was that the first that you had heard of these problems of registration?---Yes. At that stage I didn't even know Oakleigh Acquisitions existed. What I now

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understand is of course that I think Grubb had approximately $175,000 invested in Oakleigh Acquisitions, this is on the title, and gradually as people invested moneys, that money was taken out so consequently there was only 38,000 left there when they tried to register my interest. Yes, well, in fact the transfer, look at page 44, just two pages earlier?---Yes, yes. A copy. MR CHANEY: Is a transfer from - - a copy of a transfer from Oakleigh Acquisitions - - ?---To me. - - to you, of a share in the mortgage?---That's correct. And duly knocked back by DOLA. Yes. And the requisition, which is referred to in the letter, at page 46, is found at page 47, that tells you Oakleigh Acquisitions had an initial interest of 1785 - - ?---178,500 yes. Yes. Thirty six thousandth shares. It appears that 1405 have been transferred by various prior documents leaving a balance of 380?---Yes. Which is 38,000. Yes. The transfer of mortgage submitted indicates the transfer of a further 500 shares which exceeds the balance of that - - apparently agreed to transfer more shares than Oakleigh Acquisitions actually had?---Yes, actually it should - - I think it's in my affidavit. Did you like me to read section 23 onwards? Yes, that might assist?---Yes. "I do know that - -I did not know that I was going to

take a transfer of any mortgage held by Oakleigh Acquisitions. When I made the investment I thought that my mortgage was going to be by Sandgate Corporation". Incidentally I've had no problems with Sandgate as far as I'm concerned. "The first I heard of Oakleigh Acquisitions Pty Ltd was when I was asked to sign the transfer of mortgage. When I signed the transfer, it had been completed showing Oakleigh Acquisitions Pty Ltd as the transferor but I did not think anything of it. I just assumed that's what was happening in this case. After I received a letter from DOLA I rang Graham Grubb Finance Broker and spoke to Grubb personally. I told him what DOLA had told me, what was in their letter and what was on the requisition notice. He said that he didn't realise that there weren't sufficient funds and that he would have to put more money in. At the time that satisfied me. I received my interest for the first few months of my investment but stopped getting interest after March 99. Soon after 8th of April 99, I received - -"

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MR CHANEY: 8 July I think that is?---Sorry, what did I - - 8 July?---Yes. You said April?---Sorry. Thinking of my birthday, round there: "Soon after the 8th of July 99 I received a further

letter from Grubb Legal a copy of which is attached. The letter was in response to a letter that I had written to Grubb Legal on the 2nd of July, in which I complained that they had not looked after my interest. I did not ring Grubb Legal after my - - about my mortgage after receiving their letter of the 8th of July 99." Not much to go. "I have been told - - " is relevant, this next section? 27?

MR CHANEY: No, I think we'll leave that actually?---More relevant to the Supreme Court. Yes. Mr Wilsmore, would you go back to paragraph 5 of the covering statement?---Yes. "I did not have any personal contact with the Ministry

of Fair Trading or Finance Brokers' Supervisory Board in relation to my dealings with Grubb. After I stopped receiving interest payments in March 99, I rang the Fraud Squad to see if they knew of any problems regarding Mr Grubb. They said they were not aware of any problems. I knew that finance brokers were licensed and regulated by someone, but I had not heard of the Finance Brokers' Supervisory Board per se. There was no way I would have invested through anyone other than a licensed finance broker. As a former sales rep I expected that licensed finance brokers would also be subject to sufficient regulation and scrutiny. I have written several letters to Minister Shave advising that I hold the ministry and the board responsible for the money I stand to lose as a result of their inadequate regulation of finance brokers. A letter of reply from the minister dated the 30th of August 99 refers to the fact that in 98 the ministry had received a total of 25 complaints about Mr Grubb's finance broking business and that the board has requested a special audit as part of the 98 standard audit. The minister has continually denied any wrongdoings on the part of the board or ministry. In the same letter he said "Mr Wilsmore, I appreciate your concern regarding this issue. However, in view of the circumstances it would be unreasonable for the ministry and board to accept responsibility for Mr Grubb's conduct. It would not be appropriate to blame organisations if a person decides to misuse trust fund moneys. I would say they are responsible though, because I had known that there were problems with

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Grubb's - - if I had known that there were trouble with Grubb's trust account I certainly wouldn't have invested in the first place. My money is now in the hands of the courts and they'll determine whether only registered mortgagees will get paid out in full, or whether those not registered on the title will be shared in the proceeds as well. I believe the liquidator is trying to prove that all investors should be treated equally so long as they entered the mortgage in good faith."

MR CHANEY: Thank you, Mr Wilsmore. I tender, Mr Chairman, the statement of Donald John Wilsmore with the attachments. CHAIRMAN: Yes, that'll be exhibit 69. EXHIBIT 69 Mr Chaney DATE (Unstated)EXHIBIT 69 Mr Chaney DATE (Unstated) Statement of Donald John Wilsmore with attachments MR CHANEY: There's nothing further that I require from Mr Wilsmore, Mr Chairman. CHAIRMAN: Mr Allanson? MR ALLANSON: Nothing thank you, sir. CHAIRMAN: Mr Hooker? MR HOOKER: Thank you, Mr Chairman. CHAIRMAN: Thank you. CROSS-EXAMINED BY MR HOOKER: MR HOOKER: Mr Wilsmore, I think you've said in your statement you were a police officer at one time, is that right?---Yes. For how long were you in the police force?---From 1955 to 63. And what rank were you when you finished in the police force?---Purely? Constable. What areas did you work in as police officer?---Perth, Fremantle and Palmyra police station. Thank you. Now have you still got a copy of your statement in front of you, Mr Wilsmore?---Yes. Could you turn to the handwritten document at the end which I think's your submission to the committee?---Are we talking about the affidavit or the statement?

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15.5.00 D.J. WILSMORE XXN 130

No, your handwritten submission which I think is right at the end of the whole thing?---Yes. Right. I'm with you. Now about half way down that document, Mr Wilsmore you make reference to the fact that you - - CHAIRMAN: Excuse me Mr Hooker, is this the document 22nd of the 2nd, 2000? MR HOOKER: That's it, Mr Chairman, yes. CHAIRMAN: Thank you. Yes. MR HOOKER: Mr Wilsmore, about half way down that document, you made reference to your understanding that by late 1998 there'd been certain complaints and irregularities that were known to the finance brokers regulatory board, as you've referred to it there?---Yes. Now - - ?---Or the Ministry of Fair Trading, one or the other. One or the other?---Yes. All right. Now you became aware I think in August of 99 that the board had taken action to appoint an auditor of Grubb's trust account?---Yes. Mark Conlan. And you became aware of that because you got a letter back from Minister Shave as I understand it, in response to your correspondence, is that correct?---Yes, I have them here if you want me to go through look for it. I don't think we need to go through it again but - - ?---I believe there is - - yes. That's what you've referred to?---I've had numerous letters from the minister, yes. Were you aware, or are you aware, of the extent to which the board investigated the complaints that were made to it about Grubb and his firm?---On my memory only to the fact that it was stated that most - -or the bulk of the inquiries were sorted out to a satisfactory end, I assume. And you'd appreciate, wouldn't you, as a former police officer that that's something that has to be looked into, whenever a complaint's made, as to whether the complaint's substantiated?---Yes. That's a fair comment, isn't it?---Except that these complaints had been going on prior to 98. And that's your understanding from what? From the correspondence from Minister Shave?---That and other sources, yes.

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But - - ?---But there'd been 25 complaints in 98. But it's always an important issue when a complaint is made about a professional person, first of all as to whether the complaint's got any substance, that's right, isn't it?---Of course. And where we're looking at the work done by a tribunal supervising a profession, the complaint has to show some sort of unprofessional or wrongful conduct before that tribunal can act, that's right, isn't it?---Presumably, I don't know the essence of those complaints. I can't comment on that. MR HOOKER: But it's fair to say, isn't it Mr Wilsmore, that it's not as simple a proposition as saying that once some complaints are made to a supervisory tribunal, it should then act to stop that person trading immediately?---Of course. But I will pass on the point that the ministry's put out warnings about shonky painters and roof workers very quickly to stop them operating. Should have been some warning here when there's multi-millions of dollars involved. What I'm suggesting to you, Mr Wilsmore, with great respect is where you say in that handwritten document, about half way down, that by allowing this man to be trading after many complaints and irregularities were well known, gives rise to a complete neglect of duty, what I'm suggesting to you is to make that jump ignores those things I've put to you about the fact that the complaints have to be substantiated and they have to actually show that there's been some kind of unprofessional or wrongful conduct?---Well, you have your opinion, I have mine. You don't think you're necessarily making a jump there in that paragraph when you say that because the complaints were made, and Grubb's still trading at that time, that it must follow that there's a complete neglect of duty?---Perhaps a complete neglect of duty might be an exaggeration, leave the word "complete" out. It depends, doesn't it, before one can draw that conclusion, about the extent to which those complaints are being investigated?---I don't know what the investigation detailed, but the fact that there was 25 complaints should have been enough to have warned the ministry this man was a problem. So you'd accept if complaints are made, it should sound a warning bell, or an alarm bell of some sort?---Very, very definitely. But there - - ?---And some action should be taken to protect investors, even if he was temporarily suspended. And to investigate those complaints and form a view as to

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whether they actually show unprofessional conduct, is a way in which the board and for that matter the ministry, can take that action, that's right isn't it?---Yes, they should have, in my opinion, at least done something to warn investors, he was still advertising in the paper, he was still a licensed finance broker and there'd been 25 complaints alone that year. How many were legitimate I don't know, but surely that must ring bells. And the type of investigation and the sort of investigation the board and the ministry were doing I think you've said is something you actually directed your mind to?---I don't know the substance of those complaints. Thanks, Mr Wilsmore, I've nothing further?---Right. CHAIRMAN: Anything further from you? MR CHANEY: No, thank you, sir. NO RE-EXAMINATION CHAIRMAN: Thank you very much indeed, Mr Wilsmore?---Thank you, sir. Try not to fall down the step. You don't sue us for that. WITNESS WITHDREW MR CHANEY: That completes the evidence until 2.15. CHAIRMAN: 2.15, thank you. Thank you very much, we'll adjourn. LUNCHEON ADJOURNMENT

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15.5.00 A.E. RYDER XN 133

UPON RESUMPTION: CHAIRMAN: Yes, Mr Chaney. MR CHANEY: Mr Chairman, call Alfred Ernest Ryder. ALFRED ERNEST RYDER sworn:ALFRED ERNEST RYDER sworn: EXAMINED BY MR CHANEY: MR CHANEY: Your full name is Alfred Ernest Ryder?---That's right. And you live at 3 Hewitt Way, Booragoon?---Yes. And you're retired?---Yes, I am. And previously you worked as the chief engineer of the Vines Resort?---That's right. Mr Ryder, I think you've provided a statement to the committee. Have a look at this document. That's a copy of the statement which you prepared in conjunction with the employees of the inquiry? Can I ask you to commence reading the statement? Perhaps you can start at paragraph 2?--- "I am the trustee of my personal superannuation fund.

I have been actively investing the funds in authorised investments, as required by ISC, NCAPARA? and Australian Taxation Office. Since September 94 I included first mortgages in my investment, due to the losses being sustained by managed investments in the order of 6 per cent of capital. I invested the security of this type of investment - - ", sorry, "I investigated the security of this type of investment and consider them to be secure and the mortgage brokers were licensed and controlled by the Finance Brokers' Supervisory Board, which was appointed by the government. My wife and I also invested personal savings with financial brokers. The financial brokers that I have used are Gamel Ward, Graham Grubb, Blackburne and Dixon, and Global Finance. Subsequently to the appointment of the Global administrator, I have had dealings with Countrywide Private Mortgage and Financial Management and First Charter. Before investing with a financial broker I investigated the security of the investments as a requirement of my duties as trustee. As the trustee I was required to (a) use finance brokers that were licensed and approved by the government, (b) obtain a statement from each broker detailing his or her mode of operation of the loan and the security of the guarantee, (c) obtain a statement on the ability of the broker to service the loan, (d) ensure that a lawyer was instructed to prepare the loan documents,

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and check all legal requirements had been met with respect to the loan, (e) ensure that finance broker, together with his lawyer and valuer, checked the background of the borrower and ascertain the risks of non-repayment of the loan. 6. In order to satisfy the above requirements, I made general inquiries from each finance broker prior to investing with them, to ascertain their mode of operation. In response to my general inquiry with Blackburne and Dixon, I received a letter which in actual fact was a brochure they prepared, from B and D, undated, and is included as attachment 18. In the letter B and D provided information on (a) the solicitors used by B and D, (b) the auditors used by B and D, (c) what B and D considered their role to be, (d) the type of borrowers, (e) the interest rates, (f) custody of documents and (g) fees and charges.

MR CHANEY: Now if I can just stop you there, and ask you to go to attachment 18. Just have a look at that. That's a copy of the brochure that you've just referred to?---I didn't take a full copy because it was quite a large document. I just put the relevant parts in my submission. But that is - - I included the index so you can see what's in the rest of the document, if you need to have that for further evidence. Okay. And you refer - - I think you go on in your statement to refer to page 3. We might just look at that. That's the page headed first fixed mortgage investments?---The item I'd like to bring out here with this particular document is being said by the finance brokers that an investor is not a client. Now if you notice on this first paragraph in this document, it says that they would act diligently in the best interests of its clients who I considered we were. Now it's been changed for some reason. That's the third sentence - -?---That's right, on the first mortgage investment page. The first sentence is "The role of Blackburne and Dixon Pty Ltd is to act on behalf of investors to achieve the best possible - -"?---That's right, they're talking about the investors, so it can't be construed in my opinion to mean anyone else but ourselves. Right. I think just while we're on that document, can I take you to further two pages on to page which has the heading at the top "Fees and charges". Have that page?---I know there are fees and charges here, which indicates to me if you pay someone a fee, you're his client. Yes. Have that page?---Yes, I've got that. And then two headings down, "How to apply"?---That's right, yes.

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MR CHANEY: Perhaps you might read that portion?--- "How to apply. Complete the investor instruction

sheet which is included with this document. As soon as Blackburne and Dixon have the instruction they will proceed to arrange a suitable borrower to fulfil the requirements, usually 1 to 2 weeks. They will then confirm to the client in writing the arrangement and request prompt to confirm to finalise the investment."

So I take it that overall you considered yourself being the client of the broke?---Yes, I did. And I think it's proved by this and other statements I've received. Yes?---Otherwise they're telling me the wrong information. Right, thank you. MEMBER NEWMAN: Mr Ryder, could you just clarify one point for me? On that page where you refer to fees and charges, it says all mortgage and legal costs are paid by the borrower?---That's right. Did you in fact pay a commission to Blackburne and Dixon - - ?---No, I didn't. - - for collecting interest for you?---The only fee I paid to Blackburne and Dixon was a percentage they charged the lender to borrow the money, and that came out of monthly interest payments, which later we found out, incidentally, they weren't the borrower's money, but our money coming back to us. So we're paying not only - - receiving our own money back as interest, but we're also paying them a commission on it. But you were paying Blackburne and Dixon when they sent you that interest payment? There was a deduction from the interest which was money that went to Blackburne and Dixon?---Yes. And I have got correspondence - - they used to send me a letter every month, detailing what the full amount was and what their deduction was for managing it. Right, thank you. MR CHANEY: Mr Ryder, can I ask you to go back to your prepared statement and I think we've covered what's in paragraph 8? If you could continue reading at paragraph 9?---Paragraph 9: "In response to my general inquiry with Graham Grubb

Finance Broker, I received a letter from Grubb dated the 8th of September, 1994, as attachment 19, detailing similar information as that I got from Blackburne and Dixon.

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Right. Just so that - -so that we can look at that document in its context, turn to attachment 19. You talk of - - there's a passage - - ?---Yeah, well this is one of the requirements I had as trustee of the fund to get information from these people on how they operated before I invested anything, because you know, I've got a legal responsibility as trustee to do this. MR CHANEY: Yes. So this letter tells you that as a licensed finance broker, the writer ensures the funds are invested in a secure manner with you, our mortgage investor, holding first mortgage and being registered on the certificate of title?---That's right. And at the top of page 2?--- "The writer becomes totally accountable to you",

that's me, "our valuable mortgage investor client", again the client, "and we ensure the property is maintained and kept adequately insured and we also ensure that you receive your monthly payments promptly in advance, in accordance with the mortgage agreement."

Can I take you back now to paragraph 10 of your prepared statement?---I probably repeated myself there. Yes?--- "On page of 2 of that letter Grubb wrote 'The writer

becomes totally accountable to you, our valuable mortgage investor client'. This letter also led me to believe that I was a client of the finance broker."

You want me to carry on? Yes, please?--- "11. In response to my general inquiry with Gamel

Ward, I received a letter from Gamel Ward dated 11th of August 1995, which detailed their mode of operation. And that's attachment 20."

So perhaps I might take you quickly to that, so the committee can have an opportunity to see it?---Yes, that's right. And are there passages in that letter which you took to be to the same effect that Gamel Ward would be looking after your interests?---Well, without reading it again, it's several years since I got this one, but: "We thank you for your inquiry regarding investment of

your fund into mortgages. As finance broker we are involved in the placement of investment moneys into secure first mortgage investments over real estate

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property." MR CHANEY: Did you read that as meaning they would be placing your money, that was their task?---Yes. This is their job, they're my client, as far as I'm concerned. That indicated to me, legally, maybe it's not, but certainly indicates it to me. Yes. And if I take you over the page, to paragraph numbered 5, "It's up to the lender to advise us of the types of properties they prefer and since we recommend that our lenders limit the amount of their mortgage lending" etcetera?---That's right, and I believe the lender has got - - has a right to determine what properties he wants to invest in. After all's said and done it's his money, and that's the principle I worked on all the time. Quite a few investments I got offered to me, I wasn't happy with them, I didn't think they met my criteria, so I didn't invest. Well - - and just to take up the point that Ms Newman raised with you in relation to Gamel Ward, there's in paragraph 9, and 11 deals with the question of costs?--- "Our fees and charges for procuring the mortgage at

the expense of the borrower. This is no cost to you for our service, or for the valuation or legal expenses." And 11, "We usually advise the borrower to pay interest payment direct to you, the lender, to avoid unnecessary fees and charges. However, we are available to receive collections on your behalf and in this regard we levy a charge of 5 per cent of the amount of the collections", which is similar to the other, except I had the option of receiving the money direct which obviously saved them office work I guess.

Yes. And so in respect of Gamel Ward, did you in fact elect to collect the money direct, or did they - - ?---Yes I did. Right. Would you go back please to your statement, and resume reading at paragraph 12?--- "I did not normally receive a copy of the valuation

reports from the brokers. However, I did rely on the brokers advice that a sworn valuation had been done by a licensed valuer. 13. On one occasion, I did receive a valuation from Trust Mortgages, prepared by Mr Ron O'Connor and Associates in respect of the Margaret River motel. Reports in the West Australian concerning problems with the project made me suspicious and I decided not to invest".

Are you able to say when that was?---It was reported in the West Australian, it was around about the time that Global were having problems before the administrator was appointed, and I thought you know, I was quite pleased with Global's performance. We always got our money on time and there was

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never any argument and they all - - generally speaking, they alway arrived on time. But because of the newspaper reports that there may be a problem I started to investigate other areas and I spoke to Trust Mortgages, but fortunately, before I invested with them, I noticed there was an article in the newspaper, and the newspaper had great value, at least they're letting us know what's going on around the place, and not the body that's charged with that duty, but they said that this - - and I'm just quoting a figure that I'm not sure about, but for some reason this motel had borrowed something like 2.8 million or 3 million or something like that, can't remember the exact - - and it was sold to somebody else at an auction for $1 million. Now that somebody else as far as my information is concerned, happened to be our Mr Sedek. Now whether he actually bought it or whether he just supposedly bought it for a million so that the first mortgagor then didn't have to pay the balance back to the mortgagees, but then I got offered this property again in the Margaret River, by Peter Fermanis, from Trust Mortgages and I spoke to my wife about it and she said no way, you know, there's something wrong here, and after that report in the newspaper I was fairly close to investing, because the proposal seemed very attractive, but I didn't know the previous background, until the report in the paper, and we decided not to invest. MR CHANEY: Do you remember the remember the identity of the borrower in the proposal you received?---I have got it. I haven't produced it, I've got paper where - - All right?---Because I've kept those and I've got because I've kept those and I've got them in my bag there actually. Yes, we may - - ?---I have got it. Which one - - where am I now? Para 14?--- "Gamel Ward Finance Broker. Gamel Ward and Graham

Grubb were the first finance brokers that I used commencing in 7th of September, 94. I contacted Gamel Ward after seeing an advertisement in the newspaper." And that advertisement of course always said they're licensed brokers, and they're for superannuation funds and all this sort of thing that they put in these ads. "16. I have had a total of five separate investments with Gamel Ward. Out of these I had two problem investments. The first was in respect of the loan to Homemaker? Investments for the purchase of a property in Hillman Street Rockingham. The second was in relation to a property in Collie. Hillman Street Rockingham. 17. In about 1995 I decided to invest 65,000 to a company called Homemaker Investments for the purchase of a lot 30 Hillman Street in Rockingham. The borrower only paid two interest payments during the life of the loan. When the loan was settled, the

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further 11 outstanding interest payments plus the capital were paid to me."

WITNESS: Now prior to receiving this settlement for lot 30 Hillman Street Rockingham, I had a telephone call from a lawyer, representing an investor in Singapore, who had purchased the property from Homemaker, but had not received a receipt or the title for the property. She was concerned that something had gone wrong with the deal. Now just to elaborate on that, what actually happened, I hold - - held a title deed, as the only mortgagee for this property, and I suddenly got a ring from this lawyer, and I can't remember his name now, but he accused me of all sorts of shady deals, because this woman had this money taken off her by the same company, and she had no redress, she didn't know where she was, where her money was, or anything about it. Now I can't remember how long it was prior to settlement, it could very well that they got the money off this woman and then settled with me, I don't know, but there was something that she felt so much about that she engaged a lawyer to look into it for her. But I never heard from him again, so he must have been satisfied. MR CHANEY: Yes. In any event settlement eventually was affected and you received your money and handed over the title?---Yes, as I say, I don't know how long after it was, because it was just a telephone call, and I didn't make a note of what time it was or what date it was or anything. Thank you. Paragraph 20?---18? No, I think you've read 19?---No. So 20 please?---20. "After my problems with the Hillman Street property, I

decided to reinvest elsewhere." I seemed to be in a habit of things going wrong and giving the mortgage brokers the flick, because I wouldn't deal with them if I had a problem. "Lot 133 Jacaranda Loop, Collie. In August 1995 my wife and I decided to invest $20,000 to a company called the Sher? Pastoral Company Pty Ltd for a property in Collie. Gamel Ward brokered the loan. The information provided in respect of this investment was contained in the letter from Gamel Ward to my wife and myself dated the 9th of August 95 and it's attachment 1."

Right, we'll just have a look at that. And the general comments on page 2 of that letter, there's a commentary about the borrower. Did you know anything about the borrower prior to receiving this letter?---No, I didn't. But I will say that in accordance with our offer that the applicant was a Sher Pastoral Company, and the guarantor of the loan was a Mr Henry Gomm?. And also that came with that, and I guess it's here somewhere, is an asset and liability statement for the Sher

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Pastoral Company, which listed their asset values at 4.547 million and their liabilities for the mortgage of 1.935 million, and they had an income of $74,880. That was also included in the letter of offer. MR CHANEY: Did - - when you looked at that statement of assets and liabilities which is the third page of attachment 1, did you think it odd that somebody with that sort of asset backing would be borrowing at 13 per cent per annum, an amount of $20,000, a relatively small amount on a block?---See, I'm an engineer, and finances aren't my forte, although I did do accountancy when I was younger, so I've got some idea of what goes on. But it didn't occur to me, because I didn't know how people operated, but it was told - - I asked the same question why are they borrowing off me when they can borrow off the banks, and the answer that came back was the interest rate is very little difference, it's something like, I think from memory they said it was only about a half a per cent and I think this was mentioned somewhere in this correspondence here, and they found it was easier to get money, I know now why, from private investors, and instead of dealing with banks, where they gave - - and I guess, you know, that was my thoughts on the matter. Yes?---And it was quite a big business, loan through finance brokers, so there must be something in it. MEMBER NEWMAN: Mr Ryder, didn't you have a concern that this information that's given to you on the assets and liabilities of Sher is not in the conventional form that would be prepared by an accountant? There were notes to or forming part of those accounts, no information as to whether these valuations are historical cost, or whether they're a current valuation, if they're a current valuation, what they were based on?---The only thing I can go on, this was one of the early investments, but as far as first mortgage I had very little experience then, and I tended to rely on mortgage brokers. I never knew anything about whether there was any problems, they were licensed by the government, and they were quite a big industry. Now I never doubted that because I got something more than what I had been given before, and it was in writing, even though it was faxed to me, but the whole point is I've now got evidence that this firm has got assets and liabilities. Now I know that the liabilities are in mortgages, and the assets are in 4.7 million or whatever, but the assets may have been made up of a very expensive house that he didn't want to sell, or maybe borrowed on that, I don't really know, but I didn't give it that much thought, although I did had cognisance of the fact that I had a asset and liability statement, and my little training as an accountant knew that - - indicated that was fairly important, because I knew that these people that ran a company would have to put an annual report in to the relevant authority for presenting these as a company. But I soon found out that that's not quite right neither.

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You didn't - - ?---Apparently a company only up to a certain value has got to put a cash statement in. You didn't for instance look at the information available to see there was 4300 acres at Taroo? in the Sher Farm and ask the question how was that valued, is it historic cost, is it a recent valuation, on what basis was it valued?---No, I accepted that on the basis that as it was given to me be a licensed finance broker, and I had spoken to them and they said that all valuations are done by a authorised valuer. Now one of the conditions of employing these people is the fact that they investigate these statements themselves. I've got no axe - - I've been trying to get information on a certain company I've got a mortgage in, but I just can't get it, and for me to gain access to their accounts it would cost me a mint of money to try to do that. And you know, I just didn't - - didn't know. MEMBER NEWMAN: But you didn't ask - - ?---No, I was happy with that, houses in Collie, value of them. They didn't say they were under - - yes, they did. They said for argument's sake a 40 subdivision in Collie is 480,000 and they had a mortgage of 150,000 on it. So my way of thinking is they got equity in that property of 330,000. And how much am I lending them? $20,000. They don't say all this - - all these assets are taken up in mortgage property, they actually differentiated the amount of mortgage that's being put on the valuation of that asset, and I think that's, you know, an excellent way, because I now know that there are other mortgage brokers that say a person is worth $4 million, but the $4 million is made of all mortgages, that he owes to someone else. So this particular way of producing it, in my opinion, was very good. But you didn't have a concern that there was a lot of properties shown in that list with no income being reported against them?---No. I mean, you're looking at a surplus there of roughly 2.6 million and you're only getting 74,880 of income, that didn't give you any cause for concern or make you think you should ask questions?---No, well looking - - looking at this I would have said that if they've got a mortgage over a property say for 450,000, that the value of that property somehow, they haven't said, I agree they haven't said there's an income on it, and I didn't pick that up, but they certainly said the value of the property, so at any stage if they got into trouble, they could sell that property, pay out the mortgage and then they'd have ample, for argument's sake, there's 4300 acres in Taroo? on share farming, so that's - - that must be an operating farm, it's share farming. But it's got no income next to it?---No, but what it says to me, to me, is worth 600,000, they've got a mortgage of 200,000

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on it, so if they want $400,000 or thereabouts, they actually sell the property. But you didn't have a basis on which that 600,000 was stated to be the value, so you didn't really know whether that 600,000 was an accurate figure?---I didn't know they inflated figures in those days. I thought an authorised sworn valuation, done by licensed valuers - - MEMBER NEWMAN: And you actually - -?---And those licensed valuers, if they're not doing their valuation properly, someone's going to pick it up and take the licence off them surely. But you were told there was a sworn valuation on that Taroo property were you?---No, it's listed in this list of - -here. There's no statement within those that they were sworn valuations, that's the point I'm trying to ask. What inquiry you made or now think you should have made on those values?---Well, to tell you the honest truth, I wouldn't have made - - I accepted that it was - - I wouldn't have doubted it at this stage. I would have doubted it now, but I certainly didn't doubt it then. Right, thank you. MR CHANEY: Now perhaps if I can take you back to your statement, paragraph 23, where you actually summarise the contents of the letter?---Did you want me to go through that? Yes, please?--- "23. In that letter, Gamel Ward advised that (1) the

borrower was Sher Pastoral Company, (2) Robert Gomm would provide a person a guarantee, (3) we would be registered as first mortgagees over the property, (4) the property was valued at $35,000, (5) the purpose of the loan was to buy a block of land in Collie, (6) the loan to value ratio would be 57 per cent, (7) Global - -" that's wrong, I'm sorry, that Global is a typographical error.

Gamel Ward that should be?---Yes. It should be Gamel Ward, I think it was on the original. "Gamel Ward - - " could you all change your copies? CHAIRMAN: Thank you?--- "Gamel Ward enclosed an asset and liability statement

provided by Sher Pastoral Company dated the 6th of July 95, which was very favourable. The statement showed that Sher Pastoral Company had assets of 4.547 million and liabilities of 1.935 million, and an annual income of 74,880. The term of the loan was 6

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months." Again we've got Global. (9) is actually Gamel Ward again, "advised that Gomm and Sher Pastoral Company had been known to Gamel Ward for some time, and that they had been active is property traders for 30 years, and were held in high regard." I don't suppose you want me to make a comment there, do you?

MR CHANEY: Well, if you want to make a comment there feel free to do so?---I think I will because it's important. I have been told since from people that know this fellow Gomm, that he's been bankrupt several times. I've got no proof of this, but this person I spoke to knows him personally. And if Gamel Ward have known him as a successful trader for 30 years, why didn't they also know that he'd been bankrupt? And if they knew he was bankrupt, why did they let him borrow money off them? That's all I have to say: "24. On 8th of September 95, Gamel Ward sent us a

letter confirming the mortgage. On 27th of September 95, we received our first interest payment, we did not receive any interest payments after that date." And incidentally, that was 5 days late by memory. It was due on the 17th of September. "On the 7th of November 95 I received a letter from Gamel Ward enclosing the mortgage documents. The mortgagee - - the mortgagor's name was Atlas Pty Ltd. However at the time I did not notice this."

Now when that mortgage paper came it was in a brown envelope, sealed and registered, and I opened it up, saw it was a mortgage property for Collie, so I put it back in the envelope and filed it away. Now I didn't notice that they'd changed the name from Sher Pastoral Company, to Atlas, which I never gave them authority to invest in. MR CHANEY: Had you ever heard of Atlas Pty Ltd?---No, I never heard of them. But I certainly heard of them later on: "On the 22nd of September - -" I've read that, haven't

I? "In December 95", which was only a matter of what, a month later, "I instructed Clairs Keely, solicitors, to send a letter of demand to the borrower."

Can I just stop you there? Clairs Keely had in fact drawn up the original mortgage documents?---That's right. And they'd done that on instructions which they received from Gamel Ward?---Yes. Yet you instructed them to take the matter up. Does that indicate that you thought that they were your solicitors?---No, I didn't. They were Gamel Ward's solicitors, but every time you had a query, they would say to me just write to Gamel - - Clairs Keely, he's a nice fellow, you know, Ian Clairs a very nice fellow, and he is, I've met

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him since. He's very cooperative, you know, just any queries you've got, because they got out of the meeting side on these managements. They didn't keep a fee, and as such they weren't interested in doing any work on it I guess. But they were lawyers for Gamel Ward and they are still lawyers for First Charter Mortgage that Gamel Ward - - sorry, that John Ward is one of the people running that show. MR CHANEY: Yes, when you engaged them, when you instructed them as you say in December 1995, was that then instructing them as your solicitors to take action at your expense?---No, didn't cost me - - no, as a solicitors, I spoke - - first of all I spoke to John Ward, from Gamel Ward, and he said just see what Ian Clairs has to say about it. And he said just ring him direct, that's okay by me, but I never employed him at all. Could you resume at paragraph 25 please - - sorry, 28?--- "In January 96 I made a complaint to the Ministry of

Fair Trading. On the 5th of February 96, I received a notice", and that's not very long after the first payment was received. ...(indistinct)... "I received a notice of creditors' meeting in respect of Atlas, which had gone into receivership." I don't know how long it takes them to get into receivership, probably several months, so probably that was going on at the time I lent them money as far as I can see. "On the 11th of March 96, the Professionals real estate agent provided me with a market appraisal of the value of the property. They estimated the block was worth 22,000. Attachment 2."

All right. Well, I don't think we need to go to that attachment?---We got - - I paid for - - and it's varied right down to it can't be sold, or you're lucky to get $8,000 for it, so that's how much the valuation is worth: "On the 20th of March, 96 Century 21 real estate

agents valued the property at about 25,000. Attachment 3. In January 1998 I visited Collie and arranged for the local real estate agent to sell the property for me. The property is still not sold."

I offered it at the valuation price, and I said I'm willing to accept any offer, whatever it might be, and I haven't even, as I say any offer from it. Apart from one fellow that rang me up and said how much do you want it - - how much do you want for your block, and I said it's valued at 30,000. He hung up in my ear, so I don't know what he intended to - - he probably wanted it for $5 or something: "On the 3rd of November 99, following my request for

information, I received confirmation from the liquidator of Atlas Pty Ltd that Sher Pastoral Company

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was in liquidation and that Gomm was bankrupt. Attachment 4. On the 10th of January 2000 I received a letter from Clairs Keely outlining the history of their involvement in the matter. Attachment 5. Problems with Gamel Ward. Gamel Ward did not get authorisation from me to lend money to Atlas. Gamel Ward misled us about Gomm's financial stability and did not tell us that Gomm had been previously bankrupt. 37. The loan to value ratio was inflated. As a licensed broker Gamel Ward should have carried out investigations to determine the true financial position of the borrower, prior to recommending a loan to us. Gamel Ward should have also made investigations to determine whether the list of assets and liabilities provided by the borrower was accurate. Gamel Ward should have to told us that at the time that the loan was brokered, the water and shire rates were outstanding, and the transfer of the mortgage should not have proceeded until they were paid. 40. I believe that Gamel Ward was negligent in its duties as a finance broker. Dealings with the Ministry of Fair Trading and the Finance Brokers' Supervisory Board. On the 1st of January 1997, I lodged a formal complaint with the Finance Brokers' Supervisory Board, in respect of my investment with Gamel Ward. I complained that Gamel Ward borrowed our money to Atlas Pty Ltd without our permission, that Gamel Ward failed to disclose Gomm's prior bankruptcy, and that valuation overvalued. I also complained that Gamel Ward did not inform me that the water and shire rates were in arrears, see attachment 6."

MR CHANEY: Attachment 6 is your letter of 1st of January to - - to the board, pertaining to those matters of complaint?---Yes, it is. I also detail what the - - full detail what the complaint was. Yes. Back to paragraph 42 42?--- "On the 10th of March, 1997, the Finance Brokers Board

sent me a letter enclosing a copy of a statement which had been drafted for my signature, as attachment 7."

Now can I ask you whether there - - what happened between January, the 1st of January when you sent the letter of complaint and 10th of March 97 when you received this letter?---Well nothing happened with great speed. But what happened, I had a ring from the fellow that did the investigation, I can't remember his name now, but beyond that draft - - Well, the letter, appendix 7, is signed by Gary Wallace, was he the person?---Yeah, that's right. Because he came down. Yes?---Quite a nice fellow. He sat down with me for about 2

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hours. I gave him all the paperwork I had, I explained to him what had happened, and I said I was very unhappy, and he - -I think he might have said unofficially he agreed with me, but I won't quote that, and he said "I'll put it together and send the report back to you, so you can read it and see if it's okay, and then sign it." Which he did on that date, on the 10th of March. Now admittedly it over - - January, February, it's a couple of months, but I would expect that that would be reasonable, I wouldn't - - sometimes government departments don't - -and he probably had a lot of other work to do, I guess. CHAIRMAN: Excuse me, Mr Ryder. When he sat down with you, as you've just said - - ?---Yes. - - and went through all your papers, you showed him all of these documents in which you were referred to as the client by the finance broker?---That was not mentioned. I know it wasn't mentioned, but did you show him the documents?---No. You didn't?---That I was a client, no, I didn't. I didn't see any reason to show it to him. I had - - MEMBER BLIGHT: Did he ask you for the documents?---No. I had a complaint against the Gamel Ward, for this investment, and I complained to the Finance Brokers' Board, they sent their investigator to me, and he asked me questions, and I gave him answers, but he - - CHAIRMAN: All right?--- - - didn't ask me am I a client of - - All right. Well, I'll jump ahead a bit. We get to the letter that you got from the Fair Trading Ministry, signed by Mr Willers of July 13th, and why I'm jumping ahead, it's all relevant to the same matter that was - - ?---I think that was about over 12 months later, wasn't it. 88 - -1998. Now that's 8?---Yes, I know, I'm familiar with the letter. Now that's where they told you that you weren't a client etcetera, etcetera, etcetera?---Yes. Now did you jump up and down about that, or say anything to anybody, about all my documents show me I'm client, etcetera, etcetera?---No, well, at that stage they didn't. No, no, wait on, did you?---No, can I start again, because I'm not making myself clear. Yes?---When I asked for proposals for investment, and I didn't accept them, or when I had such things as these letters

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advising me they were filed away in a filing cabinet. And it was only just recently that I realised with this inquiry coming up I thought well I'll hunt through all my old papers and find out what's there. Now I found these three letters, which fortunately I kept. I had several others, which I obviously didn't keep, but my wife says I keep every bit of paper I ever receive anyway. So I found these three letters and they stated in those letters that it was a client, and that's the reason why I put it in this submission. Because - - and even when I did the original submission, to the Finance Brokers' Board, I never even realised that there was a conflict, because it wasn't until I got their letter to - -after 12 months or more, that they said we're not a client, so we're not interested in you. CHAIRMAN: Didn't - - you didn't react immediately to that?---No, I didn't. I'm one person against the government, what's the point? No, they asked you to ring up, you didn't ring up and say, hey, I'm a client?---No. Because I could see that I had no hope of getting anything out of the investment. So why waste all my time over it? And it wasn't until this inquiry came up that I then looked at all my old papers. Now I couldn't remember a thing - - what year was it, 1995 or 6, when I got those papers. MR CHANEY: 98 you received the letter from Fair Trading?---Yes, but when I got those proposals from - - Yes?--- - - the people that was well and - - that was many years, and as you get on in age you tend to not remember everything, but still, I won't put that down as the excuse. But it wasn't relevant to me at that stage. CHAIRMAN: No, very well, thank you. MR CHANEY: Can I just pick up on that for a moment, Mr Ryder, and see if we can clarify one thing? I have in front of me the ministry's complaint file?---Yes. In relation to your complaint?---That's interesting. Back in January 97. On that file, is your complaint with a number of enclosures, and none of those three letters, 18, 19 or 20 in your attachment is amongst them, as you've indicated? There is then on the file and it's not clear whether - - just what the sequence of events is, but there is some notes presumably prepared by Mr Wallace, then two copies of the letter from Gamel Ward to you of 11th of August 95, which is document number 20 in the bundle. So you know which one I'm talking about?---Yes. Yes. It's attachment 20, so there is - -it's duplicated, there are two copies of it, and then on top of that on the

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file, is a letter of - - the file copy of the letter of 13 July 98 from Mr Willers to you, telling you about the client issue, the fact the matter wouldn't proceed. Are you able to say, you may not be, are you able to say how it would have been that the - - that the Ministry of Fair Trading have got possession of the letter of 11 August 95?---Is that - - where's that from again? Can I have a look at it? Yes, that's number 20 in your list?---20, yes. That's Gamel Ward's - - CHAIRMAN: Letter to you? MR CHANEY: Mr - - ?---I don't know, I didn't - - I certainly didn't give it to them. Well, Mr Allanson's just helpfully pointed out that in your statement - - MR ALLANSON: Bottom of page 2. MR CHANEY: Bottom of page 2, that's - - CHAIRMAN: Which statement are you looking at now? MR CHANEY: Annexure 7. Last paragraph on page 2, Mr Ryder?---11, is it? In response to my general inquiry of Gamel Ward? Is that the one? CHAIRMAN: No, no. MR CHANEY: No, I'm sorry, if you go to attachment number 7, the tab number 7 on the side. CHAIRMAN: See tab number 7, open that up?---Yes. MR CHANEY: And that's a letter to you from Fair Trading enclosing your statement?---Yes. And then the statement is over the next page? And if you go to the second page of that statement?---Yes. At the bottom of the page, bottom of page 2. CHAIRMAN: Bottom of page - - 2, yes. 2 at the top, three at bottom. MR CHANEY: Yes. It's telling you that 3 follows 2. It's helpful. CHAIRMAN: Read that out would you please, Mr Ryder?--- "I felt even more secure with this investment when I

read the letter of the 11th of August." Is that the same date as that other one?

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MR CHANEY: Yes. CHAIRMAN: Yes, 1995?---"From Gamel Ward and signed by John Ward. So it would appear - -?---Well, maybe I did, I don't ever remember giving it to him. Although it looks - - it would seem - -?---Well, if they got it there, and I don't remember, and I've said it in my statement, which was done at the time, then obviously my memory's failed and I must have given it to them. MR CHANEY: Yes, well I don't think - - ?---There's no doubt about that, you know, I admit that, but - - I don't think you need be troubled by - - ?--- - - I don't remember it. - - the fact that you didn't remember that, Mr Ryder, that's - - ?---Well, I reckon I remembered lots of things - - CHAIRMAN: No, no, we're not concerned with respect to that letter and the contents, we're not concerned with you, I can assure you?---Right. Well, they knew about that. The thing that amazed me about that report, I have heard, and maybe I'm wrong, I don't know, I'm a bit suspicious now, I heard that everyone that - - or quite a few people that complained to the Finance Brokers Board or Fair Trading people, got exactly the same letter, they just ran them off by the dozen, and changed the name on the top. Would that be right? MR CHANEY: Well, time will tell, Mr Ryder?---Well, that's what I've been told, that the letter was given to anyone,and the fact to me, the poor innocent type of person, that it took over 12 months for them to come to that decision. That would indicate to me that they're worried about all these complaints and they've sat down and they've worked out how we can get off the hook. That's my honest opinion. Well, can I just ask you about the sequence of events in relation to the board? You've told us that you made the complaint on - - by letter dated the 1st of January, you were then subsequently contacted by Mr Wallace who came to see you, prepared the statement, sent it to you under cover of the letter of 10 March. What, so far as you are aware, happened then? What did - - what did you know of?---Well, the thing I noticed was that the person that signed that letter from the Fair Trading, was not the person that took the investigation, which is not unusual then, you know. That was the first thing. And the other thing I was aware of, and maybe that's what made me suspicious, was the report in the newspaper that said that this Wallace fellow had been pressurised and was taking sick leave because of the pressure of the work. Now

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for someone that's handled - - employed people all my life, that indicates to me that that man's been under a lot of pressure and he's probably come up with something that is not liked by people above him. Well, can we just concentrate for a moment, Mr Ryder, on what you knew. I'm interested in - -?---Yes, okay. - - your involvement in the complaint procedure. So after the 10th of March, 97, we know - - ?---When I signed the document. Yes, you signed it and sent it back?---Yes. MR CHANEY: And did you do that reasonably soon after you - - ?---I did it straight away. Yes?---And sent it straight in by the next post. I read it first of course. There didn't seem to be - - the report wasn't as comprehensive as I thought it would have been. Yes?---Because it was only done on half a page and it didn't seem to have too many facts, and I thought I'd spoken more about it, but it was the crux of the complaint anyway, and I accepted it. So you sent it back. So what happened then, so far as you were aware?---Nothing, till I got that letter from Fair Trading. Did you hear anything at all from Fair Trading?---No. Did you make any inquiries about what was happening about it?---No, I didn't as a matter of fact. Right. Can we go back to your statement now, thanks? At paragraph - - ?---Not that I remember anyway, no. I'm sure I didn't. Which page are we on? We're at paragraph 43 on page 6?---Okay. Just for the record, although we've substantially covered it, but will you read paragraph 43?--- "On the 13th of July 98 I received a letter from

Inspector Willers, of the Ministry of Fair Trading, advising that my complaint would not be referred to the Board for inquiry. The reason for this is that a pre-condition for establishing breach of the Finance Brokers Control Act and code of conduct was that the complainant must be the broker's client, and that I was not a client."

Now if I had have got out all my old papers, and noticed those offers when they said I was a client, then I certainly would have written a letter, but I just didn't do it, I accepted

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what they said. But how many - - I got that and I read probably when I got them, but I didn't specifically think I was - - I always thought I was a client anyway, because I paid them a fee. If you're not their client, why are you paying them a fee? Yes. But in any event as it happened, for whatever reason, that was - - you let it rest?---Well, obviously the only person that knows that the lender is not a client is the Ministry of Fair Trading, because certainly the licensed brokers don't know it. They treated us as clients. CHAIRMAN: Yes, but the point is you didn't take it up at the time?---No, I didn't. CHAIRMAN: Thank you. MR CHANEY: Right. Could you just read paragraph 44?--- "This contradicted the earlier general letter that I

had received from the brokers, told me that I was their client, refer to attachment 18, 19, 20." Well, that's what we just discussed.

Yes. Continue?--- "Graham Grubb Finance Broker. The first time that I

used Graham Grubb was is in 1994. I had three separate investments with Graham Grubb. Out of these I had one problem investment. In January 1996 I invested through Grubb an amount of $35,000 to Lendon? Nominees Pty Ltd, to purchase a boat. Grubb did not proceed with the loan by late February and I requested the return of my money. No interest was included in the cheque. On the 14th of April 1996, I wrote to Grubb threatening to report him to the Finance Brokers' Supervisory Board if he did not pay me the interest. Attachment 21. Grubb subsequently sent me a cheque for the outstanding amount and then - -" that doesn't read right, does it? "Grubb subsequently sent me a cheque for the outstanding amount which was the interest", and I've said here "and he then sent a cheque with the interest." He sent me two cheques, one which was the capital to start with.

Yes?---And when I wrote him a letter, that I was going to threaten to send him to the board, put a letter of complaint, he then paid the interest, without argument. And since then I've inquired with him a couple of times, he won't even speak to me. He doesn't want me as a client. Well, he didn't before he went bad. Paragraph 47?--- "47. I decided not to use Grubb for any more

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investments." And as I said it was a couple of year later when I eventually got back to him again, but he never returned the calls or anything. "Blackburne and Dixon. After my problems with Grubb, I decided to use Blackburne and Dixon. I had a total of nine separate investments with Blackburne and Dixon. Out of these I had one problem investment. In 1995 I loaned $45,000 to a company called Ocean West Pty Ltd, owned by Mr Pavlinovich. The borrower didn't pay interest for 10 months. I eventually got my outstanding interest and capital back, but not the penalty interest rates that I was entitled to."

Now that loan was the interest repayable monthly?---Yes. MR CHANEY: Right. And was - - were Blackburne and Dixon looking after that loan for you, collecting the rent?---Yes. Yes, they were. I've had several letters from them, and there's always an excuse why he wouldn't pay the interest. Apparently when the mortgage was taken out, I didn't know this, but apparently he gave the builder money for building these units, and they're very good units, they're right on the back beach in Bunbury, right on the ocean, and we went down and had a look at those, and they're very good units, but he always came up with a - - we had quite a bit of correspondence from Blackburne and Dixon saying that there's an argument between Pavlinovich and the builders, and it dragged on and on, and then it said, right, it'll take a few more months, they're going to take each other to court, and all this sort of thing, and he said it could be a delay, so I just accepted it and waited till everything was done. What else could I do? MEMBER NEWMAN: Mr Ryder, was this a Mr Matt Pavlinovich?---Yes, it is. Were you told at any stage during your negotiations that he had been bankrupt?---No. But I know a lot about these people now. I know that this - - I know Mr Pavlinovich's background now, and that's why I never invested in another first mortgage. And he was bankrupt, but I only found out, not through Ministry of Fair Trading, or through the mortgage brokers or anyone else, you know. And also his son-in-law, and I won't bring him up here, like that's in here anyway, and his son-in-law I'm also having trouble with, because his son-in-law actually guaranteed some of his mortgages, as guarantor. I ask you, the son-in-law's name is Greg Johnson?---Yes, it is. He's to subject to administration under part 10 of the Bankruptcy Act - -?---Yes, he was. - - and if you haven't already been told, Ross Norgard is the trustee?---But that - - by doing that, and this is how these

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people are smarter, and I think they're smarter than anyone else around the place, they go into bankruptcy, then they're not liable for any of their guarantees. Well, you can prove for your guarantee, if it's a legally enforceable guarantee, as I'm sure your solicitors told you?---Yes, but he only has to go in a part 10. And he's relieved of all his debts. Now we've got a property in 105 St Georges Terrace that we also lent money on. And he's been making promises to sell that and do all sorts of things for the past 18 months. Right. He's got to the end of his tether, he's really against the wall, so what does he do, he goes bankrupt. Now we've got no right at all to get any of his guarantee out of him, because he's bankrupt. Well, he's not really bankrupt, he's only under part 10. His wife Corrine, who was the other guarantor, she's already bankrupt. And I think what they do, they - -you can see the picture, once you deal with some of these people, they go so far, they keep you waiting and waiting and waiting and waiting, and then when you really force the issue, they either go bankrupt - - like Gomm. Same thing. He's gone - - I've heard that he's been bankrupt three times. Every time he gets over his head in debt, he just goes bankrupt, 3 years later he's back again trading. Now that's what I feel should be stopped, because we as investors don't know about these people. But people in that business, mortgage brokers and this, finance brokers, they should know this, surely. And they should then have a register out to say who had been bankrupt, so that they can advise the mortgage brokers not to lend people's money, if they're a genuine - - in my opinion, that's my opinion. MEMBER NEWMAN: Mr Ryder, could I suggest that you seek legal advice on your right to make a claim under that guarantee given by Greg Johnson?---Sorry, I didn't quite understand the question. I believe you have a right to lodge a proof of debt with a trustee that you should seek independent advice in that regard?---Well, that advice I just gave you was given from a very well thought of lawyer, and he was told us that we have got a right to sue, if we accept 60 per cent of our capital value, and that's one of the tricks that they do, they somehow sell it to someone else for a much lower value than what's owed, and then they're off the hook. CHAIRMAN: Well, subject to finance, seek a second opinion?---Yeah. Anyway, where should I continue? MR CHANEY: Paragraph 50, thanks, Mr Ryder?---Can I take my coat off? I'm getting a bit hot. Maybe I'm talking too much, am I? Must be getting warmed up. Just watch the chair on the step there. One fall today is enough?---Put in a claim for compensation.

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CHAIRMAN: Don't hold your breath. MR CHANEY: Paragraph 50?--- "The first time we used Global Finance Brokers was in

May 95. Since 1995 I have had about 26 separate investments with Global." It takes quite a lot of work to keep up with these I might add, in comment, that's why maybe I don't remember one little word in a proposal that was put in 4 or 5 years ago. Sort of thing happens. "With Global. Out of these I have had 13 problem investments. These problems seem to have occurred mainly after PUB Ashton Read was appointed as administrators. 51. At the time that Global went into administration, I had about 13 investments with them. Some of my problem investments are outlined below. Stirling Gate, Balcatta. 52. In May 1995 my wife loaned 35,000 to a company called Auction Holdings, to purchase a commercial lot at Stirling Gate in Balcatta. We received regular interest payments and there didn't appear to be a problem. When the loan was due to be paid out my wife and I arranged to reinvest the money in another Global loan."

WITNESS: Which incidentally, it's not written here, but I'll just expand on that a little bit. The loan was - - I may have mentioned it - - I thought I mention something about that. The loan was by a fellow by the name Gallagher, and it was in Mindarie, and it was a loan for 35,000, and I signed the papers and everything, and then after a period of time, I got a letter from - - and I received my monthly payments, all the way through, except the last one, and I suddenly got a letter from Global to say that the loan didn't proceed and I would be paid back my interest accrued, plus the capital. Now I was going to bring this up, and maybe it's here somewhere before, but quite obviously Global had that money and I think it's a matter of, from memory about 3 or 4 months, saying it was invested, but it never ever was. You don't know, because it takes them about 3 or 4 months to get the mortgage - - copy of the mortgages to you, so it's nothing unusual. Now if it wasn't invested, and I rang up this fellow, because this is involved in another argument I'm having with the supervisor at the moment, this money, and I rang up this fellow, this Gallagher fellow, and he was quite irate, and he's very abusive, and he said I never ever took out a loan with Global, but he said they're trying to get interest out of me. He said "I never signed any papers." And he was quite irate, so I just accepted that. They paid back the money and I got it with no other problems at that point. MR CHANEY: And you had in fact been receiving the interest monthly - - ?---Yes. - - as though it had been advanced?---Yes, I did. And I

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thought - -later on I thought that's something wrong there, because he shouldn't be doing that. If you sign papers to say you - - on a mortgage, the mortgage should proceed. If it doesn't proceed, then he should - - the mortgage broker should advise you that the mortgage's fallen through and give you your money back or ask you if you want to invest it elsewhere. It's my opinion anyway. Yes. Thank you. If we resume at 54, I think?---"After Global collapsed PBB Ashton Read informed us that the 35,000 was never actually reinvested." Now that doesn't tell you anything. What actually happened, the money was one of the first investments my wife had with Global, it was for 35,000. It was kept in the money market, earning interest for a period of time. Then Margaria offered it as - - with Gallagher, for that. And just before, on about the 9th of February, I had an offer from John Margaria to invest in a half completed two storey house down in Port Bouvarde. So fortunately this is one of the investments that I decided I'd inspect, because we've got relations in Bunbury, we're going to Bunbury, so we just called in, had a look at this place that was half built and we also investigated other properties that were up for sale and there's one a couple of doors away which appeared to be a two storey, a similar type of residence, and it was - - it was up for market for $330,000, so when I went back into Mandurah, I spoke to the agent that had it and I said why are you selling that property? Properties here are valued about 400,000. And she said we can't sell anything up to that price, in this area. And yet I'd had a valuation from Margaria to say that this house was worth over 400,000. And it was only half finished. So I rang him up and I said "What's going on, John? I don't believe that house is worth it, and I don't intend investing in it." He said "No, that was being done by a valuer and as such, it's worth the money." So anyway, I reneged and I invested in it. Now that was about the 9th of February. MR CHANEY: Which year?---In 1999. I'm talking about this 35,000 now. Yes?---Now about - - when all this thing started to come in the newspaper about Global being bad and so on, I then decided right, they're in trouble, I'd better get my money out. So I went down to Global's office, I rang them, I wrote several letters, to say I want to pull my money out before it's invested, John said no, too late, it's been invested. The mortgage is there. So then in the end on the 19th of February, was when Ashton Read took over as administrators, and I - - they closed their office by this time, so my wife and myself and a couple of members of another committee called in to see Margaria, and we asked him if the money - - why couldn't we change it, and at the time, Ashton Read had their person in the office, and I spoke to both of them, because they'd taken over. It was the 20th of March I think, when I went down there, and I said "Why can't I get this money out?"

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And Margaria said "No, it's too late, it's been invested." Now we went away on a holidays after that. I accepted the fact we couldn't get it out, too bad. Now later on they had these meetings on 23rd and 24th of March, and at the meeting it didn't appear on the statement, they sent out these letters to say this is your investment, there's a meeting called for so and so, to discuss what you're going to do with it. It didn't appear, so when I went in there I spoke to Mr Paul Pell, who was one of Ashton Read's representatives there, running the meeting, and I said "What's happened to this 35,000? It was supposed to be invested." And he said "I don't know, I'll check up." So he came back the next day and he said to me "That money is in the money market. It's earned X dollars interest, and it's quite safe, you'll get it back shortly." So that - - even though I'd spoke to Ashton Read, and I'd spoken to Margaria, they both told me the money was invested in Port Bouvarde. And it wasn't until several months later that it was used in - - it was not invested at all. It was still in the money market. Now to me, if the administrators had done their job as administrators, they should have made sure - - especially when they were there when I was asking about it, they should have made sure that that money was either invested, or they should have told me about it. That was my opinion. Now this money is now a - - an argument between the supervisor and ourselves, they're saying it's not your money, it's our money, and you can't get it, or words to that effect. MR CHANEY: So that's - - ?---I'm actually disgusted. Right?---I don't - - I think I made mention of this, but when I get wound up I mention these things. Okay. Well perhaps if we go back to - - I think probably covered 54 and 55, which you've just told us?---"After Global collapsed, PB Ashton Read informed us that the 35,000 was never actually invested." Now I'll just elaborate on that, because that doesn't really tell you the true picture. PBB Ashton Read has frozen Global's trust account and we have not yet got our capital back. "Some other problems with investments with Global. 56.

We had problems with our $45,000 investment to Casella, for a subdivision development of property at Toodyay. 57. The information provided by the Global in respect to the investment was contained in their letter to my wife and myself dated the 23rd of October, attachment 9. We have not received our capital or interest back, and the liquidators are currently holding funds. 59. We also had problems with our 50,000 investment to New Rose Holdings Pty Ltd, a company owned by Sedek. Nabal Sedek. The information provided by Global in respect to the New Rose Investment was contained in Global's letter to my wife and dated 7th of August, 98 at attachment 10. In

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that letter we were advised that Sedek had a net worth of 12.4 million, to purchase land for the development of a 15 storey commercial apartment multi-use building in East Perth." If you like to change that, no, that's right, I'm sorry, East Perth. "The borrower defaulted on the loan and we are presently mortgagees in possession. We are trying to sell the property. We also had problems with our $60,000 to Casella for the subdivision of a property in Gin-Gin. The information provided by Global in respect of the Gin-Gin development was contained in the letter to my wife, and myself, dated the 11th of October 95, and 4th of December, 95. Attachment 11 and 12."

MR CHANEY: Can I just - - yes, can I just stop you for a moment? If you look at attachment 11, just referred to, and 12, they show in respect to the guarantors, Dominic and Lilley Casella, a net worth of $8 million in each case?---Yes. MR CHANEY: They're dated October 95 and December 96. If you look at the attachment 9, which is another Casella proposal, dated 23 October 96, so it's only a month and a half before December proposal, shows their net worth at $10 million. So they appear to have - - what is it, $2 million discrepancy in what is being said to be the net worth of these people?---Actually that wouldn't concern me very much, because this fellow, although I'm concerned with Casella, but the way I understand he operates, he's a fairly big dealer in property development and this sort of thing, and he buys and sells and trades, and does all sorts of thing, so maybe at this point in time he - - John Margaria used to say to me, he said, you never have to worry about Dominic Casella as an investment, because I got worried that I had too many with him. And I didn't pick it up the fact that he operates under all different sorts of companies, all different names, and you know, it might slip through, it might be that it's not the same Casella, but he said he's got a house down on the foreshore of South Perth, it's worth millions. He said you've got no worries. He said I'll just foreclose on that. What he didn't tell me though that that property was also mortgaged to the hilt to the Commonwealth Bank or someone, so we had no right to that anyway. But to answer your question, I did think it was unusual, but too unusual to worry particularly about it. What's the difference between 10 million and 12 million? Some people have 10 million today on the share market, and tomorrow they've got 3 million, so you know, maybe it was all right, maybe it wasn't, I don't know, but I do know, I did a calculation on the valuation, for this land in - - which one is it? In Toodyay, and his sworn valuation was 2000 - - $150,000 and I did a little calculation on that, and that worked out at $2500 an acre, and he'd also offered me another investment which I didn't take, in a fellow by the name of King, also in Toodyay, in a similar area, and the valuation on that per acre was something like from memory, about $1500. So to me that was unusual.

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And that's something you actually calculated at the time you received proposals?---Yes. And I don't - - I didn't think I invested in that one, but I must have. Anyway, what I didn't do was invest in the other one. I'd already invested in this before I got the one from King, but his valuation was half - - roughly half the amount. Yes?---So I thought, well Toodyay, I'm not happy so I wrote him a letter to say I didn't want to invest in any more properties in the country. Did you know of any other - - well, of any relationship between Global and Casella, Margaria and Casella, other than simply that Casella was a regular borrower through Global?---Well, can I say something, but I won't end up in gaol? Well, can I ask you first, the time that you were engaged in these investments, did you know anything about - -?---No. But I do - - I do know since, and I will say, because it's general knowledge anyway, that people are saying that all Margaria was a banker for Casella. And he used all the money that Margaria had and they also say that Casella was responsible for setting up, because he originally he learned his apprenticeship with Blackburne and Dixon, so he knew a few tricks, and I've also been told that he used him as a banker, and evidence after the inquiries that goes on, they moved money all over the place. You know, you put money in for a certain investment, it goes elsewhere. And that's quite common. MR CHANEY: Thank you. Can I ask you to go back to your prepared statement? I think we'd got to paragraph 64?--- "We are currently mortgagees in possession and are

trying to sell the property. 65. We also had problems with a 20,000 investment made in 1997, to Haskins." I've already spoken about that one. "A company owned by Gregory and Corinne Johnson. The loan was to refinance and develop a strata unit to the ground floor unit 1/105 St Georges Terrace. 66. The information provided by Global in respect to this investment was contained in Global's letter to my wife and myself dated 9th of May, 1997. Attachment 13."

Now what I didn't provide on that attachment also he got himself a colour printer and he used to, in latter stages, around about this time, he produced beautiful colour printers of the drawing of the building and the facade, and it made it look really nice. And he did that to several of his projects later on, later. MR CHANEY: So the quality of the - - ?---Presentation was excellent. You'd look at it and say this looks like a million dollars, just with the presentation:

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"67. The borrowers were late in paying interest and

defaulted on the loan. They initially tried to refinance, but were unsuccessful."

I've had about five different letters from Global in regards to this particular property, and each time they've got someone interested in it, and they're almost ready to get - - buy it, but they've got to get the loan approved, all this sort of thing. I've signed a letter of discharge twice in that period, that it's been sold, but it's never been sold, so what they apparently do, they fob you off as long as they can and then, as Johnson's done, he's finished up a bankrupt, so that's the end of it. What's the situation with Haskin Pty Ltd? Is that - -?---I think I mentioned - - have I read that out about we've actually - - I'm on the committee for that one. There's two of us on the committee, trying to get it sold. The situation is we received a letter of offer for it, and I don't think I've read that out yet. But it's about 63 per cent of the value of the capital value. MR CHANEY: Yes?---So we'll lose money on it. Haskin, though, is not in liquidation or - -?---Well, I've tried to find out about that. I've got onto - -who runs it? Onto the relevant government department to find out whether I could see what assets they've got, because according to a lawyer, they're the only ones we can get our money back from. And I haven't been able to get it, because it had a report, I got a report of what documents they'd put in, because they had to put an annual document in, and I rang them up and I found out that they'd had two annual reports together, within a couple of months, towards the end of last year, so I thought there's got to be an annual report, it's got to have a financial statement there, so I asked for that, see if I could get a copy of that, and they said they don't produce financial statements, because the company's too small. Yes, all right. Well, leave it at that thanks. So paragraph 68, I think is the one you've mentioned. If you'd read that?---Yes, that's right. I've mentioned that. You want me to read that? Yes, read it for the record please?--- "The investors have recently approved it for an offer

to purchase the property. The sale proceeds will allow an investor to recover about 60 per cent of their capital, but not their interest, which has not been paid since September 98. Lot 10 Hardy Road Wattle Grove. 69. On the 1st of August, 1997 I invested $60,000 of my superannuation funds to Casella, for a subdivision development at Wattle

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15.5.00 A.E. RYDER XN 160

Grove. The information provided by Global in respect of this investment was contained in Global's letter to myself and wife dated the 24th of July, 97, as attachment 14. We were not registered as first mortgagees on a title deed." And the reason we were told was that there's something like 70 odd people on the title, and it took a long while to have them all registered. "At the time that PB Ashton Read took over Global was in the process of having the investors names registered as first mortgagees on the title deed. At the meeting held in March 99, PB Ashton Read were in the process of arranging for all mortgagees to be registered on the titles, and I signed the transfer papers necessary to do this. We are still not registered as first mortgagees which was the responsibility, at that time, of PB Ashton Read as administrators. Townhouse development in Highgate." Spelt wrong. Should be "g-a-t-e". "74. On the 7th of March 97 I invested 50,000 of my superannuation funds to a company called Westbid Pty Ltd for the development of three townhouses in the - -" it's got East Perth, but could you change that to Highgate?

MR CHANEY: Yes?--- "75. The information provided by Global in respect to

this loan was contained in a letter from Global to my wife, and measure dated the 5th of March 97, attachment 15. Global told me that there was sworn valuation for $900,000 and that the loan to value ratio would be 63 per cent. The valuation was inflated. Also only two townhouses were constructed, and Margaria knew this, because he inspected the progress of the work prior to payment to the builder. However I understand that Global still sent letters out to new investors advertising three units, when Margaria knew there were only two. 77. I believe that Margaria is guilty of fraud in respect of this investment." And I've already put in a report to the Fraud Squad about it. "General comments. Global advised me in various letters that interest payments were guaranteed as they were held in trust. We were not aware that the payments were our own money paid back to us as interest. All this money was declared as interest earned in our tax returns, for which we paid tax. This should not be, as return on the capital is not taxable. We were not told. Margaria often said to me that I should have no worries with particular investments, as he had invested money in them for his mother, so they were perfectly safe. 80. Following the trouble the government had with Western Women they should have closed all the loopholes so that it didn't happen again. 81. Why was Nabal Sedek allowed to trade again following the failure of investments he had with Swan Building Society

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15.5.00 A.E. RYDER XN 161

contributing to this failure? All brokers should have been advised not to lend money to him by the Finance Brokers Board. On the 21st and 22nd of March, I made - - or we made submissions to the Gunning inquiry. Attachment 16 and 17." And sorry, your Worships, that's the end of my statement.

CHAIRMAN: Good, thank you very much. MR CHANEY: Mr Chairman, I tender the statement together with attachments. CHAIRMAN: Yes. Thank you. That'll be exhibit 70. EXHIBIT 70 Mr Chaney DATE (Unstated)EXHIBIT 70 Mr Chaney DATE (Unstated) Statement of A.E. Ryder together with attachments MR CHANEY: And I've no further questions of Mr Ryder. CHAIRMAN: Mr Allanson? MR ALLANSON: I have nothing. CHAIRMAN: Thank you. Mr Hooker? MR HOOKER: I don't cross-examine, sir. NO CROSS-EXAMINATION CHAIRMAN: Thank you. Thank you very much indeed, Mr Ryder?---Sorry, if I was a bit - - No, no?---I'm not used to this sort of questioning. We're used to lawyers, they're verbose?---Thank you. So - -don't forget your coat?---No. Thank you very much. MR CHANEY: Just watch the step, Mr Ryder, as you - - WITNESS WITHDREW MR CHANEY: Mr Chairman, that completes the evidence for today. We did have a witness due for 10.30 tomorrow morning, but that time has become inconvenient for him, and so he's been re-arranged. There result that we don't start tomorrow until 12.15, with the first witness, and then we have one in the afternoon. CHAIRMAN: Thank you very much. We'll adjourn till 12.15.

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15.5.00 A.E. RYDER XN 162

HEARING ADJOURNED UNTIL 12.15PM TUESDAY, 16TH OF MAY 2000

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16.5.00 R.P. HARDWICK XN 163

CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Mr Chairman, I call Russell Paul Hardwick. CHAIRMAN: Thank you. RUSSELL PAUL HARDWICK sworn:RUSSELL PAUL HARDWICK sworn: CHAIRMAN: Yes? EXAMINED BY MR CHANEY: MR CHANEY: Your full name is Russell Paul Hardwick?---Yes. And you're an operations manager?---Yes. You live at 467 Liddelow Road in Banjup?---Yes. Mr Hardwick, you have prepared a statement of your evidence in these proceedings, is that correct?---Yes. That a copy of that statement, with its annexures?---Yes. I think you've signed that as an accurate statement of your evidence this morning?---Yes. Can I ask you please to start reading the statement? Perhaps you can start at paragraph 2?---Okay, thank you. As I said: "My occupation is operations manager for Ethnic

Technologies. I'm also a qualified accountant. I'm here in essence representing over a hundred investors over a number of mortgages that are now in default. I first became involve in loans arranged by finance brokers back in around 96. My father has been dealing in the sort of first mortgage investment market for about 10 years, certainly initially as a borrower, and then later as an investor, certainly without any problems. My family and I entered approximately 15 loans with Blackburne and Dixon, Countrywide Credit, Global and Geraldton Finance. At any one time my family, particularly my father had around 400,000 invested across a number of loans. Just recently I've experienced a number of problems with around seven of these loans. The particular brokers involved have been Global Finance and also Blackburne and Dixon. We certainly first encountered problem early 99, with the collapse of Global, when obviously we stopped receiving interest payments and mortgages went into default. Until then there hadn't been any problems and as I said earlier, my father had been within the industry for 10, 15 years without any problems at all. At this stage we started reviewing some of our documentation and particularly with Global we found significant problems. For example on one specific mortgage we were not actually even registered on the title. The transfer title hadn't

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been done and we - - our interest was registered in the name of Global Mortgage Investments. Particularly - -

CHAIRMAN: By the way, was that all that was on the title?---There was about 15 investors, 14 on the title, and the 15th was under Global Mortgage Investments. So in essence just a paperwork issued just wasn't done correctly. Thank you?---We particularly found that there was some real concerns with the valuations which the borrowers obtained, particularly the Ryallstone loan, letter of offer referred to a valuation of 420,000 on the property, and I think it's fair to say that investors could sort of reasonably assume that if it's a licensed land valuer, that really the only risk with first mortgage investments amongst others is really that is the shift in property markets, so you could assume that the valuation could be within 10 per cent of the actual property worth. Now that we're in possession of the title deeds, and looking at a mortgage sale, we have arranged our own valuation, Lefevre Valuations valued the properties, and - - MR CHANEY: Sorry, can I just ask you to look at the document with tab 1 on it. That's the letter of offer in relation to the Ryallstone loan?---Yes. I notice it's directed to a Mr P.P. Mann, not to you or your father?---He's actually one of the mortgagee with who we're sharing this loan, he's given us a copy of his documentation. We've got exactly the same letter, I must have accidentally given Mr Mann's copy rather than mine. Right, but in any event you received a letter in the terms as this letter?---Yes, exactly the same, this is the standard letter that all - - each one of the mortgagees have got, a lot of mortgagees I'm looking after have in essence given me their files to sort of look after because they're at a stage with their hands up in the air. Yes?---That's the reason I have this in my possession. Thank you. And then the second document is a copy of the Lefevre valuation? I think - - ?---Yes. - - members of the committee will be familiar with having been taken through it in - - with an earlier witness. Sorry, Mr Hardwick, if I can ask you to go back perhaps the bottom of page 2, the last - - in the last sentence, and start reading again from there?---Sorry. Yes. "Now that we are in possession of the title deeds and

arranging mortgagee sale, we have arranged our own valuation with Lefevre valuers, have valued the property and we invested to be in the vicinity of 195,000, which is obviously a significant shortfall to the $420,000 valuation from Ron O'Connor, referred to in the original

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letter of offer. We have subsequently obtained a copy of O'Connor's valuation and obviously the basis thereof.

MR CHANEY: And that's attached to this bundle of documents, at tab 3?---Yes. Thank you?---So it certainly shows some considerable differences in opinion and obviously different regime of actually going through the process of valuing the property. And I take it that at the time of your investment you hadn't seen this valuation?---No. Only came to light - - or you only obtained a copy after the investment went bad?---Yes. Yes. The only - - when you actually invest in these mortgages you actually really just initially get a - - I suppose a letter of offer and that details that a state government licensed valuation of so and so, so often - - unless you specifically request, you don't normally get a copy attached. Yes. Can you continue reading paragraph 7 please?--- "In relation to the loan to Hillsfield? Pty Ltd, which is

a separate loan, we obtained a copy of Global's trust account by going to the company where one of the employees let us have a look at the documentation. It shows payment of 2000 to the valuer in question, Ron O'Connor, in June 98 which I believe was the valuation provided by him. That sum is significantly greater than the $500 which we recently paid for the valuation of the subject property. From it this may be alleged that valuer O'Connor in essence would inflate the value of the properties to allow borrowers and brokers to gain access to higher amounts of money and then from there charge higher amounts of fee. In doing so the valuer would charge a far higher rate than that would be normally paid at a reasonable market level for a valuation."

Can I just, while you're referring to those documents, take you to tab 5 in the bundle?---Yes. That is a copy of the trust ledger, is it not - - ?---Yes. - - in relation to the Hillsfield - - ?---The Hillsfield deal, yes. - - investment? Now if you look back at document number 4, that's the letter to you, it shows that it relates to a joint first mortgage of $255,000, your proportion $50,000, you see that?---Yes. And the amount of loan then shown in the body of the document is $255,000 for 12 months, security lot 55 Beard Road, Cullum? Toodyay, in reference to the valuation of $390,000. If one

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then goes back to the ledger card, it refers to a security being lot 55 Beard Road, Cullum, Toodyay. A loan of $3,335,0000, and then the entries on the card show a number of receipts, presumably by - - from investors, getting to a grand total, page 2, as high as $1.63 million. Are you able to explain how the - -or the lack of correlation between that trust account ledger and what is shown as being your investment, which appears to be a discrete investment of $255,000?---I think it probably brings into question the - - you know, the way that, particularly Global, manage their trust accounts. And that's - - that's Mr Gunning's question earlier, that probably shows how things like you know, people can be missed from getting registered on titles. I mean this is probably a poor example of record keeping and trust account keeping. In essence you've got individual mortgages sort of mixed up in one bag, whilst each one - - this one particularly was no problems with registration on the title, it just sort of - - you wonder really even from an audit point of view, how the auditors could really have a look at this and say that, you know, say that each one of these were individually - - or in essence done in a true and fair view. The title on which you obtained registration, was that the title to lot 55, Beard Road, Cullum?---Yes. Yes. And presumably a number at least of these other investors who were shown on the ledger card were also shown as - - ?---Yes. - - mortgagees on that title? Are you able to find any correlation, have you been able to find any correlation between this particular $255,000 loan that you signed up for, and what appears to have had the - - happened to the money by reference to the ledger card?---Well, I think in this instance, it looks like it was settled as part of a number of other properties. Again it's a fairly complex sort of trust ledger, so in essence I assume security was issued as on a first mortgage basis, as the settlement for part of the large property, was done at the same time, so that - - I mean, that specific question is something we'd have to ask Global Finance. Yes, but just seek your comment really as a - -?---Yes. - - an interested person in this, but having reviewed the papers, it just seems to me impossible to correlate - - ?---It is, I mean, the trust accounts are very - - you know, very hard to understand exactly which moneys belong to which property. It all seemed to be sort of pooled in one big fund, moneys come out, it's very difficult to understand or ascertain, apart from using a simple mathematical basis, which - - you know, which money belonged to which mortgage, how and when it was funded, as the moneys went in and the moneys went out, were they registered at the same time? It really just begs the whole question to - - that there's a real breakdown of what would be considered a normal due process for a

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settlement of a mortgage, or a settlement of an investment, and I think the moneys - - you know, they really weren't dealt with in a due and professional - - professional way by the finance brokers. MEMBER NEWMAN: Mr Hardwick, can I just confirm what you're saying, that there were no sub-ledgers that dealt with each person - - individual advances and their interest payments, details as to whether their mortgages are registered?---As far as I'm aware - - as far as I'm aware after the collapse of Global we did attend the offices of Global and have a look through the file, and as far as we are aware this was the trust account ledger obtained from their files. So there was no other supporting documentation that you're aware of that dealt with each person as an individual?---No, not that we found. This is it. This is the entry. Right, thank you. CHAIRMAN: Were there any auditors notes on the entry?---I didn't see any auditors notes, Mr Gunning. Thank you. MR CHANEY: When was it that you actually managed to have a look at this ledger for the first time?---Good question. Must have been around June last year. When did Global collapse? Be March - - MEMBER NEWMAN: It's February 1999?---No, that must have been March, round March. MR CHANEY: Yes. Well, when you looked at the ledger, and you're an accountant, or you have accounting qualifications, was it immediately obvious to you that this account was not properly kept?---In my view it wasn't properly kept, no. Was that something that - - ?---Yes, as soon as I pulled this out of the file, and I think in essence obviously talking to other - - other investment - - another investment that an associated company had is that I wasn't on the title, and that one had been running 10 months, so all of a sudden there was some real concerns and I'm sure you've heard from many investors that there was major concerns about the ability of specific - - particularly Global, to manage their business. And really the point I was seeking to clarify from you was, was that fact, the lack of management capacity, or the lack of proper account keeping, something which leapt at you when you looked at the ledger cards, or was it something that you really had to spend some time fossicking through the - - ?---Certainly straight away, I think, you know, that the filing process, whilst it was in some sort of order, I think the sort of, you know, the sub-record keeping left a fair bit

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to be desired, in my view, when I attended the offices. MR CHANEY: Yes?---There were a number of files sort of scattered across, and in talking - - just in talking to the people there that yes, I had some real concerns about the way the business was run, once you got past the front door. MEMBER NEWMAN: Mr Hardwick, could you tell us what your accounting qualifications are?---I've got a Bachelor of Business, majoring in Accounting from Curtin University. And do you belong to any of the major accounting bodies?---I'm an associate with Australian Society of Accountants. MR CHANEY: Mr Hardwick, can I ask you to return to your statement at paragraph 8?--- "The loan proposal said the property was valued at

390,000. At mortgagee auction it sold for 210,000, which meant investors got a return of about 80¢ in the dollar. We are now pursuing the borrower and their guarantor for the balance of the money we loaned, and interest. A writ has been filed and we're also waiting for the defence to be filed." If we could just add one other thing, we understand from the West Australian, there was an article that the valuer ...(indistinct)... Mr Ron O'Connor, was convicted in 1996 of stealing 61,000 from a real estate trust account and sentenced to 240 hours community service. If I can just maybe read on from the article in the West on September 30th."

Well, perhaps before we get into that, Mr Hardwick, I think that's a matter of record?---Yes. What's the point that you - -?---Well, the point I'm trying to raise is that the question that really investors are trying to answer now is how was this Mr O'Connor, a convicted criminal, allowed to be a licensed valuer by the state government of Western Australia? And that's the question that hopefully the - - will come out in the next couple of months. I understand Mr O'Connor is facing eight charges, by the Ministry of Fair Trading, I spoke to Mr Stan Sostak? this morning, and that's really the question that we're asking is how is this person, a convicted criminal, allowed to have a land valuer's licence. Continue? Yes, please?--- "The worst example of problem loans that I've entered

that I'd like to bring to the committee's attention is a loan to Laurence Ferris and John Manton, directors of Rancher Enterprises which Blackburne and Dixon arranged. Mr Ferris had bought the property at Naval Base for we understand to be in the vicinity of 380,000 and also is referred to in the loan documents as payout of existing

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mortgage." MR CHANEY: Just while you're on that, that's at - - under tab 7? That's the original proposal in relation to that investment I think, is it?---Yes, sorry, yes. And page 2 there's reference to payout existing mortgage, $380,000, that's the reference you've just made I think?---Yes. The proposal also refers to the breakdown of money to be held in the trust account which include consulting and professional fees of 74,000, project fees of 95,000, and contingencies of 69,000. I think one could - - one reasonable investment - - investor I should say, could assume that they funds would be used to, in essence, add value to the property. We've now found out only by reviewing again the trust ledger that these - - these monies were actually paid out to Ferris and Manton, under the name of Annette Lawrence and associates, so in essence the borrowers effectively took a fee or a profit of 230,000 from the deal, and what they've done with this mortgage like they've done with now in three or four others, they in essence just walk away from the property, and sort of leave a lot of empty promises and, which obviously is going to leave a significant shortfall for investors. Just going back to the ledger that you inspected in relation to that account, was the 230,000 or there abouts, paid out as a single payment or - - ?---It had been varied payments, I think it was about seven, seven individual payments. Under categories such as project fees - - ?---Such as - - — — project fees?---Yes. — — consulting fees and so on?--- Project fees. I mean when reviewed this we assumed those sorts of fees would be for engineers' drawings, you know, building supervisory fees, these sorts of things, in essence paid to third parties, add value to the project, where really in our view we allege that it was a complete sham, and they were just taking a fee, a success fee, out of the property. CHAIRMAN: Excuse me Mr Hardwick, going back to that tab 7, the proposal for the mortgage. And going to the last page, this hasn't been mentioned yet, but it’s a matter that is of interest to this committee, down at the very end, is that your signature?---That’s by father’s. Your father’s signature?---Yes. And I notice that Blackburne and Dixon, as my agent, they agreed to act as agents for you, or at least your father, in that deal. In any of these deals who did you think you were dealing with as your - - ?---In any of these deals you really believe you are dealing with the finance broker and they are acting as an agent on your behalf.

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Thank you. Yes, Mr Chaney? MR CHANEY: Just while you are on that page, Mr Hardwick, if you go up a page to the second text paragraph, there's reference to Rob Robson, auto wholesalers have applied for diligence, whatever that might mean, to lease three factory units for one-stop auto repairs. Do you know anything about Rob Robson?--- I'm just trying to pick that out. I'm sorry, it's the same page that - - the last page of the proposal that the chairman - - ?---That's - - okay. I mean that’s - - all those three, none of them have come to fruition, if you look at Rob Robson, the Century 21, that's all just - - just really just a sham to get people involved. I mean Century 21 is actually, as it says there, a related company, and there has been no, out of all the three mentioned, there as been no successful lease or no successful sale at all by the borrowers. Thank you. Could you return to your statement please, at paragraph 11?--- "I also believe that the property valuation referred in

the proposal was highly inflated, the land plus proposed development was valued at over 2.4 million. We subsequently have received a copy of the valuation."

Yes, I notice that valuation is dated October 98. No, I'm sorry, that's 2 months before the letter of offer?---Yes. Yes. Yes, thank you. Continue reading?--- "The mortgage of the loan is now in default. We stopped

receiving interest payments in January 2000. The investors in this, approximately 36, formed a syndicate of which I am the chairperson. We have also appointed a lawyer to act on our behalf."

The actual development of the building, luckily enough in this instance, is actually about 90 per cent - - 98 per cent complete. We are actually moving towards going to a mortgagee sale as the borrower has proven unable to sell or lease the property and is really just playing for time. At this stage - - MEMBER NEWMAN: Mr Hardwick, are you going to finish that final 2 per cent or are you going to sell it as is?---At this stage there are - - there's a number of things that may be required to bring to strata title, there's things like painting carbays, and those sorts of things, so once we understand exactly what those are, we'll put in place things that in essence what we see is to add value between now and the auction, and the others will be left, I suppose, as to be read out at the auction of things to be completed. There's

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just small shire issues, that we've got to review. So it's really - - it's a sort of - - you know, if we invest the money in the property, will it help at auction, or not, so that's really where we're at now with the last few things. CHAIRMAN: What do your valuers say?---Sorry? What do the valuers say about that?---In as far as the property you mean, or - - Yes?---I mean there's only small things there, the people will be quite happy to buy it as is, so at this stage, we may not make any last changes. MR CHANEY: The - - are you auctioning it as one lot, or are the individual lots separate?---At this stage as one lot. Will you resume reading please?--- “As the borrower has proven unable a to sell or lease the

property, we suspect a significant shortfall as the four market appraisals we have received have valued the property at between 800 to 900,000 against the original mortgage of 1.55 million. We've also now found out that, or it has been alleged that one of the borrowers, Mr Laurie Ferris, is also a former bankrupt. We were certainly not told that at the time, on the initial proposal from Blackburne and Dixon. In around February this year I made some complaints about over-inflated valuations that we have discovered to the Ministry of Fair Trading, Mr Doug Shave, the Premier and also the actual ministry, I gave them copies of valuations that we have obtained. In his reply, Doug Shave gave us the Ministry - - the investigator for us to contact which we have done. As I mentioned earlier - -

Who was that?---Stan Sostak. Yes?---The investigator said they have already laid eight charges in relation to the valuer, Mr O'Connor, and they don’t require any further - - anything further from us yet. I don’t know that the charges have been heard, I spoke to him today, I understand they’re due in the next 2 to 3 months. But in my view these actions against valuers are far too little and far too late, and I refer back to the question that how was a convicted criminal given a land valuer’s licence. MEMBER NEWMAN: Mr Hardwick, did the gentleman that you spoke to at the Ministry indicate whether or not Mr O'Connor was suspended pending the hearing of those charges or indistinct?---No, at the moment he isn't suspended at all, he’s continuing to trade. I understand he has been trying to get a suspension as part of a potential arrangement, but I think they’re going to pursue him, but at the moment as it stands today he continues to trade as I understand.

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Thank you. MR CHANEY: Para 15?--- "We've also made a complaint to the fraud squad,

regarding particularly the Ferris and Manton loan, Rancher Enterprises, given that it was way over valued and our suspicions about the uses to which these moneys were actually put."

WITNESS: At this stage, the fraud squad have a complete copy of the file on record, but it's a bit of a manpower issue about when they are going to move and have a look at it. So I suppose just in summary, I think the cause of these problems is the finance brokers - - with the finance brokers and the land valuers industries is that they weren't really properly supervised, which gave a window of opportunity for unscrupulous borrowers, valuers and finance brokers to look at properties and to take advantage, particularly with a group, the people I've come across, the advantage of the weaker, the elderly section of the West Australian committee. MR CHANEY: Okay. Just stop you there. You've mentioned the problem about O'Connor, made your position clear in relation to that. In terms of supervision of the industry, what - - what do you think, given that this committee needs to look at constructive - - ?---Sure. - - changes for the future, what might have been done wasn't done or could be done in future?---I think just - - it's really, I mean obviously some of these people had external third party audits, I think really just in essence an internal audit process of each finance broker, and it might be as you know, 10, 15 questions that have to be reported, and there's obviously got to be legislation to do that, how many loans on your books, your value of your loan book, how many loans in default, and I suppose a number of questions like that very quickly a supervisory board can ascertain that a broker is not, you know, obviously sort of toeing the line or doing the right thing, so just a very simple monthly or quarterly monitoring process by the directors of that company that, you know report by - - by what they're doing, how many investors they have on hand, how many borrowers, and then probably some guidelines as far as the first mortgage investment goes, of what you have to tell investors, you know, just a history, just a standard history on the borrower, a standard history on - - on the property, and probably I suppose all the information rather banked really just withholding some information and providing very, very brief outline, took investors. And I think it is not unreasonable for investors to rely on valuations when it's a licensed valuer, and not- - it's within reason for them to rely on the things that finance brokers were actually putting in their proposals. So that would be my- - my sort of view of having a monitoring

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process of the industry. MR CHANEY: Thank you. Just go back to paragraph 17 please?--- "As chairperson of the loan syndicates for at least four

problem loans, I'm devoting about 5 hours a week at least pursuing these loans on behalf of all of the investors.

WITNESS: Many of the other investors, particularly the elderly, I've seen a lot of them I suppose actually give up pursuing their money and they're very much relying on committees and lawyers to go sort of through the process and help to recover some of their money. MEMBER NEWMAN: Mr Hardwick are you aware of any of these elderly investors who may have sought to negotiate with other parties to perhaps sell their interest for a fee to enable them to get money or take the pressure of themselves or anything of that nature?---Not that I'm aware of, no. But I understand - - obviously a lot of them, these loans were for generally a period of 12 months so people would - - particularly retirees would structure their finances so that certain loans came up at certain times, so it's not so much they don't now have access to any interest payments, it's their capital they hope to travel with, or live on or buy a house is now in question, so some of these questions that may be from 6 months to 3 years before they get their money back. I don't know how much that's going to be, so I can understand it some of the investors have done that would be a simple way that they may buy their mortgage out. It's probably the borrowers who are trying to do a deal, who knows? But personally, I'm not aware of any, but I could understand. MR CHANEY: Finally - - ?---Sorry. In total I've already lost myself about 10,000, my father has lost about 20, and together, as a family, we stand to lose around another 30,000, but for the hundred or so investors that I'm looking after would be in the millions that people have lost or sorry, that some have already lost and some stand to lose would be in the millions. Thank you, I have no further questions of Mr Hardwick, Mr Chairman. CHAIRMAN: Mr Hardwick, over the years that you and your father have been dealing in this type of investment, what about the question of these valuations previously, you've mentioned of course the last one. Have you any knowledge, or has it always just relied on the finance broker saying he had a sworn valuation for so much?---Generally we relied on that advice from the finance brokers, and particularly Dad, because I didn't have any money 5 or 6 years ago, but Dad's been involved in the industry sort of for the last, you know, over 10 years, and he hasn't had one problem in any of the loans. And generally we've relied at all times on the licensed

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valuation to provide the basis of the security. We're noticing that that's one of the bases? of the - - of how- - ?---Yes, sir. CHAIRMAN: - - it all falls down because it, because it's - -?---That's right. Because it's a valuation?---I mean, the values of the property and the loan goes in default, and that's part of the program, or part of, in essence, you would have the agent Blackburne and Dixon, to follow up the enforcement of the mortgage, but when the value of the property there, is not even there or not even half way there, then obviously, you know, people are standing to look at some significant losses as your - - Obviously something's got be done about "independent" valuation?---Yes, exactly. What is - - How - - how, we're still - - ?---What is independent, yes? MEMBER BLIGHT: If I could just follow on from that, the theme that seems to be coming through is that the valuations in many cases, have been inflated, and as I've said before, it's no good, you know, hindsight's a wonderful thing to have, the other thing that seems to be emerging is the asset backing of the guarantors?---Mm. Did you - - have you ever made any inquiries about the - - you know, the asset backing of those who guaranteed the loan?---Sure. Often it is difficult to ascertain someone's financial position. We found - - we found particularly there's one loan now that we've received the 80¢ in the dollar and we're continuing to pursue the guarantor under the covenants of the mortgage, but particularly with the - -when we started to do some investigations, particularly on Mr Laurence Ferris, we've done a title search on his house and find out it's in his wife's name. I mean, you're looking at a guy that I allege I understand was bankrupt before, knows the system, knows the game, very much a question I think in - - you'll see there his supposed position of surplus of 3.45 million, again, we don't - - we're not aware of how Blackburne and Dixon arrive to that understanding of the guarantee, and whether he is actually worth 3.43 million is something that I think probably a number of investors, a number of mortgagees over a number of loans will test in the future. MEMBER NEWMAN: Mr Hardwick, with those statements about the value of the guarantor, did anyone provide you with any statements of financial information prepared by independent accountants, or with independent supporting searches at land titles office or share registries, or anything of that nature, to back up the statement that they were worth that amount of money?---No. The only thing that we have there is just from the - - from the actual finance broker, and just their

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statement of position as that shows - - excuse me - - so I'm not too sure what the finance brokers put in place to check that, whether they be title searches or not. Really I suppose investors rely on the information provided by the finance broker to make an investment decision. I mean, you look at this one again, and if someone supposedly has net assets of 3.4 and the other guy's got 3 million, the proposal as it stands reads okay, but it's nowhere near the true picture, that's the real concern, and as I said for the investors I suppose, and I believe that they had the right to rely on what they were told, by finance brokers. MEMBER NEWMAN: And you didn't yourself ask any questions about how they got that information, do you accept - - ?---No. - - that they'd done the necessary investigation?---Accept that that was - - they'd done the necessary checks so that was a - - that was a confirmed position. Did you get any information relating to previous company directorships or shareholdings for any of these people such as Ferris?---No. And no - - you've already said you weren't told he was an undischarged bankrupt, weren't - - ?---No, that's right. - - told anything about his previous track - - ?---Nothing - - - - record, if any, as a company director?---Nothing about his previous history at all. Right. Thank you. MEMBER BLIGHT: Has the writ been issued that you're talking about?---Which deal's this one? On this one, no. We're dealing with the property first, and then we'll chase him. CHAIRMAN: Who you'll chase is to be decided by your solicitor?---Exactly. Yes. All right. MEMBER BLIGHT: Mr Hardwick, if I could just follow up - - I'm sorry. You didn't ever ask for a you know, a certified statement of assets and liabilities of any of the guarantors? You didn't seek any - - ?---No, we relied on the advice of the finance broker. Okay. You've entered into loans which would bring the interest of around about 9½, 10 per cent?---Yes. At a time when bank interest was what?---Four and half. Yes. So there's a fair degree of difference between going into what you could call a very safe, secure investment - -

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?---Sure. - - and one which gave you double that. As an accountant, wouldn't you have thought that there was a degree - - an element of risk involved in - - ?---Yes. - - doubling your - - ?---Sure. I mean, there's a couple of issues there. I mean there's an element of additional work as well, there's a lot of documents that have to be signed, it's a bit - -there's a fair bit more to do than just sort of dropping down the bank and leaving a cheque with them. But yes, the major risk of investing in first mortgages is in essence, you're looking at the value of the property market. I mean, if the value of - - we saw a big correction in the share market a month or so back, if we saw the property market go down 20 per cent tomorrow, you wouldn't get any complaints from any investors, because that was the risk. The risk wasn't that valuations would be over-inflated, that you know, potential issues as far as what people's net assets were would be over-inflated, while sure, there's - - there's risk in return, but we believe our - - we relied on the risk based on the property market as a whole. MEMBER BLIGHT: Could I follow - -at what stage then would you expect that someone from the Finance Brokers' Supervisory Board would have detected the sorts of things that you have now discovered occurred, you know, maybe a year or two ago?---I think - - What would the signs be for someone - - ?---I think certainly some of the signs, as I said before, if they had a, you know, some sort of monthly reporting structure where there would be, you know, list a number of loans in default, list number of, you know, other issues that sort of are coming up, list number of company directors or number of bankrupts that have applied or maybe even more so number of applications for loans, a number of approved loans, number of declined loans, some of those sorts of monitors that could sort of trigger an early indication that these things were going on. That the brokers themselves provide?---That the brokers and the valuers and the borrowers were starting to sort of pump up the - -pump up the price. You mentioned that the trust account you found fairly difficult to follow, and you also said that it would be reasonably involved, and difficult to audit. You would have accepted an auditor's report presumably?---Generally certainly where an auditor signs off, a qualified auditor signs off on, you know, some information, that would lead you to believe that everything was okay, that there weren't things like people not registered on titles and these sorts of things, you would have thought with their sort of testing they would pick up some of these sorts of things that were going on.

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Would you think that the Brokers Board might have accepted the same auditor's report as reflecting a reasonable situation with that broker?---Well, I think there's two separate issues here, I think there's the finance broker really needs to have a look at the industry and what's coming in and out of the front door of the broker. I'm sure - - I mean an external audit should be done anyway, but I think - - I think the finance brokers - - or the supervisory board should have been looking at, as I said before, the number of loans in default, and started to see some very early signals that there was some real concerns in the industry, rather than going and checking individual trust accounts. MEMBER BLIGHT: But as a lender, you - -and a qualified accountant, you hadn't picked it up?---Well, you don't. I mean, all you get, as I said is the initial proposal from the finance broker which has a - - you know, which are licensed by the state government and I think it was not unreasonable for people to rely on those. No, but what I'm saying is did you have any indications that, you know, that your interest cheques were not coming in?---Particularly, I mean, with Global, you go in the front door, everything's very nice and neat. I understand Blackburne and Dixon's trust accounts are a lot more intact, or a lot better quality than what they were at global, but you don't get any indications, as from an investor's point. Until - - ?---Until - - - - the interest cheques don't - - don't arrive?---Yes, that's right. All of a sudden the interest cheques don't arrive. MEMBER NEWMAN: Mr Hardwick, would you believe that it would perhaps have been appropriate that apart from the cheques that you're talking about, it might have been more appropriate for the whole of the accounts of these mortgage brokers to have been audited as opposed to purely the trust account, bearing in mind that you're talking about payments being made out for things like O'Connor for his valuation fee, which really would have been something that perhaps might also have been reflected in other areas in there generally, how the payments being made to that same valuer?---Yes. I'm not too sure, it's probably a question for the auditors, but were they checking individual loans, were they aware that there were certain mortgages that people weren't registered on titles, and these sorts of things. I mean, you know, you've really got to - - when were loans settled, when were people registered on titles, I think they probably should have gone - - I don't know whether - - how far their audit was, how in depth it was. But certainly you would have thought an audit could pick up these sorts of things. One final question from me. You've said your name was not on the title. Why would you have not, in normal circumstances,

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used a solicitor and had him or her act for you at settlement and pass over your money in exchange for your mortgage documents?---Well, because in essence, as Mr Gunning pointed out, we appoint Blackburne and Dixon to handle the matters, to attend - - or they arrange to attend to settlement, so we obviously sign the - - sign all the papers, assuming that the settlement process will happen. And - - MEMBER NEWMAN: So you didn't believe it was necessary to have your own independent solicitor - - ?---No. - - act at settlement and - -?---No. - - have money over?---No. I mean, the cost of actually sending your own solicitor would probably, you know, make the actual investment marginal, but if you had to pay your own settlement fees out of this as well. Right, thank you. CHAIRMAN: Mr Allanson? MR ALLANSON: Nothing. CHAIRMAN: Mr Hooker? MR HOOKER: No, sir, I don't cross-examine. NO CROSS-EXAMINATION CHAIRMAN: Thank you. Thank you very much, Mr Hardwick?---Thank you. WITNESS WITHDREW MR CHANEY: Yes, I - - CHAIRMAN: You want - - MR CHANEY: I haven't actually tendered his statement. CHAIRMAN: No. MR CHANEY: I'll do that. CHAIRMAN: Exhibit 71. EXHIBIT 71 Mr Chaney DATE (Unstated)EXHIBIT 71 Mr Chaney DATE (Unstated) Statement of R. Hardwick CHAIRMAN: Yes.

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MR CHANEY: Next witness is due at 2.15, Mr Chairman. CHAIRMAN: We'll adjourn, 2.15. LUNCHEON ADJOURNMENT

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UPON RESUMPTION: CHAIRMAN: Yes, Mr Chaney. MR CHANEY: I note Mr Hooker doesn't seem to have arrived back. I'm sure we can proceed in his absence, Mr Chairman. I call James Walton Bowman. JAMES WALTON BOWMAN sworn:JAMES WALTON BOWMAN sworn: EXAMINED BY MR CHANEY: MR CHANEY: Just be seated, thank you, Mr Bowman. Your full name's James Walter Bowman?---T-o-n, Walton. Walton. And you're retired?---Yes. You live at unit 19, St Ives Retirement Village in Kallaroo?---That's correct. In order to assist the committee with it's inquiry you've signed a statement of evidence which you wish to give, is that correct?---That's correct. Could you have a look at this document please?---Thank you. That's the signed copy of your statement with the attachments referred to in the statement?---That's correct, yes. Thank you. Mr Bowman, would you commence reading the statement please, at the paragraph numbered 1?--- "My full name is James Walton Bowman. I reside at

unit 19, St Ives Retirement Village, Kallaroo. I'm 84 years old. Prior to retiring 23 years ago, I was in senior management positions with Australian Consolidated Industries. My dealings with Gamel Ward date back to about 1978. Apart from problems with one of their solicitors, I do not recall experiencing any problems with them until 1992, when a loan I had with them was not repaid on expiry. On 27th September 94, I had an interview with Mr Rod Higgins, an investigator for the Finance Brokers' Supervisory Board, seeking the board's assistance by investigation of these two loans, these two loan transactions negotiated by Gamel Ward. I sought advice on what action could be initiated through the board for the moneys which were lent by me in 1992."

Can I stop you there, Mr Bowman? When you approached the board for assistance, what was it that you had in mind that the board may be able to do for you?---Well, I'd hoped they'd help me recover at least some of the moneys. And did you - - was that something you explained to the - -

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?---Yes, yes. MR CHANEY: - - the officer? Do you remember - -?---Yes. I think that is spelt out in my letter to them. All right. Well, thank you. Perhaps if you read the next paragraph, and then we'll have a look at the letter?--- "I had a letter - - I had left a letter with Mr

Higgins, which outlined the details of my loan transactions, as well as other relevant correspondence. By way of summary, in May 1992, Mr Gamel had advised me that he had clients who sought short term loans to help finance property deals. I entered two loans arranged by Mr Gamel, one for 10,000 to Mr Daniel Ikin, for 1 month, and another to Mr Robert Peterson, for 25,000 for 3 months. Mr Gamel advised that both borrowers were in sound financial positions, and I entered these loans on his recommendation. The following month by letter and personal contact, Mr Gamel offered a second mortgage from Mr Peterson for 18,000 for 6 months."

MR CHANEY: There's a document numbered 2, with a tab on the side of the document, number 2?---Yes. Turn that up please?---Yes. That's the proposal letter of 11th of June 1992 to you from Gamel Ward, and that's the proposal I think you just - - ?---Yes. - - told us about?---Hang on. The letter says that the - - "I wish to offer you the following second mortgage for sale, amount $20,000, term, 6 months, discount offer $2000, net value $18,000"?---Correct. What does the discount mean? How does that transaction work?---Well, that in fact was the - - in 6 months time, I was to receive 20,000. I advanced - - I advance 18, so my understanding that 2000 would have been interest on it for that period. All right. So you didn't receive any independent interest payments?---No. Monthly interest?---No. That was $2000 over - - ?---Yes. Yes. - - $18,000 - - ?---That's correct. Yes. In 6 months. So

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MEMBER NEWMAN: Could I just confirm, that would have meant you got a return of something like 20 per cent for you 6 months, 20 per cent per annum?---It may well have been, yes. I think that was the ruling rate at the time. MR CHANEY: Back in 92, yes. All right, thank you. Can you turn to - -to paragraph 8 of your statement please?--- "I encountered problems getting the loans repaid when

they expired. On many occasions I had sought action through Mr Gamel. I was repeatedly told the property had been sold and there would be settlement in days. I often received conflicting information from Mr Gamel, and I noticed that there were discrepancies in the documentation he provided to me. For instance, at Mr Gamel's request, I had signed a discharge for each of my loans to Mr Peterson. Despite further promises from Mr Gamel, I did not receive any repayment of the principal or interest owing. I did not know that Mr Gamel had reinvested my money in another consolidated mortgage. I did not find out about that until the creditors' meeting", that's the creditors meeting of Peterson, "Mr Gamel had also failed to advise me that Mr Peterson was a former bankrupt."

Can I ask you, the creditors' meeting you refer to there, do you know that was relative to the time that you made your complaint to the Finance Brokers' Board?---Well, it would be a good 12 months before - -it would be at least 12 months because at that time Gamel had been - - kept promising me ...(indistinct)... So the creditors' meeting was before - -12 months before you complained to the board?---That's right, yes. Right, thank you. I think I interrupted you at the last couple of lines at page 3?--- "Mr Gamel had also failed to advise me that Mr

Peterson was a former bankrupt. Also it was not until that meeting that I received mortgage documents which showed that a Mr Tilley was registered as first mortgagee to secure 45,000 and myself as second mortgagee to secure 50,000. This property subsequently sold for 54,000. My letter to Mr Higgins requested advice as to whether these dealings with Mr Gamel breached the rules of the board and whether the board could take any action to assist me."

Now if I can stop you there. The document numbered 1 in the bundle is - - that's the letter referring your concerns to the board?---That's the one I handed, yes. Handed to the board on the - - on that date. Yes. And I think your request for assistance is contained in

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the last paragraph on page 3?---Yes. Third page of the letter?---Yes. MR CHANEY: "Specifically I need to know what action can be

initiated through your board. Are the dealings as outlined above legal and according to the rules of your board? These matters are causing me considerable concern and anxiety, and I would appreciate a reply within 14 days. I can be contacted most mornings," address. "I believe I have produced ample evidence to justify a claim on Mr Gamel for full recovery of moneys lent plus interest and costs."

Now you say you handed that to the board. Do you remember who you handed it to?---Yes. Mr Higgins. Mr Higgins?---Yes. And did you - - ?---When I say the board, it was to Mr Higgins, I didn't - - To Mr Higgins?--- - - see any member of the board that I know of. Yes?---Not as a member of the board, no. Yes. And did you discuss the question of recovering your money with Mr Higgins at the time that you gave him the letter?---Not - - only in broad terms, I think. Perhaps at this stage, perhaps - - the reason why I - - you may have thought that perhaps I should have gone to a solicitor, I think, now I should have done that myself, but the solicitor, Mr Byrne, who was also Gamel's solicitor, he said he couldn't act on my behalf. Yes?---See - -and my only dealings with - - with Mr Byrne as I - - I understood it as a client of the - - of Mr Gamel. Yes. So you didn't engage your own solicitor once Mr Byrne had told you he couldn't act - - ?---No, he wouldn't - - he wouldn't act for me. So I said, well, look, I can't do anything about it. Yes. All right. Now did Mr Higgins tell you anything about - - or recommend that you contact a solicitor or do - - ?---No, no. - - anything about recovering money?---No, no. He did, ...(indistinct)... on the telephone he'd indicated to me well don't take any further action, pending what we're doing. I mean he was making some investigations himself and I don't think he wanted me to take any action which may have upset

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those inquiries. Yes?---That's the impression I had. I mean, he didn't say so much in so many words. MR CHANEY: All right. Thank you. Now if you could read on, please, paragraph 11?--- "Some of my contacts with Mr Higgins are outlined in

the list of notes of telephone calls which I made. For example, these show that I rang Mr Higgin on several - - Higgins on several occasions in December 1994. Mr Higgins stated he was still waiting on a response from Mr Gamel, and that I should call back in the new year. Another note, the 30th of June 1995, shows that I rang Mr Higgins and was told that he was making - - taking the matter to the board in mid-July. My note records that I was told that some of the matters may take a lot longer, years to conclude."

And what - - that reference to some of the matters taking years to conclude, which matters did you understand him to be referring to?---Well, I didn't separate them, I didn't separate them at all, it was the whole - - I thought, well that's their - - you know, how they do it is their business. Yes?---I didn't try to decide - - work it out for myself. You'd had - - your letter covered a couple of complaints, didn't it? There was Mr - - ?---Ikin. Mr Ikin?---Yes. Yes. And in short, what was that about?---Ikin was the - - I - - Mr Higgins told me that he had found - - his investigation found that he was junior, so I wasn't aware of that - - A juvenile?---A juvenile, until Mr Higgins told me on that one. But that was a - - well, I think that was another loan, I think I spelled out the exact figures on that ...(indistinct)... Yes. They're contained in your letter, so I won't trouble you to go into that detail. But in any event, getting back to this note where Mr Higgins told you that some matters may take years, was he talking about matters about which you'd complained, or matters generally that the board deals with?---No, I think - - what I understood was specifically for my problem. Yes?---I mean I could have - - that's my understanding. Yes. Can I take you just to that - - familiarise the committee with the document, to the document numbered 3 in the pile, in the bundle? That's a note that you prepared of the

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various telephone contacts which you had with Mr Higgins?---Yes. They were many of them, but not - - I wouldn't say not all of them. You know, I thought these were the significant ones. MR CHANEY: And this is what, a sheet of paper you just kept on your file that noted from time to time - -?---That's right, yes, as I wrote it out. Yes. Okay, so in June 95, he told you that some years - - some matters were going to take years. So perhaps if you could read on, paragraph 12 please?--- "By 1994-95 income was negative, and as there was some

urgency on my part, I again wrote to the board on 15th of August, 95, seeking advice as to what assistance they could provide for recovery of my money. I did not receive a reply."

Now that letter is at tab 4, I think. Go to that, perhaps would you just read the body of the letter, don't worry about the address and so on?--- "I refer to my letter dated 26th September 1994, and

related documents of my loan transactions negotiated with William Gamel of Gamel Ward Pty Ltd, discussed and left with Mr Higgins on 27th September, 1994, seeking the board's assistance by investigating these transactions and advising what action can be negotiated through the board for recovery of moneys lent. My 1994-95 income was negative, and there is some urgency in my pursuing this matter. I would appreciate your advice."

CHAIRMAN: What's the date of that letter, Mr Bowman?---15th of August - - 90?---95. Five I suppose?---Yes, 95. MR CHANEY: You've said you didn't receive a reply to that letter?---No. Did you - - what was the next thing that you knew about the complaint, or the progress of the complaint?---Well, the next - - the next - - I'd kept being told it hadn't been referred to the board and that I can't recall the exact wording of the different things, but it was put off and off and off and off and off. So - -?---And despite federal - - yes. And despite several - - yes, I seemed ...(indistinct)... to receive a reply. The next I think was in - - it wasn't till January 97, that's the next part of my statement.

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Yes, just before we get to the statement, can you recall - - because we're - - that's a gap of some 16 months or there abouts?---Yes. MR CHANEY: Closer to 18 months perhaps. Were you in telephone contact with - - ?---Mr Higgins - - - - Mr Higgins?--- from time to time, yes. Yes, so in that period you'd ring - -?---I was gradually, in my own mind, sort of giving it away and then I'd better refer it back, and it wasn't a persistent, you know, every second day or anything of that nature. Right?---So there might have been some months in between. Yes. CHAIRMAN: What was Mr Higgins telling you, do you remember? This is a period of 16 months?---They're still - - they're still chasing Gamel, Gamel was overseas, at one time, and they're waiting for him to come back. And then again they said they were pursuing, they said they were having a look at this because the lad was a junior, so - - juvenile, and - - Who, Gamel?---No, no. The - - one of the people that owed me money was a juvenile. No, Gamel was not, no. MR CHANEY: That was Mr Ikin, wasn't it?---Ikin, yes. Yes. And - - ?---See, why I didn't - - you may ask why I didn't pursue it more rigorously, Gamel had himself written on that thing that - - I'll probably come into that later, made me an actual promise, when I wrote that letter to - - CHAIRMAN: Well, Mr Bowman, don't get me wrong, I'm not suggesting you're at fault?---No. No, I feel as though I should have pursued it more vigorously, yes, I probably am at fault, though, I can't escape that. MR CHANEY: Right, well, you started to mention that Gamel had made you a promise. Perhaps you might just tell the committee about that?---Well, he made many promises over - - over the ...(indistinct)... and he'd gone overseas, and as a matter of fact, I think probably one of the things is, well, won't ...(indistinct)... next week, it'll be the champagne, in other words, everything's going to be paid up. And this went on for all over that period of time, you say, it was - - and I was - - I believed it up a point. Yes. All right. Well, perhaps if we go back to paragraph 13?--- "My case against Mr Gamel was finally due to be heard

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by the board in January 1997, and I was summoned to appear as a witness at the inquiry. Mr Higgins had prepared a statement of evidence for me." When I say there, I say Mr Higgins, but was being prepared, I presumed that he'd prepared it.

MR CHANEY: Yes. Do you know when that had been done?---Yes. In January, just a few days before. Shortly before January?---Just a few days before I was due to - - "I was summoned to appear as a witness to the inquiry.

Mr Higgins had prepared a statement of evidence for me. The night before I was due to appear at the inquiry I received a phone call from Mr Higgins. He said that there was no need for me to attend the inquiry now", this was late at night incidentally, because I was due at the inquiry the next morning, "because the complaint was out of time. I do not know why it was not listed earlier."

So he told you not to attend the next day for the hearing?---Well - - yes. The board - - the board weren't going to hear it because they'd thrown the matter out, thrown it out. Yes. And that was advice that - - you're sure you received that advice before the hearing was actually due to take place?---Yes. Yes, I got it the night before. Can you continue reading?--- "My letter dated 26th of March - -" no, "By letter

dated 26th of March 97, Mr Higgins advised that there had been an appeal lodged in respect of the board's preliminary finding that the complaint was out of time. Despite several phone calls from me, I did not know the result of the appeal until I received a letter from the ministry dated 30th of March, 1999", that's 2 years later, "The letter apologised for not having informed me of the outcome of my earlier complaint."

And that discuss is - - ?--- "It said that the result of the District Court appeal

was that the time limitations in the legislation did not apply in my case. It also said that the ministry had received legal advice that I was most likely not the client of Gamel Ward, and therefore the matter could not proceed."

Yes?---

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"I believe that if the board had acted earlier, my problems would have been resolved. I have lost over $72,000 through these two loans." I'm sure that should be three loans. There's another to make up ...(indistinct)... "The moneys lent by me were a substantial part of superannuation payment received in 1977. It is obvious to me now that I should not have gone to the board, that I should have gone to a solicitor back in 1994, not the board, to get my money back. I didn't get legal advice because I thought the board would look into it. I was never advised that the board might not be able to get my money back for me."

MR CHANEY: Mr Chairman, I tender the statement. I'm just concerned that some of the numbering on the tabs may not be accurate. Could I have a look at the witness's copy please? CHAIRMAN: Well, the exhibit number's going to be 72. EXHIBIT 72 Mr Chaney DATE (Unstated)EXHIBIT 72 Mr Chaney DATE (Unstated) Statement by Mr J.W. Bowman MR CHANEY: Yes. No this copy is accurate. Only my copy that has the error in it. Yes, Mr Chairman that completes the evidence that I seek to lead from Mr Bowman. CHAIRMAN: Mr Allanson, any questions? MR ALLANSON: Yes, just one matter, please. CHAIRMAN: Yes, certainly. CROSS-EXAMINED BY MR ALLANSON: MR ALLANSON: Mr Bowman, if you will go to - -I'm not sure what the tab is, but in any event, you were sent a letter by the ministry, which sent you a copy of the decision of the Finance Brokers' Supervisory Board into your complaint?---Yes. And if we look at that, we can see that yours wasn't the only matter that went forward that day. There were also complaints by Mr O'Mara. It seems Mr and Mrs Bladen and although it's not mentioned there, I understand that from other documents also Ms Ranford? was involved as well. Did you know about those other complaints - - ?---No. - - that were being heard the same time as yours?---No. Right. So when that file note you've made about some of these matters may take years to be resolved, that was your matters, and not a group of matters being heard together?---I didn't know of any other matters, that must have been only

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mine, yes. Right. Yes, thank you. CHAIRMAN: Mr Hooker? MR HOOKER: I don't cross-examine, if it please the committee. NO RE-EXAMINATION CHAIRMAN: Thank you. Yes, thank you very much indeed, Mr Bowman. WITNESS WITHDREW MR CHANEY: Mr Chairman, that completes the evidence for the this afternoon. CHAIRMAN: Yes. MR CHANEY: The position is that Mr Brunton has been arranged for 10.30 in the morning, but the other witness who we had lined up for tomorrow has now decided that she doesn't wish to give evidence, with the result that it may be more convenient if we can re-arrange Mr Brunton for 2.15, and we'll attempt to do that, and have another witness at 2.15, so provide us with a full afternoon, rather than stop start day. So that is the present thinking, subject to final arrangements being made. CHAIRMAN: Very well. Subject to that, 2.15. We'll adjourn. HEARING ADJOURNED UNTIL 2.15PM WEDNESDAY, 17TH OF MAY 2000

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CHAIRMAN: Before we commence this morning's proceedings, I'd like to take this opportunity of saying a few words about the question of some of the witnesses and - - out of the submissions made to us, we've noticed - - and it has not escaped anybody that there have been statements by those witnesses, and or in the submissions that some of the investors have been unable to obtain any help from what is now called Centrelink, because of the deeming provisions, that is, it is deemed that if they have an amount of money that is obviously tied up in some of the matters that are now in - -with liquidators acting and or court cases, in other words, they can't get hold of their money, they have to - - it's been told to them that they are deemed to have that money, like in cash, and therefore they're - - just can't get any relief by way of pension or otherwise. The committee naturally, was like everybody else, concerned to hear that, and so we have contacted first of all Centrelink, and they were very cooperative and referred us to the Department of Family and Community Services and I requested that they contact Canberra, which they did, and they have come back and given me a very short statement, and given us permission to make it public. And they state that: "Centrelink delivers support payments and services on

behalf of the Department of Family and Community Services, payments for retired people that Centrelink deliver on behalf of that department include aged pensions for men aged 65 or over, and women aged 62 or over, wife pensions for female partners of age pensioners, for those who claim before the 1st of July, 95."

Well, of course, everybody knows that. Now then they go on: "The existing customers", that's how they refer to their

people who see them, "who believe Centrelink should be disregarding their assets should contact Centrelink to make an appointment to see a financial information service officer. People who do not currently receive an age pension are encouraged to make an appointment with Centrelink to have their eligibility assessed."

Now of course that's the end of their little formal statement, but of course the bottom line is that they want to encourage the customers to go and see them. The matter of possible exemptions is quite obviously a complex one, and hence they, and indeed this committee, don't want to give customers any unfair expectations. This of course all arises out of the frozen assets, if I can use that expression, and the exemption issue, which is of vital importance to them, and they have told me that there are exemptions to the deeming provisions by which they apparently have run into trouble over this deeming provision, but there are exemptions to that, and there are entitlements that can be issued, even though they're assets -

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- cash assets are tied up in the way that I've just described, and so we would, and so would Centrelink, encourage those people to go and have a talk with the Centrelink people at their nearest office. Thank you. Well, that's the end of the statement. Do you wish us to retire, or carry on, or what? SPEAKER: I think ...(indistinct)... Mr Chairman, if we could just get some extra shots ...(indistinct)... only got a few minutes, unless you guys are happy. SHORT ADJOURNMENT

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UPON RESUMPTION: CHAIRMAN: Yes? MR CHANEY: Mr Chairman, I call Richard Isaac Pilpel. RICHARD ISAAC PILPEL sworn:RICHARD ISAAC PILPEL sworn: MR CHANEY: Yes, Mr Chaney? EXAMINED BY MR CHANEY: MR CHANEY: Sir. Mr Pilpel you live at 148 Beaufort Street Perth?---Correct. And you're the owner manager of Pilpel Print Pty Ltd?---Correct. I think to assist the committee, you've had prepared a statement of the evidence which you wish to give, signed that statement?---Correct. Could you have a look at this document please? Is that the signed copy of your statement?---Correct. Would you commence reading the statement please, at paragraph 3?---Right. You want me to read it? Yes, please. I think, if you read the copy I've given you - -?---Right. Right, okay. "The first time I used a finance broker was in about

1996. I first used Blackburne and Dixon, then Peter Fermanis and then Global Finance. I have invested my own personal savings in my own name and through a company called Josh Rich Pty Ltd, I have also invested some of my late mother's savings. I have also invested money on behalf of the Pilpel Senior Employees Pension Fund. My son and myself were the only participants in this fund." Continue?

Yes, please?--- "Talita? Pty Ltd. In about December 1994 I loaned 230,000

$ to Talita Pty Ltd for the development of a residential apartment building, Blackburne and Dixon brokered the loan. 5. Matthew Pavlinovich, Gregory Johnson and Clive Bradshaw provided personal guarantees for the loan. The information provided by Blackburne and Dixon about the investment was contained in their letter to me dated 19th of December, 1994, attachment 1. On 28th of August - - "

CHAIRMAN: Excuse me, Mr Pilpel, if I may?---Yes. The - -Matthew - - those three gentlemen, provided person

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guarantees for the loan. As far as you were concerned, a personal guarantees, were they only contained in that letter, or did you see anything other than that? I mean, was there a personal guarantee document that you sighted, or was it just the information in that letter?---I don't think I saw it, sir. CHAIRMAN: Just the information in the letter?---Just the information in the letter as far as I know. Thank you, yes. I interrupted you?---That's okay: "On 28th of August, 1995, Blackburne and Dixon wrote to

me inviting me to extend the mortgage. Attachment 2. I declined the offer and asked for my capital back. I had problems getting the capital back and in November 1995 I lodged a complaint with the Ministry of Fair Trading. I was subsequently paid the capital and I withdrew my complaint."

MR CHANEY: Now, I'll stop you there, Mr Pilpel. The complaint filed in relation to this matter obtained from the Ministry of Fair Trading, has on the front a document, perhaps I might ask you to have a look at it. Thank you. There's a green sheet there, completed in handwriting. Is that your handwriting?---That's my handwriting, yes. And it has the particulars of the complaint on the back of the document?---Correct, yes. And it bears the signature and a date down the bottom - - ?---Correct. - - of 9 November, 1995?---Right. 9th of the 11th, 95, yes. Yes?---Right. Do you know - - so you completed that document at the offices of the Ministry of Fair Trading?---Yes, I would have gone in there and they gave me this form. I can't quite remember whether I wrote it there, or I took it away, but it's my handwriting, and I went in personally to get it. Yes. Do you remember what happened in relation to that complaint, because the file shows nothing - - ?---Yes. - - more than the complaint, and some attached documents?---If my memory goes back that far, I can't remember getting any correspondence back from fair trading, I just know that I continually harassed Blackburne and Dixon and eventually they weakened and paid me back my principal. CHAIRMAN: Have you any idea how long, later, approximately?---Sir, I'm not - - this goes back 4 or 5 years. Yes?---My memory's not a hundred per cent now but I think

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probably I must have worried them, you know, 2 to 3 months, and I eventually got my money back. It was a rather unusual mortgage in as much as my share of the mortgage was empty air up on the third floor. They had an idea in King Street they were going to develop a building and on the fourth floor I could put up a unit or do what I like, and you know, after giving it a bit of thought, I thought this was very, very risky indeed, and - - CHAIRMAN: You're too old for that doing what you like, yes?---Yes. So I just asked for the money to be returned. I think - - well, as it was mentioned, I think it was mentioned earlier that we were asked to extend it, and we just asked to be paid out. MR CHANEY: Just on the timing, the letter which is attachment 2 to your statement?---Right. Records the fact that the mortgage investment expires on 10 October 95?---Right. So it was due for repayment then on the 9th of November, 95 you went to Fair Trading and some time after that, you actually received the money - -?---I received the money back, yes. You can't remember whether that was before or after Christmas?---I can't remember, but I was very happy to get it back. Yes?---I think other members of the syndicate were battling for years afterwards to get their money back. It was just a stroke of luck that I was given my money back. Yes. Perhaps if I might have the file - - ?---Yes. - - returned to me?---Okay. There is a handwritten note in black ink at the top of the document?---Right. Does that - - that's not in your handwriting, is it?---No. And it appears to say - - there's some figures, which are a little hard to follow, but then there's a note which appears to read "Discussed with John Urquhart and Pilpel, 13 November, 95"?---I can't remember - - Do you remember any discussion?---I can't remember any discussion, no. From the ministry?---No. I can't. CHAIRMAN: Now did you go anywhere else? You see, the names mentioned there, one of the names is - - was I think at the

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time the chairman of the finance brokers' - - finance industry supervisory board?---Yes. I mean, I can't remember any names of the - -of the people who were on the board, sir. CHAIRMAN: No, no?---No. I can't remember speaking to any of them. I mean, I just went in there, as I say, to get that form, like anybody else, just to the counter, I was given that green form to fill in. I can't remember any members of the board or anybody there whatsoever, contacting me, apart from Gary Wallace who came - - Well that note of course could be read two ways. Somebody else has discussed it with - - ?---Yes, yes. I mean, I might have - - I might have had discussion that I was concerned - - with somebody at Fair Trading, but I can't - -I didn't take any notice of their names, and I'm sure it was just general stuff. I don't think it was anybody at the top. MR CHANEY: Mr Chairman, I don't propose to tender this file at the moment, I think we'll deal with the complaints files a little bit down the track but - - CHAIRMAN: At this stage, I'm interested, Mr Chaney, on - - at the head of page 2 of Mr Pilpel's statement, he says "I subsequently paid - - I was subsequently paid the capital and I withdrew my complaint." Now did you actually withdraw it? Did you know you did?---I don't know. I can't - - I think I was just thankful to get the money and I don't think I had any contact with Fair Trading after that. Do you remember writing a letter saying "I withdraw my complaint"?---No. Or words to that effect?---No. No, no, no. No, I just - - I noticed that was written - - I was subsequently paid the capital, and I withdrew my complaint. I don't know he wrote and withdrew my complaint, I can't remember that at all. MR CHANEY: So would it be more accurate to say that you simply did nothing about your complaint?---Nothing more, no. No. CHAIRMAN: Anything about that on the file, Mr Chaney? MR CHANEY: No. CHAIRMAN: Thank you. MR CHANEY: The file, for the - - for reference, is file number 58.789.95 and it is entitled, R. Pilpel, the Blackburne and Dixon. And the inquiries document identification reference is D0126. CHAIRMAN: Thank you.

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MR CHANEY: Mr Pilpel, can I ask you to resume reading please at paragraph 8?---Okay. "Loan to Mr and Mrs Sansalone?. In about 1997, I loaned

$178,000 to Mr and Mrs Sansalone. Fermanis brokered the loan. My name was registered as first mortgagee over their residential property in Mount Hawthorne. The borrowers defaulted on the loan and I issued debt recovery proceedings. I obtained judgment against the borrowers and became mortgagee in possession. In the course of the legal proceedings, it became apparent that a friend of Mr Sansalone had forged Mrs Sansalone's signature on the mortgage contract. Mrs Sansalone had no prior knowledge of the loan. I became mortgagee in possession and sold the property. I got most of my money back."

MR CHANEY: That was only, I think, after litigation?---Yes, there was quite a lot of litigation, yes. Which was instituted by you in the Supreme Court?---Yes. Yes. I - - continue? Yes, please?--- "On 2nd of April 1997, I made a complaint to the Ministry

of Fair Trading about Fermanis, attachment 3. An investigator called Gary Wallace dealt with my complaint. I complained that Fermanis and his lawyer didn't draw up a proper mortgage contract and didn't check if the wife signed the mortgage in the - - ", well, it was in their presence, it just says if the wife signed the mortgage, but it wasn't signed in their presence. "I also complained that Fermanis misrepresented the borrower's financial position. Mr Wallace took a detailed statement from me which I signed on 26th of August 1997. Attachment 4. I was impressed with the work done by Wallace."

I'll stop you there. The period between 2nd of April 97 and August 1997, a period of some 4 months?---Right. What happened in terms of this complaint, was there contact between you and the ministry?---I just - - I can't remember - - I just - - Gary Wallace, as far as I can remember, just appeared on the scene, introduced himself and mentioned that due to my complaint he was going to take this up, this problem that I'd had with Peter Fermanis, and the way that the - - that the contract had been made out, because I was very concerned, I had spoken to other solicitors and they did make mention to me that if a contract is made, on a home that is joint ownership, that the husband and wife should have both been there and signed in front of the solicitor, and this was not done. Yes. So Mr Wallace, did he contact you, obviously if you

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finally signed the statement?---Yes. In August - -?---Yes. MR CHANEY: - - he contacted you some time before that?---Correct. I think he came to my - - he must have rung up, I can't quite remember, he came and made himself known, left his business card with me, which I still have, and at various times after our first meeting, he reported on his meetings with Fermanis, and it looked to me as if he was going to take action against Peter Fermanis. So by the time - - in that 4 months period - - ?---Right. - - up until when you signed the statement on the 26th of August, you were happy with the way that Mr Wallace was attending to the matter?---I was very happy. I had complete confidence in him. MEMBER NEWMAN: Mr Pilpel?---Yes. On page 4 of the statement you gave to Mr Wallace, it says, about two thirds of the way down, "I was introduced to Mrs Sansalone." And yet on page 5, in the second last paragraph, it says "Mrs Sansalone claimed she knew nothing about the whole thing, ie, the loan and the mortgage"?---Right. Okay. Did Mrs Sansalone not query why you'd come to have a look at her home?---Now let me - -yes, this was rather unusual. When I took this mortgage on, I thought it would be a good idea to have a look at the house and I knocked on the door, and Mrs Sansalone is an elderly Italian woman, who I believe's English was pretty - - pretty poor, and I just - - if I remember rightly, I just asked if I could go through the house and see the valuation on what I was lending my money on, and I was given free access to go through the house. I think - - I'm just trying to see who I - - whether I went through with Fermanis, but I think an appointment was made for me, no, she didn't query anything. CHAIRMAN: Did she understand what you were doing?---I don't really know. I just took it for granted that her husband must have made mention of it to her. I just walked through the house and I was - - I think I was also introduced to, at the end of the meeting, or going through the house, the son appeared on the scene too, and that was it, but what Sansalone said to his wife I had no idea. No?---But I was given free access, just to go through - - I wasn't really interested in their private affairs, I just wanted to have a look at the number of rooms, and so forth. But on the - - in the mortgage, as you set out in your affidavit - -?---Right.

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- - which you gave to the investigator?---Yes. That Mr Sansalone's signature was witnessed by Mr E. Hale?---Right. CHAIRMAN: Were they both on the same document?---What was that? The mortgage - - Mr and Mrs Sansalone's signatures on the same document, from memory?---I'm just trying to - - well, I wasn't at that meeting when she signed it. No?---I wasn't there. Sansalone signed it and I was told that Mrs Sansalone was not there at the time, and it was - - she was in the country and it was witnessed by a gentleman, La Rosa. Yes, well, then it goes on in your affidavit to say "Mrs Sansalone's signature was witnessed by Mr S.A. La Rosa"?---Correct. Well, that's what it looked like to me. I never saw that. I took that for granted, yes. Yes, well, do you know whether that was ever forwarded by the investigators to the police, that allegation?---Well, I just thought that Gary Wallace would handle it, sir. Yes. You don't know whether anything happened about that?---With the police, no. Thank you?---I'm sorry, yes. MEMBER NEWMAN: Mr Pilpel?---Yes. You were never asked to appear as a witness in a court case brought by the police in connection with the matter?---I don't think so. ...(indistinct)... But there were a number of court - -there were a number of proceedings between Sansalone and his wife, where the family were trying to save the family home before judgment was given for me to sell the property. Right, thank you. MR CHANEY: If we can just take up, Mr Pilpel, the chairman's question to you, your statement says - - statement prepared by Mr Wallace says "The last page, number 7, shows that Mr Sansalone's signature was witnessed by E. Hales and Mrs Sansalone's signature Mr La Rosa"?---Right. Could you have a look at this document please? This is - -what I'm showing you is a copy of the brief papers prepared by the ministry for the purposes of proceeding of this matter?---Right. That - -it's open at page 7?---Right. That's Sansalone's.

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And they're the signatures you're referring to?---Right. Steven - - yes, that's right. Yes. Yes, I did see that signed by La Rosa later on in the piece, but not when the mortgage went through. MR CHANEY: No, that was later in the washup when you were trying to recover?---Yes, that was right at the end, yes. Yes?---Well, at that stage, the - - Just - - don't lose the page - -?--- - - broker - - no, it's here. Thanks for that. Do you wish to see that Mr Chairman?---Speaking to Fermanis about this, he sort of tried to push the - -to push it onto the lawyer, he said that the lawyer did the mortgage, and he wasn't responsible for that, that it was up to Mr Hales, that he'd failed in doing it correctly, or not. As a solicitor, I don't know myself, but that's the - - that's what I got out of that. And it was mentioned that Mrs Sansalone was in the country and I think, as long as it was signed by a bank manager, a commissioner of declarations, it was okay. You mean witnessed?---Witnessed, witnessed, yes, her signature. Who told you that?---Who told me - - what, that it was witnessed by - - That it was witnessed by a bank manager, even though the signature might be - - the person might not be there when it was signed, that it was okay?---No, I think this was after I had the problem with trying to, you know, talking to solicitors and trying to get my - - my money back, just talking to the - - to law firms generally, just mentioned to me that it's - - if it was signed by a CD, it'd be okay. I see, okay, yes?---That was all. Thank you. MR CHANEY: Mr Pilpel, just dealing with one matter, you've said in paragraph 8 of your statement the loan was $178,000?---Correct. Right. I note that the letter to the ministry?---Yes. Which is annexure 3 talks of $155,000 being the amount of the loan and that is the amount which features on the - -?---Is it? - - as the principal sum on the mortgage?---Is it? Well, that must be a mistake, must be my mistake.

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So I think that sum should be corrected to 155?---Yes. Correct, yes. You might just - - ?---Can I make a note here? Yes, just make the amendment?---155,000. MR CHANEY: Thank you. CHAIRMAN: Now where abouts, which page? MR CHANEY: Paragraph 8, page 2?---Where it's got - - CHAIRMAN: I'm sorry, I'm still on the affidavit. Yes. 155?---55, yes. MR CHANEY: Now perhaps if you'd continue reading at paragraph 15?---Right. "On the 12th of February, 1998, the Ministry of Fair

Trading wrote to me advising that my complaint would not be referred to Finance Brokers' Supervisory Board for investigation because I did not satisfy the definition of a client."

And that letter is attachment 5?---Right. Before we go to that, between August - -26th of August, 97 and when you received the letter of the 12th of February, 98, did you hear any more from the ministry, or have any dealings?---I don't think so. I don't think so. I'm pretty sure I didn't. If you go to tab 5 in the bundle of documents?---Right. Right. That's the letter of 12 February, 98?---Right. Advising you that because it was arguable that you were not a client, and that argument was thought to be likely to prevail, the matter - - the board would take no further action. The final paragraph on the first page - -?---Right. - - says: "As the matter is of some more general interest to the

board, the ministry has sought the views of a senior counsel on this and related matters. Anticipated we will have his opinion in about 4 to 6 weeks. Once we have his opinion we'll be in a position to come to a concluded view on the matter, and will advise you of whether or not the matter is to be referred to the board for inquiry."

Did you ever receive any further advice after that letter of the 12th of February as to - -?---I don't believe I did. You didn't? You weren't told what senior counsel's view

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was?---I don't think so, no. Throughout this process of time, you were pursuing this matter through your own solicitors, against the borrowers?---Correct. Yes. And that resulted in the end in your recovery of the loan?---Correct. CHAIRMAN: Did that proceed to court, do you know, or was it settled?---As far as what, the sale or what? No, the recovery of the moneys. Did you actually go into court over it?---Yes, I believe - - yes, I had to go into court, yes. Thank you?---Yes. MR CHANEY: Do you remember when it was that you finally got your money back?---Look, I can't remember. I had a whole file and it's - - I've either mislaid it or I haven't been able to lay my hands on it, but I kept everything until the time of the payout and that was it. Yes?---I was just lucky to get my money back, there was no profits, no nothing. Yes, and in paragraph 16 of your statement, going back there, you say you didn't pursue the matter because you'd already got your money back?--- ...(indistinct)... Would you resume reading at paragraph 17? And perhaps before the witness does that, members of the committee, each of the investments which Mr Pilpel is about to tell you about, has been the subject of existing evidence and you've already heard the background of the transaction so he will deal with matters in a reasonably shorthand way. CHAIRMAN: Just applying to himself. MR CHANEY: Yes. CHAIRMAN: Thank you?---17. "Global Finance. Subject to my dealings with Fermanis, I

decided to use Global Finance. A friend had recommended Global to me. I had a total of 11 problem investments with Global. These are outlined briefly below. New Rose Holdings, Trafalgar Road development, in East Perth. In January 1998 I invested 120,000 on behalf of my late mother, 84,000 from Pilpel Senior Employees Pension Fund, which is my son and myself, and 65,000 of my own money to a company called New Rose Holdings, for a development in Trafalgar Road, East Perth. Global brokered the loan. The information provided by Global in respect of the investment was contained in their letter to myself dated

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8th of January 1998, attachment 6." Can I ask you to look at attachment 6 please?---Right. In that case, the second paragraph of that letter of 8 January, 98, which is the proposal letter, indicates that the proposed mortgagor is New Rose Holdings Pty Ltd, development company of Mr Neville Sedek, and Wallbrook Investments Pty Ltd?---Correct. MR CHANEY: Which two paragraphs down is described as being the family trust company of Mr John Margaria, and goes on to say that Mr Margaria has a net worth of approximately $2 million. Mr Margaria in fact was the person you were dealing with in brokering the loan?---Correct. Were you concerned to be, in terms of his responsibility to look after your interests, that he was also a borrower?---Yes. Did you do anything about that concern?---Well, I had - - I had had previous mortgages with Margaria for a number of - - a couple - - 2 or 3 years, and whenever the mortgages fell due, they were paid out, the interest was paid out monthly. Up to the time of the crash in February 99, he paid all - - interests were all paid on time from Global Finance. Yes. So on the basis of that confidence you were - - ?---Well, like a lot of others who got caught, we had confidence in Margaria from previous dealings with him. And the letter goes on to say that Margaria will join the mortgage and provide a personal guarantee, along with Mr Sedek?---Right. Has anything been done to pursue that guarantee?---Not that I know of. I don't know - - MEMBER NEWMAN: Mr Pilpel, could I ask why having had an unhappy experience with Mr Fermanis, you then went to Global?---Well, as I say, friends introduced him to me, the way he did business, the way he prepared his deals, I - - I took one or two, and I just thought, you know, on first mortgages, and a lot of the early ones, they were done one on one, so you know, I held the title, and I was quite happy with it. I mean there was earlier ones with this Dominic Casella who of course I think is the one who brought his downfall, and earlier ones, were paid out. So you know, I finished up having confidence in him. He was a pretty outward, pleasant sort of fellow, Margaria, and like 400 others, I was taken by him. MR CHANEY: Yes, I think I interrupted you?---I'm sorry. No, no, no. I'm the one apologising, Mr Pilpel. Paragraph 20 thanks?---Yes. But I don't know - - even with Margaria being

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the - - a joint mortgagor, somewhere along the line I was told that Margaria eased out of that somehow, I don't know whether he did or not, or whether there's any proof of that, that he left it all to Sedek. But when this proposition came, as you say, it was the two of them were combined there as - - as mortgagors. Well, you thought you were lending to both of them, not just one?---Correct. No, correct. MR CHANEY: Yes?---Now, okay. "Information provided by Global in respect of the

investment was contained in the letter to myself dated 8th of January, 1998, attachment 6. My name was not registered on the title deed. I received regular interest payments until Global collapsed. I haven't received any of my capital or interest since then. Global misled me about the borrower's financial position and failed to tell me that Sedek had been previously bankrupt, also the valuation referred to in Global's letter was grossly inflated." Now the next investment, Riverland Heights Investment. "In April 1998, I invested 235,000 through Josh Rich Investments to a company called Riverland Heights Pty Ltd, for the acquisition and development of land in the Riverland Heights Estate. Tom Lowers owned the company, the loan was brokered by Global. The information provided by Global in respect of this investment was contained in their letter to myself dated 15th of April, 1998, attachment 7. I received regular payments until Global collapsed. I have not received any of my capital or outstanding interest back. Global misled me about the borrower's financial position and misled me by referring to an over-inflated valuation report. Global also failed to register my name of the title deed. Capri Developments Childcare Centre in Queensland. In about June 1998 I invested about $60,000 through Josh Rich Pty Ltd, to a company called Capri Developments Pty Ltd, Nabil Sedek owned the company. The loan was brokered by Global. As security for the loan, I was to be registered as second mortgagee over a childcare centre owned by the company. The Commonwealth Bank had the first mortgage." I was one of about half a dozen who were on that second mortgage. It wasn't - - I didn't have the second mortgage on my own. The information provided by Global in respect of this loan was contained in their letter to me dated 3rd of June 98. Attachment 8, first page only. The borrower defaulted on the loan in July 1999",

and why this is later than when Global went into receivership was that we gave it to a - - to Lynn? Elder, who was a solicitor and she was able to pressurise Sedek to continue paying interest for those few extra months. And the reason why he paid the interest was because he was getting a tidy

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rental from the - - from that property. That's the childcare kindergarten - - ?---Childcare -- - - in Queensland?---Yes. I think this childcare centre, in a lot of his other dealings, he was mentioning, well, one of his achievements was this childcare centre and his cashflow from that was going to cover it, every syndicate he had, so that childcare was well used, I'd say, during that period of time. "The borrower defaulted on the loan in July 99, I have

not received any of the capital or outstanding interest since. I understand that the Capri Developments is still getting rent from the childcare centre, but is not forwarding any of the rent money to the investors. Commonwealth Bank have got first mortgage - -

WITNESS: - - and I believe they're - -they've been paid all the way through. Now when I asked Sedek about that, he said well, he needed the rest of the money to use elsewhere. But I asked him and I can't imagine Commonwealth Bank letting him go through without - -without them receiving interest. "The investors are currently trying to become mortgagees in possession", and of course it's in the name of Global, it's not in our individual names either, that particular second mortgage. MR CHANEY: You're not registered on the title?---No, we're not registered on the title, and when we've tried to make contact with Commonwealth Bank, it's very difficult, because they will not give any information either. And we were very concerned because we've seen since then, that I think one of these - -either one of Grubb's investments, the same thing happened, second mortgagees got - - the hotel was sold, and there was just enough money to pay the - -I think it was Commonwealth Bank as well. So second mortgagees missed out. CHAIRMAN: Yes, I was going to say, you'd need a valuation before you proceeded, wouldn't you?---Yes. To spend your money?---Well, yes, correctly. But it's - - being second mortgagee puts us in a very bad position. MR CHANEY: Do you know anything about the value of this childcare centre?---Well, he gave us a value. We haven't been able to get one since then. He gave I think the bank had about 760,000 on a first mortgagee, we were - - we had given 200,000, which was just under the million, and through Global they valued it at 1.3, but who knows? Well, I think 1.4 is figure shown on the - - ?---1.4, is it? Right. - - annexure 8?---And we - -

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You haven't had any more recent valuations?---No, well, Sedek, time and time again said he was selling it and we were going to be paid out, but all these - - this was just, you know, lies really. Next one. "Global grossly misrepresented Sedek's financial

position. New Rose Holdings Wellington Street Development. In August 1948 ...(on tape)... I invested 105,000 to a company called New Rose Pty Ltd, Nabal Sedek owned the company. The loan was for the development of a multi-residential building in Wellington Street, Perth. Global brokered the loan. The information provided by Global in respect of the loan was contained in Global's letter to myself dated 18th of August, 98. Attachment 9. I was registered as first mortgagee on title deed."

MR CHANEY: Sorry, can I stop you? Just ask you - -?---Right. - - to go to attachment 9? Do you have that?---Sorry, yes. Okay. Right. Okay. You'll see, that's the proposal you've just referred to in relation to the Wellington Street development?---Right. Shows Mr Sedek as a guarantor with a net worth of 12.4 million?---Correct. If you go back, that's dated the 18th of August, 1998?---Right. If you go back to attachment 8?---Yes. That's the proposal in relation to the childcare kindergarten?---Right. June 98?---That's right, yes. 2 months earlier?---Yes. Mr Sedek shown as having a net worth of $2.1 million?---Big difference, yes. And if you look at annexure 6, January proposal - -?---Right. In January 98, again shows 2 - - ?---2 million, yes. Yes, 2.114?---I never picked up that, should have. You didn't notice that discrepancy?---No. I should have. From 2 to 12's quite a big difference. MEMBER NEWMAN: In 2 months it's good trading. 10 million ...(indistinct)...?---Pardon.

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$10 million profit in 2 months is very good?---Yes. Well, it's all lies, because the guy's got nothing, yes. MR CHANEY: But you now know in fact that you're inquiries suggest he's not worth anything like even the $2 million?---He's not worth anything, no. No. Where the money's gone, that's the big question, but to finish any of these developments of his, he's got no money, all he wants is more money. MR CHANEY: Yes. But in - - in analysing these proposals, that was simply a factor you didn't - - didn't notice the discrepancy - - ?---No. MEMBER NEWMAN: Mr Pilpel?---Yes? Have you taken any action against Mr Sedek in respect of guarantees or in any other matter?---I haven't taken any against anyone. Is anyone else that you're aware of?---I don't think so. It's strange that all of these brokers, you know, nobody's come to the party with so much money being owed, nobody's done - - I think they've either left it to the government, or they're waiting - - they're waiting for a guardian angel to come, nobody wanted to waste any more money I think. They feel it's useless. Are you aware if Mr Sedek is still in Australia?---I believe he's in Queensland. I don't know - - Running the childcare centre?---Yes. Collecting his money from up there. As I - - MR CHANEY: Well, Mr Pilpel, paragraph 37 we got to ?---Right. "I received regular interest payments until Global

collapsed and to date my capital and interest remains outstanding. The valuation report which was done by O'Connor was grossly inflated. Trevilla? in South Australia. In October 1998 I invested 205 through Josh Rich Pty Ltd, together with 95,000 of my late mother's money, 25,000 of my son's money to a company called Trevilla Pty Ltd. Dominic and Lilley Casella guaranteed the loan. The purpose of the loan was to repay an intercompany loan and assist in the development of the fish farm in South Australia. Casella wanted to get an abalone licence, and he was going to make millions. Information provided by Global in respect of this investment was contained in their letter to myself dated 6th of October, 98, attachment 10. I received interest payments up to February 99, I've not received my capital or outstanding interest since then. The other investors and myself are currently trying to become mortgagees in possession."

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MR CHANEY: Could you stop there please?---Right. Turn up attachment 10?---Right. That's the proposal in relation to the South Australian property?---Correct. Correct. Calca? Peninsula. And there is at the top a form of appointment as agent to administer all the matters relating to the mortgage and confirm funds from ex-Opulence account, was that - - ?---That was another mortgage of mine that fell due in some of these cases, because he put them into another mortgage for me, so that Opulence was one that fell due and to make up this sum of money, I either made up the difference and took out another mortgage. MR CHANEY: Yes, now when you did your numerous investments with Global, did you always sign an appointment in those terms that are shown in that letter?---No, probably not. Was the actual instruction to lend money, lend your money - - ?---Right. - - documented in any way?---Yes, well I always received a receipt from global. I've got receipts of all these deals, and it'll show the transfer from Opulence to this - - Yes?---I've got every receipt dated and - - So can you explain - - ?---Yes. - - to the committee the ordinary way that these transactions would proceed, obviously you'd receive a letter of offer or a proposal - - ?---Or the proposal, right. - - in the terms that we've looked at - - ?---I take it home and have a look at it, speak to the family, and then I'd come back and in some instances I'd knock them back and in other instances I took them on. And did you go and see Mr Margaria or somebody at global each time?---He normally used to come to the office. He'd come to see you?---He'd come to the office, right. With the proposal?---With the proposal, yes. Yes?---And if was money to be given to him, a cheque was made out from the business and he gave me a receipt on the spot. So- - MEMBER NEWMAN: Just a minute?---Yes?

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Mr Pilpel, you said that he came to see you, he's giving you this information, did you ever ask him why people like Casella, with a group net worth that he claimed to be 25 million, and someone like Sedek with a net worth of somewhere between 2 and 12 million were borrowing these moneys on private mortgage at such a high interest rate where at least on a commercial basis, you would think that they would have a good opportunity to borrow from a bank?---Yes. Well, I'd mentioned it to him a few times and I think his reply was that Casella, who was a developer and wanted money that various times in a hurry, was prepared to pay the extra 2 or 3 per cent that he wasn't able to get from the banks. And when we got the screed about Casella that he'd built so many shopping complexes, and medical centres, and they were all quoted there, but I must say that I never checked up on whether he did they or- - CHAIRMAN: Did you know the Casellas?---No, no. No?---Well, I'd heard about Casella, and I had had previous ones where he'd developed land in Belmont and I received my money back, what he did he'd either get a big plot of land and he'd put the roads and what have you and then when he sold the blocks, like you'd get your money back. MR CHANEY: Just on - - ?---Yes? - - Casella's net worth, that's on page - - or tab 10 is open, you see that there is- - ?---Yes. - - group net worth approximately $25 million, that's in October, 6th October 98?---Yes. If you go to a document we haven't yet come to, that's attachment 14, June 98?---Right. Four months, less than 4 months earlier?---10 million. You've got a net worth of 10 million?---Yes. So again that's something - - ?---Big variations, no I didn't see that, no. - - you didn't observe?---No. Well, once you get into the millions, 1 million, 2, 3 million, I mean it wasn't in my interest, you know. Yes?---Really - - Well, it's really silly, I mean, people in these syndicates like me really from have taken a little bit more time and checked up on these people, I think. Yes?---And this is what we didn't do. Now can I take you back to your statement at - -?---Sure.

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You were up to Colin King, Toodyay development?---Right. Paragraph 45?---Yes, this was biggest disaster of the lot 12 it. "In November or December 1998 I invested $70,000 of my

personal funds to a company called the King and I, which was owned by Colin King and his wife, Elaine King. The loan was brokered by global. The funds were requested to assist with the purchase of a rural property at lot 56, Reard Road, Callum, Toodyay."

I think that should be Beard?---Beard Road MR CHANEY: Beard road?---Yes, looks like D, not an R. Should be Beard. In 46. Should be Beard Road, Toodyay, right? CHAIRMAN: Yes?--- "The information provided by global in respect of this

land was contained in Global's letter to myself dated 24 November 98. I got interest payments for December 98 and January 99 and I have not received any interest payments or my capital back. After the company defaulted I found that 10 of these investors had their names registered on mortgage documents and for four did not. I was one of those who missed out. Attached is a letter from ...(indistinct)... solicitors, date 31st of March 99 which addresses this issue. I also found out that the loan money was not used to buy the property at Toodyay, instead the borrower used the funds to pay out an existing loan on another property, unit 1, Gateway Joondalup",

so our money went to pay out syndicate - - another syndicate which is absolutely ridiculous, no, it's a disaster. MR CHANEY: I take it that you knew nothing of that?---We knew nothing whatsoever of that, and even today I don't believe that there's a mortgage, there's a title of a mortgage, we - - at present I own nothing, I've got absolutely nothing. My name's not on any title, and it doesn't look - - I just don't where this is heading. Anyhow: "On 23rd of March 99 the King and I sent a letter to the

Global Finance investors outline the interest in the Toodyay property and the Joondalup."

And that letter actually is that tab 13?---Yes. It seems to suggest that the King and I has never in fact completed the purchase of lot 56 Beard Road, Toodyay, is that your understanding?---Absolutely not. I had - - I was given a copy of the mortgage of which my name - - certificate of title

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that my name appears, with it's a dud, I don't know, but it's not on it, so I don't - - this has never been - - it's never been registered at all, but it shows certificate of title, it as my name on it, but as far as I know such a title doesn't exist. Perhaps might I have a look at that please?---And also John Margaria's mother, who invested at the same time as me, withdrew her - - withdraw money, two or three people were able to take their money out of this particular mortgage. CHAIRMAN: Do you know who the others were?---Yes, I do know. I think I've got it here. I think there was a Mr Fletcher, there was $50,000 which was put in the money market, his money was taken out so it appears his money's safe, I don't know. Then Mrs Margaria, she had 30,000, that's been taken out. And I think there was Mr Ryder, also his money's been returned to him. CHAIRMAN: Yes, yes it has?---So - - By the way?---Yes. Have the fraud squad interviewed you about any of this so far?---They haven't - -no, the only one that the fraud squad have seen me about is the New Rose in Wellington Street. All right. We'll leave it at that. MR CHANEY: Just looking at this certificate - -?---Yes. This certificate of title?---Right. This is in relation to a strata plan?---Yes. Is that an earlier King and I, is it? It's a King and I, it's owned by King and I having been transferred to it in November 96 - - ?---Maybe that must have been an earlier one, maybe that hasn't got anything to do with it. All right. Well - - ?---Maybe that's my error that one. That - - in any event, it's clearly not the title to the property - -?---No, no. - - in respect of which you lent money?---I must have just had it in the file - - that must have been a previous King and I that was paid out, I'm sorry. Yes?---I don't - - but still, I'm not on any title whatsoever. Yes. So the last - -?---No. All you know about is what the solicitors have - -?---Well,

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all I know is that this Colin King is supposed to have this unit 1 in Joondalup, Gateway Joondalup, and when he sells it, we're going to be paid out, but this has been going on for years, and nothing's been done about it, so whether he can be taken to task I don't know. Yes?---All these are problems we've got, a lot of these syndicate holders, they're elderly people, they don't want to put any more money, they've lost really, you know, action - - lawyers - - action should be taken against all of them and it's amazing that nobody - - we really need somebody with a lot of money behind them to go for some of these brokers, I should imagine, Margaria in particular. CHAIRMAN: You've got to be sure they've got the money to pay if you're going to pay the money to get up there?---Right. Well, you've got to find out whether you're going to get anything out of them, that's another question. Yes. MR CHANEY: Para 52, I think we've reached?---Okay. "Wattle Grove Development. July 98 I invested 300,000 to

a company called Selak Pty Ltd, for a subdivision development in Wattle Grove. Dominic Casella owns Selak Pty Ltd. The information provided by Global in respect of this investment was contained in their letter from Global to myself dated 12th of June, 98. As security I was to have a first mortgage over lot 10, Hardey Road, Wattle Grove. However my name was not registered as first mortgagee on the title deed, as there were 30 to 40 investors. Global registered itself on the title deed instead."

MEMBER NEWMAN: Mr Pilpel?---Yes? Were there any documents given to you that suggested had any interest in the title deed that was being held in trust for you or your company?---No, I don't think - - no, I can't - -I don't think so, but I think the idea - - whether John had mentioned at the time that instead of putting 40 people on a title that it had - - he would put it on on behalf of the whole lot of the group. CHAIRMAN: John? John being?---Yes. John being who?---John Margaria. Yes?---Global - - I forget who - - he's got a special name he uses for these where he puts his name representing the whole -- the whole group. MR CHANEY: Is a particular company structure for that purpose?---Yes. Now - - yes: "I received interest payments to February 2000. I have

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not received any outstanding interest or my capital back. The development is half finished, the builder is owed about 300,000 and shire and water rates are in arrears. The investors have not yet taken over the property as mortgagee in possession. Global grossly misrepresented - - grossly misrepresented the borrower's financial position and misled investors by referring to an inflated valuation report."

The group have had meetings and we really - - we went to see if we could get finance to pay the builder and for him to complete the development, and then as they sell the blocks we'd be paid out, but no, we couldn't get any finance from anybody whatsoever. So that - - CHAIRMAN: Yes, well you'd have to be very - - have to be very careful about raising finance to complete or sue - - ?---Sure. CHAIRMAN: - - to make sure there's money at the end?---Correct. Well, this last development was going to be developed in three areas, and we thought that after development, one was done, it would pay out the builder and we'd start getting some of - - and then that money would go into development two and then into development three and we'd get - - we were going to make a lot of money, or we were going to get our principal plus interest, and that's fallen by the wayside too. MEMBER NEWMAN: Are you aware as to whether the liquidator of Global is taking any action on this property or any of the others which are involved?---Not that I know of, no, I don't think - - I don't think the liquidator's done anything on any of these properties on our behalf really. Probably because there's no money, but I thought I could ask the question?---Well, the one in Queensland, this one with this child centre, I was able to get Mr Rudolph, or Mr Herbert, they wrote to the person who - -not - -not Sedek, but the person who's renting the child centre asking that the rent be sent to us and not given to Sedek. The liquidators got no reply and they haven't got any more about it. It's been left up in the air. MR CHANEY: So substantially, in essence, Mr Pilpel, you're simply awaiting developments in relation to various recovery actions?---Well, I hope - -well, we'd very much like the government to take this over as much as possible and help us to get our money back. Most of this has been my retirement money. It sounds - - there's a lot of money there, but that's like my superannuation, and at present it doesn't look very healthy. I've no further questions for Mr Pilpel, Mr Chairman? CHAIRMAN: You finished for the moment?

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MEMBER BLIGHT: Only to say that following receipt of the advice from the Finance Brokers' Supervisory Board, that in their opinion, you didn't satisfy the definition of client, that was February 98. You did continue to make numerous investments of a similar nature?---Sure, sure. Where - - did you sort of proceed with caution? I mean, I noticed earlier on you'd been and inspected buildings to see whether the valuation's - - ?---Well, you know, well this was with Fermanis and I cut him off after this, and once I started with Global and things went all right for a couple of years, well, you know, I trusted - - So you learned to rely - -?--- - - the man and went along with it. And I really didn't have anything more to do with Fair Trading or the Finance Brokers Board. CHAIRMAN: You were relying completely on your finance broker?---On my finance broker, yes. MEMBER NEWMAN: Even though you know from your experience with Fermanis that the board had said that you were not a client of a finance broker?---I think that that letter which Mr Chaney showed me, I'd forgotten about that letter. When I see it drawn to my attention, of course, it's too late now, it's a pity I didn't take more - -more - - I just thought that when I had title over a property, you know - - CHAIRMAN: You were fine?--- - -I was fairly safe, but when you're in a syndicate, it makes it even more difficult, of course. Thank you. MR CHANEY: So, just before - - I should tender the statement. CHAIRMAN: Yes. MR CHANEY: 73 I think it was, sir. CHAIRMAN: Statement of Mr Pilpel will be exhibit 73. MR CHANEY: Together with the attachments. CHAIRMAN: Thank you. EXHIBIT 73 Mr Chaney DATE (Unstated)EXHIBIT 73 Mr Chaney DATE (Unstated) Statement of Mr Pilpel Together with attachments MR CHANEY: Mr Allanson?

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MR ALLANSON: No, I have nothing for Mr Pilpel. CHAIRMAN: Mr Hooker? MR HOOKER: I don't cross-examine, sir. NO CROSS-EXAMINATION CHAIRMAN: Thank you. Thank you very much indeed, Mr Pilpel?---Thank you very much. Thank you again. WITNESS WITHDREW CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Mr Chairman, because of witnesses becoming unavailable and declining to give evidence, that's now all the evidence we have available today. Mr Conlan and representatives of Bird Cameron will be available tomorrow morning at 10.30. CHAIRMAN: Thank you very much. Yes, Mr Hooker? MR HOOKER: One short matter if I may, Mr Chairman. Ray Weir, who of course gave the evidence to the committee last week has instructed me that there's some short supplementary evidence, or perhaps material more accurately, he wishes to be treated as part of his testimony. To that end he's written to you, Mr Chairman in a letter dated 11 May, 2000. He's enclosed the most recent code of conduct of the Finance Brokers' Supervisory Board and a book called "Private Lending Made Public", and his covering letter makes a couple of observations about those things. Certainly the point with respect to the code of conduct I had intended to deal with in due course, in closing submissions, but it's an appendage in effect, to Mr Weir's evidence, so I'd simply tender that letter and its annexures. CHAIRMAN: Any objection? MR CHANEY: No, I don't. CHAIRMAN: Yes, certainly Mr Hooker. Mr Allanson? MR CHANEY: The book, I don't know whether we need the book, Mr Chairman. MR HOOKER: I'm not troubled one way or the other. It's presumably in the committee's possession. I don't have it here, but the copy that was annexed to the letter, it's described by Mr Weir as essential reading for anyone seeking to understand the private mortgage industry. It's a matter for the committee's discretion as to whether it wants to read

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it and - - CHAIRMAN: No, we'll take it in. MR HOOKER: May it please the committee. CHAIRMAN: We've got nothing to read. Very well, Mr Hooker, that'll be Mr Weir's further submission dated? MR HOOKER: 11 May 2000, sir. CHAIRMAN: Plus book will be exhibit 74. EXHIBIT 74 Mr Hooker DATE 11.5.00EXHIBIT 74 Mr Hooker DATE 11.5.00 Mr Weir's further submission plus book CHAIRMAN: Thank you very much. Yes, Mr Allanson? MR ALLANSON: Just in relation to that, I've already drawn to Mr Chaney's attention the existence of two files on the making of the code of conduct and the amendment of the code of conduct over the years, which include various opinions. If he doesn't intend to put them into evidence later on, then we'll probably do so ourselves, but I just mention that this is going to be duplicated and the committee will have before it much more detailed evidence regarding the making and the amendment of the code of conduct over a period of years. CHAIRMAN: Will you be calling evidence, or will Mr Chaney be calling evidence along those lines? Can it go in then, this - - MR ALLANSON: Well, I - -yes. CHAIRMAN: As an exhibit - - MR ALLANSON: I'm working on the basis of I'm keeping Mr Chaney informed of things that we think may be of interest to him, those things which he selects we'll make available to him, those things he doesn't select, if we think that they should be brought before your attention, we'll do it ourselves, but I'm cooperating with them in trying to make sure that we give them as much as - - and I know that he would be more conscious of what you've already got before you, and the fact that you may not particularly want to have another copy of the same documents again. CHAIRMAN: Well, thank you, you can sort it out. MR CHANEY: Mr Chairman. CHAIRMAN: We'll adjourn, 10.30 tomorrow.

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HEARING ADJOURNED UNIT 10.30AM THURSDAY, 18TH OF MAY 2000

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CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Thank you, Mr Chairman. Today's - - if I can outline before I call the first witness for today, what is proposed for the day, we have brought before the inquiry representatives of Bird Cameron, with a view to providing the inquiry with an explanation of the method of operation and the situation in relation to the Grubb interests, Rowena Holdings, and the evidence will be led by way of a Powerpoint presentation, which those at Bird Cameron involved in this matter have put together and will greatly assistant the committee in trying to understand what is in many cases a fairly complex set of circumstances and events. The presentation will be divided between five witnesses. The first two of those, Mr Mark Conlan and Mr Simon Cubitt, partners of Bird Cameron, will be given in open session, and available for public hearing. I propose in relation to a portion of Mr Cubitt's evidence, and the evidence of the other three gentlemen from Bird Cameron to apply to move the hearing in camera. The reason for that as that the balance of the presentation after Mr Conlan and Mr Cubitt have completed their evidence will deal with particular transactions and interests of Grubb and Rowena, some of which are subject of police prosecutions, some of which are of a nature which may lead to actions against others in the future, and in the interest of avoiding any prejudice whatsoever to the ability either of the appropriate authorities to obtain convictions or of recovery actions being brought so as to gain back some of what appears to have been lost to investors, it would be preferable in my submission that that evidence be taken in camera, and that certainly is the preference of the witnesses. So that is the way matters will proceed today. I anticipate that the inquiry will be engaged most of the day in hearing this evidence. Having said that I call the first witness, Mr Mark Conlan. CHAIRMAN: Thank you, Mr Chaney. As I announced on behalf of the committee when we were on first day of sittings, everything would be as far as possible held in open hearing, but if anything in any way may prejudice the activities of the police squad that we know is acting with respect to these matters, and of course it would be held in camera or not held at all, until after the police had finished. Well, in this case of course, I can't disagree with any of your opening remarks. I will rely on you to tell us when it should go in camera. MR CHANEY: Thank you, Mr Chairman. CHAIRMAN: That is subject to the counsel; Mr Allanson, any objections?

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MR ALLANSON: No, sir, we full agree. CHAIRMAN: Mr Hooker? MR HOOKER: No, indeed. My client specifically endorses that course, sir. CHAIRMAN: Thank you. Yes, Mr Chaney? MR CHANEY: Thank you. Perhaps before we go any further, I should invite Mr Hawkins, who represents Mr Conlan and others, to announce his appearance. CHAIRMAN: Thank you. Sorry, Mr Hawkins. MR HAWKINS: If the tribunal, or the committee, I've forgotten what you're called now. CHAIRMAN: Committee. MR HAWKINS: Committee. If you please, I am here on behalf of the supervisor and his staff. CHAIRMAN: Thank you very much, Mr Hawkins. Well, I didn't specifically ask you Mr Hawkins, have you any objection to the matter of hearing outlined by Mr Chaney? MR HAWKINS: No. CHAIRMAN: Thank you. Yes, Mr Chaney? MR CHANEY: I might say, perhaps before I call Mr Conlan, that I welcome Mr Hawkins' attendance. He has been involved with these matters in considerable detail over an extended period of time and I was happy for him to attend on the basis that he may be able to ask some questions in relation to matters which with his background will know may assist the committee. CHAIRMAN: Thank you. Just one - - one question that - -the witnesses will be sworn in and then present their presentation on the screen. Will we get a - - some sort of - - MR CHANEY: Well - - CHAIRMAN: - - breakdown of this that we can - - MR CHANEY: What you will - - CHAIRMAN: - - without having to rush back and look at this later? MR CHANEY: No, what you will get is a hard copy printout of what appears on the screen.

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CHAIRMAN: I see. MR CHANEY: We're actually - - we have them for all witnesses except Mr Conlan, I think the photocopier is frantically operating as we speak. That will arrive in the course of Mr Conlan's evidence and will be something you can make notes on. CHAIRMAN: And excuse my ignorance, a hard copy printout, that's something you can read is it? That's not put into a machine? MR CHANEY: That's - - they've gone, but in any event, the answer is what you will get is on paper what appears on the screen, that will enable you, you'll each have your own copies and you can make notes on them to supplement what are really dot point entries on the slides. CHAIRMAN: Thank you. MR CHANEY: I call Mark Anthony Conlan. MARK ANTHONY CONLAN sworn:MARK ANTHONY CONLAN sworn: EXAMINED BY MR CHANEY: MR CHANEY: Your full name's Mark Anthony Conlan?---That's correct. And you're a partner in Bird Cameron, a firm of accountants?---That's correct. And you practice from what address?---8 St Georges Terrace, Perth. Would you indicate for the committee please something of your background and qualifications?---I'm a - - an insolvency partner with Bird Cameron. I have been practising in the area of insolvency and recovery services for approximately 17 years. I am a member of the Chartered Accountants Institute of Australia and a member of the Australian Society of Certified Practising Accountants, and I have the appropriate qualifications to membership to both those institutes. And you are the supervisor of business known as Graham Grubb Finance Broker?---Yes, I was appointed supervisor of the finance broking business, Graham Grubb Finance Broker by the Finance Brokers' Supervisory Board in 23rd of July 1999. You're also the - - currently the liquidator of Rowena Holdings Pty Ltd - - Nominees Pty Ltd?---Yes, I'm the official liquidator having been appointed by the Supreme Court of Western Australia of Rowena Nominees, formerly trading as Graham Grubb Finance Broker. And of a related company, Oakleigh Investments Pty Ltd?---Yes.

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There is a related company called Oakleigh Acquisitions Pty Ltd. MR CHANEY: Acquisitions?---And which I'll explain it's involvement in the matter as we proceed through the presentation. That company, I was appointed the, again the official liquidator of Oakleigh Acquisitions in July 1999. And I think in your presentation that you propose giving to the committee you detail those appointments?---Yes, that's correct. As well as my previous appointment as the independent accountant pursuant to enforceable undertakings entered into between the directors of Rowena and the Australian Securities and Investment Commission. So I'll ask you a little bit more about those various positions I think in the course of your presentation. I think for the purpose of assisting the committee in its inquiry, you have in conjunction with those working with you at Bird Cameron, compiled a presentation outlining something of your findings in your capacity of supervisor of Grubb Finance Broker and liquidator of Rowena Nominees Pty Ltd?---Yes, that's correct. Over the period since my appointments, considerable investigative work has been undertaken, throughout that procedure we've obtained an understanding in the manner in which this business operated prior to my appointment, and an understanding as to the activities or the business practices of that organisation. Can I invite without more to now make that presentation to the committee, and I have been provided with a copy of the overhead, if I make those available to members of the committee. Obviously for logistical reasons, Mr Chairman, it's necessary for Mr Conlan to move from his - - from the witness box, I take it? CHAIRMAN: Yes. MR CHANEY: Okay. Yes, perhaps - - CHAIRMAN: Wherever you want - - MR CHANEY: Now he wants my seat, and far be it from me to argue. CHAIRMAN: Glenda, will you make sure this is coming through? I note Mr Conlan has a very soft voice?---I'll try and speak up. MR CHANEY: Before you start, I might leave the witness box if I may so that ...(indistinct)... near the microphone and can ask questions from time to time?---The scope of the presentation will run through a number of matters to try and present information about the, as we call it the modus operandum of the Grubb Finance Broking business. The - - as I

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mentioned through out the period since my appointment, myself and my staff have undertaken considerable investigative work into the operations of the business. Had a number of communications with investors and through those various operations have been able to get understanding, we don't admit it to be a complete understanding, but an understanding of the way this business was operated. I understand that that background information will assist the committee. The presentation will run through a very quick overview of the trust account, a more detailed presentation will follow, we will get a summary of the loans under management, number of investors involved etcetera. We'll deal with the - - we've been able to estimate the potential investor losses, that may be - - that may eventuate. I'll explain why that is a - - it's a very rubbery figure for various reasons. It shifts every day. We will run through some business practices that have - - we've been made aware of or we believe to be correct. We'll talk about related party borrowings which is a source of considerable losses, or a fair proportion of the investor losses, and that of course also raises issues of conflict of interest. The raising of finance, again a situation where we will touch on areas of how - - and the type of people that were attracted to this organisation. Look - - deception, I suppose, investors duped, and I think there are some thoughts on that, and resourcing of the business, again another reason why the business was placed under pressure and why certain activities were not done throughout the course of the business, and present some concluding comments which are my views on how - - how some recommendations or some thoughts on how the whole structure, both regulatory and in regard to the business should be operated, should have been operated. As I mentioned earlier to Mr Chaney, I was appointed the supervisor pursuant to the Finance Brokers Control Act in July, 23rd of July 1999. I had been previously the independent accountant, having been appointed on the 5th of May 1999. The - - I was approached shortly before that date by Mr Graham Grubb, a director of Rowena, who indicated to me that he had some concerns with regard to the business, the finance broking business. Certain representations had been made to him by the Australian Securities and Investment Commission. I had not in any previous capacity acted on behalf of Graham Grubb or the companies associated with him. The - - in a nutshell, the enforceable undertakings that were entered into between the directors of Rowena and the Australian Securities and Investment Commission were designed to determine whether the deficiencies or the deficiency in the trust account as suggested by the directors was the only extent of the deficiency, that the - - with some massaging, that the business could continue on in the future and that possibly the problems that representatives of Australian Securities and Investment Commission were alluding to were not that - - to that extent. Against that background, the directors of Rowena entered into a enforceable undertaking with the Australian Securities and Investment Commission, and I was appointed as an independent accountant to essentially be independent, to

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have free and full access to the books and records of the company and the finance broking business, and to at the same time report at will to the Australian Securities and Investment Commission. It became apparent shortly after my appointment that the, as the independent accountant, that the issues associated with the trust account were far broader and far deeper, the problems were far in excess of my expectations, these matters were reported to the Australian Securities and Investment Commission and they proceeded to nominate and take court proceedings for myself to be appointed the provisional liquidator, and this occurred - - MR CHANEY: I'm sorry. You were just about to say then that occurred and - - ?---It occurred on the 24th of May, 1999. Can I just ask you to go back, to the circumstances leading up to your appointment as independent accountant, you were actually approached by Mr Grubb, isn't that right?---Yes, he called me late one evening, and a meeting was arranged in his office the next morning with himself and I believe - - if I can recall Bruce Grubb from Grubb Legal. And at that stage, was it clear to you that his call was prompted by the fact that the ASIC had been dealing with him and expressing concerns about the position, or was it something he simply chose to do himself?---He - - it was brought about, I understood, by the fact that I later became aware that there had been pressure placed upon him for a period of time, or he had had - - notices had been served upon him to produce documents for ASIC, and I became aware later that they'd been making inquiries for some time, or for a period of time. I was also aware that probably for the few days leading up to the contact that there were media reports with regard to investor concerns, and I went and met with him, at which he had briefed me further, and to the - - I think from memory that the ASIC at that stage, had already made overturns to the - -in fact I think they may have even prepared - - prepared documents for the court for the appointment of a provision liquidator to the company. MEMBER NEWMAN: Mr Conlan, during your initial meetings with Mr Grubb, was there any suggestion that his auditor had suggested that he should seek advice, or was his auditor present at any of the meetings that you initially held with him?---No, the - - there was no accountant present, nor did I have any contact with any accounting adviser of Mr Grubb leading up to and after the event of my appointment as independent accountant. I did have some discussions with a legal adviser, and that lawyer continued to advise the directors of Rowena, leading up to the execution of the enforceable undertakings. Thank you?---The - - MR CHANEY: Sorry?---The - - what caused us considerable

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concern in conjunction with my partner, Simon Cubitt, who was an auditor and was an audit partner at RSM Bird Cameron, and also has - - is the auditor of a number of trust accounts, we shortly after my appointment, looked - - focused mainly on the trust account, the way it had been operated. Because of the state of the records it was difficult to actually look at formalised accounting records and form opinions, it was a matter of just looking at particular transactions and the bank account and the state of the bank account, but with our experience and knowledge of these matters, it's quickly - - we quickly became aware that there were considerable problems with the operation of the trust account. Affidavits were prepared by myself and Mr Cubitt which, with the underlying documents, which brought about my appointment as provisional liquidator. Unfortunately as the company also shortly thereafter, a receiver and manager was appointed, with the effect of that being that any assets that may have been available to me to perform my duties were passed to the control of the receiver and manager. I can say that it was probably mayhem in regards to the amount of queries and calls and concerns of investors and against that background and other representations from other areas, the WA government approved the appointment of a supervisor to the Grubb Finance Broker business under the Finance Brokers Control Act, and that occurred on the 23rd of July, 1999, and simultaneously a supervisor was appointed to Global Finance, again similar reasons, that there was absolutely no funding in the companies to undertake the exhaustive work that was required, and I can say that after being in the role for just under 12 months that it was certainly necessary for funding to be spent, otherwise even now it's very difficult to get a handle on some of the issues and there are many court proceedings under way, and the complexity of some of the natures - - some of the transactions brings some of the judiciary to the conclusion that it'll take some months or even years to determine the outcome of who was entitled to particular proceeds out of settlements of mortgages. MR CHANEY: Now, just take you back for a moment to the appointment of the receiver and manager. Who made that appointment, and when was it made?---The - - there was a first registered debenture mortgage and a second debenture mortgage registered against the company. The first mortgage was in fact - - is in fact held in the name of a number of investors, something in the order of 20. The second mortgage was held by St George Bank, and at the time there was a debt of approximately $220,000, I stand to be corrected on that figure, it might have been 320, but it was in that vicinity, payable to St George Bank. St George Bank subsequently found out it had received an offer for the purchase of that mortgage. That mortgage was purchased by two companies and those companies then proceeded to appoint receivers and managers. Who were the companies?---Knew you were going to ask me that.

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Can I ...(indistinct)... You could refer, that's - -?---A company by the name of Clear Lake Nominees and a gentleman by the name of Mr Ken Dickson, who we subsequently found - - or found out through inquiring through the records have had prior dealings with the business of Graham Grubb Finance Broker. MEMBER NEWMAN: Mr Conlan, the Ken Dixon that's named, was he a former director of Blackburne and Dixon?---No, not that I'm aware of. Thanks?---The - - as I indicated, there's a different spelling, in fact I think the Dickson's D-i-c-k-s-o-n, Mr Ken Dickson, where the other Dixon is D-i-x-o-n. MR CHANEY: And who was it who was appointed receiver and manager?---The receivers and managers, that was Mr George Lopez, and Mr Peter Nelson of Nelson Robson, both of which are known to me as qualified official liquidators and property trustees in bankruptcy as well. And they have then - - they have had the responsibility of realising assets which are held in the name of Rowena Nominees, those assets principally comprise real property, a property as Cheynes Beach Road in Albany area, and also a property also known as Jane Brook Stud, together those properties comprise five titles, and have since been sold. The Cheynes Beach Road property was sold for 1.1 million, and the - - by private treaty, and the Jane Brook Stud property was sold collectively by auction for 1.2 million. Both properties are - -were not sold without first the receive and manager making approach to the court, because again of the complexities, with not being able to remove the encumbrances against the property, he had to make an application to the court, to have the power to sell those properties and at the moment the proceeds from the Jane Brook - - Cheynes Beach Road property have been paid into court, and those proceedings are continuing as to who may have entitlement to those proceeds. The Jane Brook Stud proceeds are presently in the hands of the receiver and manager, and he's been placed on notice that there are claims against those funds by the trust account. There are registered mortgages and claims by investors, by investors who claim that they should have had a registered mortgage against those proceeds, against those properties. There are also - - there's also a property in Queensland, and there are various items of sundry plant and equipment that I think he has realised to date. It's possible also that Rowena Nominees has a financial interest in a number of other entities, but the records are such that it's very difficult to actually ascertain the interests in those entities, those entities may in fact be insolvent. That area of responsibility lies at this point in time with the receiver and manager, who is charged with the responsibility of realising whatever assets that Rowena owns. MR CHANEY: Thank you?---A little bit of background about

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Rowena, and I think this is important, as it gives some indicator, there are a couple of things here that give some indication as to the operation of the business or the reasons why some matters were disorganised. Rowena was incorporated in October 76, but it appears that it only operated as Graham Grubb Finance Broker, from some time in or after 96, or some time in 96 it commenced trading as Graham Grubb Finance Broker. Up to that stage, I understand that Mr Grubb operated the business in his own right. The uncertainty as to what assets are owned by Rowena comes back to we found it very difficult to locate any financial records of any substance that might document Rowena trading history or its assets. Even though the company was incorporated in 1976, we've been unable to locate any sort of meaningful set of financial statements that you'd expect would be prepared on a yearly basis. When attempting to make inquiries of accountants we were unable to find any accounting practice that had taken instructions to provide business services, skill advice or the - - who had prepared financial statements or prepared tax returns. The company may well have been dormant for a number of years, but nonetheless there'd still be a - - still should have been some financial statements prepared. So generally, we just have a complete lack of records documenting Rowena's history. Oakleigh Acquisitions. Oakleigh Acquisitions Pty Ltd. Again, a company controlled by Mr Grubb, which I was appointed liquidator on the 25th of August, 1999, having previously been appointed the provisional liquidator by the court on the 16th of July. Again pursuant to an application by the Australian Securities and Investment Commission, after my appointment as provisional liquidator with Rowena I continually conveyed concerns to ASIC about the involvement of Oakleigh and the need for a liquidator to be appointed, or for that company to be placed under some control. Oakleigh had an interest in a number of mortgages, which it was still possible for the directors of Oakleigh to transfer those mortgages to individual investors and indeed that occurred in some instances, and it was my view that that was against the interests of the investors generally who had a claim against the trust account. It may ultimately lead to the - - to some priority being afforded to investors, because of the - - by way of the rules of indefeasibility of title, which would lead to an investor retaining his interest in a mortgage if it had been transferred to him by Oakleigh. MEMBER NEWMAN: Mr Conlan, those mortgages that were held by Oakleigh, was there a declaration of trust in respect of each of those mortgages in relation to the people that had lent the money?---No, there was no - - we found no - - we found no documents that would have indicated that the investors were aware that Oakleigh was going to hold that interest in the mortgage on trust for them. So the lenders, to the best of your knowledge, were unaware of what happened behind the scenes?---That's correct.

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Thanks?---The - - this company was incorporated in November 78. I believe it probably operated as a property owner and it may well have been a settlement agency at some stage in the past. But in more recent times, it had been a non-trading entity, and it held interest in property mortgage as trustee for advances from the trust account. That in itself needs explaining, as previously said that the - - there was no trustee - - formal trustee arrangement in place. Advances were made out of the trust account, and mortgages were registered in the name of Oakleigh, and investors may well have put their funds in the trust account prior to the registration of the mortgage in Oakleigh, or investors' funds may have been deposited to the trust account, at a later date, with the notion that Oakleigh would transfer its interest to the investor, but invariably, or in most occasions, I believe the investor wasn't aware that they were taking a transfer of mortgage from this trustee company. There is again uncertainty with regard to Oakleigh's background, because of lack of financial records that would document Oakleigh's trading history and it's assets that it held. The supervisory role was to conclude the finance broking activities and protect the interests of all investors generally. The - - very broadly the activities have taken the course of reviewing all the loan folios and determining investors' interest in the mortgages, or in a more - - or in a sense just determining what funds are payable by the borrower because on most occasions, we are unsure as to whether those funds actually can be allocated or directed to a particular investor. We had to seek and obtain court directions and they are continuing to try and assist me with my duties, give me some direction of how I should distribute funds from the trust account. The trust account records were unreliable, and we've had to build a profiling data base of each investor and borrower, to obtain an understanding of how each investor and borrower became involved with Graham Grubb Finance Broker, and they vary considerably, and therefore it's not possible to assume how a particular investor had his funds passed to the trust account. There have been court proceedings that have been commenced by other parties which we've had to become involved in because the trust account has an interest in those proceedings. We've been assisting state and federal bodies in that we respond to queries, we work fairly closely with the West Australian Police Service, their fraud squad, and they - -their inquiries are continuing, and we liaise regularly with the Ministry of Fair Trading and with ASIC. We've been pursuing trust claims against mortgage settlement proceeds, in this area there are registered mortgagees who on face value, have an interest in the mortgage settlement proceeds, but our analysis of the folio, the loan folio, suggests that a court should at least form some judgment as to who is entitled to those proceeds. Oakleigh has an interest in a number of mortgages and I'll flow on to that later. In fact, I think that slide's been missed out. Oakleigh has an interest in approximately 50 mortgages with those mortgages with a value, with Oakleigh's interest in those mortgages accumulated to about 5½ million.

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We've had to deal with a number of investor communications, both by telephone, written and in person. The trust account, as indicated by Mr Chaney, my audit partner, Simon Cubitt, will undertake a presentation in regard to the trust account and that is central to understanding the problems we have. Just very - - I'll just briefly run through a couple of areas. It was not regularly reconciled, it's likely to have been deficient for some years. There are deficient books and records and the trust account was in overdraft 84 times from July 96 to May 99, with a particular emphases in the months leading up to May 99. Presented a indication of the dates on which the St George Bank bank statement was in overdraft, and with the - - at one stage the trust account was in overdraft by 5.7 million on the 3rd of July, 1998, remained in overdraft for a period of 3 days at that level, I might add that was over a weekend - - MEMBER NEWMAN: Mr Conlan, while you're explaining that one, is there any evidence in the audit reports that were submitted to the Finance Brokers' Supervisory Board of these overdrafts, the fact that the bank account relating to the trust account wasn't reconciled regularly, that the books and records were unsatisfactory, and just a general report from the auditor expressing concern about the way the trust account was conducted?---As I mentioned Simon Cubitt's undertaken a detailed review of the trust account operations, also the auditors report, and I think that he would be more appropriate to answer that question when - - Right?--- - - he proceed with his presentation. If that's okay with you. That's fine?---And on all other occasions the - - it never - - the overdraft did not exceed I think perhaps about $600,000. In total those overdrafts, if you were to cumulate them, and I'm not sure what that necessarily means, but if it was to be cumulated, it would be 14.1 million, or 14.2 million. The deficient books and records, and I think the principal issue here is that there are no - -no cheque - - there is not a cheque requisition system which would be absolutely paramount in a trust account record keeping situation to record whose payment - - whose funds were being discharged from a trust account on - -in regard to that particular transaction. Whilst there are computer maintained records, that might suggest whose funds they were, and indeed they are not current, not reliable, there is not a physical cheque requisition system or some sort of process whereby each and every payment out of the trust account was recorded and as whose funds were being paid out. There are missing records. The other concern that we have in this area is these - - is the ability for there - -because of electronic transfers, the way, the modern way of being able to do electronic banking, there was the ability for transfers to occur electronically from the trust account to other accounts. The - -just a very quick notion of trust account and the idea that if there was

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an investor to place $20 million in the trust account, he would have indicated some instructions that those moneys were to go into the trust account and to be paid to a borrower. And those funds would remain in the trust account, it would flow through the trust account and would flow through to the borrower. If you pulled away the trust accounts and the borrower wished to repay those funds, the borrower could repay those funds direct to the investor. The trust account merely is a means by which the funds flow through, should not lose their identity and in fact once they've been passed through to the borrower, the borrower has no obligation to pass them back through the trust account. That's if you - - if the trust account was maintained correctly, in a finance broking activity. The - -in the case of the GGFB trust account, we have prepared a database that suggests that investors that made claims for $62 million on the trust fund, we've also prepared a schedule that suggests that borrowers owe 63 million. In itself, a difference which shouldn't be the case. The identity of the funds are lost as they flow through the trust account, because of the overdrafts, the unreconciled trust account ledgers, the deficient books and records. So when the borrower wishes to repay the moneys and whilst on the face of it, there may be documents registered at DOLA and the like, there may be mortgages, that might suggest whose money that is payable to, because of the means by which the borrower has received those funds, it is unclear in most instances as to who those borrowers should repay those moneys to. As mentioned, the trust account will be dealt with in more detail by my audit partner. The loans under management again estimated figure of 63 million. This is the money that's repayable by borrowers. It - - the figure changes as we get to a position of further reviewing. We have not reviewed all the loan folios. The number of loans are 730, number of investors are 649, with the number of borrowers being 457. MEMBER NEWMAN: Could we just clarify on that point? I'm assuming the number of investors in many instances would be involved in more than one loan?---That's correct. There are investors, number of investors involved in one loan, and then a number of investors have multiple investments. Thank you?---In a number of loans. And there also borrowers who have more - - excuse me, more than one borrowing. With regard to an investor profile of the loans under management, they are middle aged to elderly, generally retired, unsophisticated in their investment knowledge, and I say that in the sense of not aware of the risk reward notion of investing, not aware of the difficulties that can arise when funds are provided to an agent and the agent does not deal with those funds in accordance with your instructions. Not aware of the problems that can occur with first mortgage investments if again, on the face of it, it appears as though you shouldn't necessarily have problems, if the dealings are dealt with correctly, but if the agent doesn't deal with your funds correctly, and doesn't place - - record your investment

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correctly, then there are problems with the - - the Torrens title system. There are multiple investments and rarely have we seen evidence where the investor was independently represented in their dealings. The potential investor losses, we a slide or two later, we'll indicate what we believe are the losses. Before I proceed with that, it's important that I make some qualifications, and I'll also talk about what they are subject to. Because the majority of the mortgages are yet to be settled, and the funds that do - - are realised will depend upon value of the security, and whether those funds in their entirety come back to the trust account, or whether in part they are allocated to particular investors, in accordance with court directions. CHAIRMAN: Excuse me Mr Conlan, just going back a bit, you said that it didn't appear to you that any of the investors had been independently represented. Who did it appear to you had been representing the investors?---Sorry, who? Who did it appear to you then had been representing the investors, or - - if the investor hand his money to - -well, the Grubb Group or whatever you'd call it?---I - - our understanding of responses we've had from investors is they entirely dealt with Graham Grubb on most occasions. He did have staff in the past that dealt with investors, they were on most occasions, attracted direct to the Graham Grubb Finance Broker by reference of other investors, or by advertising, but I would say little if any evidence that those investors were directed by a - -or many of them were invested by professionals, lawyers, accountants, generally responding direct to ads and approaches and references by other investors. Thank you. MEMBER NEWMAN: Is there evidence in the files that some, if not all of those investors, subsequently signed agency agreements, or at the time they made the loan, signed agency agreements with Graham Grubb?---There are a - - a most common document is called deed of appointment, whereby the investors - - where the investor signs a document, acknowledging that he has invested his funds in a particular - -or had received particular security. It also lists the name of the borrower, so on face that document appointed, the - - appointed Mr Grubb as the - -or Rowena as their agent, and to conclude the arrangements with a specified borrower, and to put the specified security in place. There are not deeds of appointment for all investors, and we believe there's evidence to show that on a number of occasions, or most occasions, those deed of appointments were probably executed well after the - -after, or well after the date on which the funds were transferred to the borrower, from the trust account. Right, thank you?---The security value estimate only is not one of my stated responsibilities, to value all of the

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security on all the borrowings, and so in coming to some estimate of losses it's very much a what we think the security might be worth, or whether we just have to form some estimate. And there are some mortgages who we are aware where the security is, is certainly deficient. It will not cover, in a forced sale, the funds due, but those mortgages are still performing, interest commitments are being met, and it may ultimately transcribe that that borrower does repay the full extent of the debt, without the need to call upon the security. And again, for that reason, we must qualify what we were suggesting what might be the losses. The - -from our analysis to date, and again this continues to change, the losses in the total portfolio could estimate 22 million, and those losses would derive from those economic and fraudulent matters, economic being that just may well find a loan that has been properly documented and run in accordance with - -or dealings have been properly - - yet for reasons of security are just not up to it, or other - - there are other areas where there's fraudulence or possibly could be theft from the trust account. That equates to losses amounting to 35.5 per cent of the estimated value of loans under management. The - - again, some further qualifications. The losses are represented by a loss in value of security and in a lot of case, we've just had to estimate that. The initial value of securities being misrepresented to investors, and therefore the value was never there. There is one particular folio in which land was purchased by Rowena, the land was purchased for 1.1 million, and there were letters sent to investors indicating to them that that property was worth 1.6 million. The property was then - -has now been sold for 1.1 million, and that all occurred within a period of - - from the - - I think it was purchased in August - -August, September 98, and the contract to sell it for 1.1 million was entered into around July, June of 99. It's just that the settlement process took some time. But there are documents amongst the record - - there are letters to investors, or copies of letters to investors indicating to them that this property was worth 1.6 million, and by him raising a mortgage of 1.1 that would still fit in with the ratio of 66 per cent of the value of the mortgage. Funds being advanced ...(indistinct)... the security value. Investors funds being paid out of the trust account without there being directions from the investors as to where they should be paid. There are examples of funds had been invested on behalf of investors and after the event the investors being told where those funds had gone to and has been asked to sign off on the new investment. There are fraudulent transactions that continue to be investigated by ourselves and the police force, and there is the possibility of theft of money from the trust account. I might add - -sorry, I might add the possibility of fraudulent transactions, that's yet to be determined, and there's the possibility of theft of money is yet to be determined as well. The final determination of the losses is subject to court proceedings regarding disputes on the mortgage settlement proceeds. There are the possibility of civil damages proceedings will be

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commenced, and that may well replenish the trust account and reduce the losses if there is a successful recoveries. Property values may vary between the time that the - - between now and when the time of the mortgages are eventually settled. There are borrowers who continue to meet loan commitments. They may continue to do that or not. And ultimately we will not know the eventual losses until all mortgages are settled and all disputes are resolved with regard to funds and claims against the trust account. There's also the timing of mortgage foreclosures, if there's a mortgage foreclosed now, and principal recovered, that loss may be less than if there's a loss at a later date with interest accruing on the loan. MR CHANEY: Could I just ask you, before you leave that slide, is it possible to give some sort of ballpark estimate as to when those factors which will determine the final losses may flow through and the final question can be answered?---Some of the - -the mortgages were generally for a short period of time, 1 to 3 years. Probably most of them in the 1 year bracket. But there are mortgages there or borrowings that probably still go out for another 2 or 3 years. The - - as to how long it will take to force some of these things, or that will - - it's highly dependent upon directions that we'll receive from the court. In regard to my capacity to take certain actions and also in regard to what are the entitlements of the investors. If the court was to determine that there was to be a pooling of all investors' funds, then the process of resolving the mortgages probably would go more quickly than if the court was to follow at the other end of the scale the situation where all mortgages were to be dealt with on a case by case basis, because dealing with matters on a case by case basis involves continual - - substantial extra work which leads to delays, negotiations, and the like and they could extend out. It will take some years before all the matters revolving around this trust account are resolved and I hazard a guess that 4 to 5 years time there'll still be matters being dealt with, but again that could be brought forward in, if there are you know, if the court was determined to take a particular approach. I don't necessarily say that will happen, but well, no, probably - - probably would say that still irrespective of the court processes, still there are issues there that are going to take some time. Business practices, and this will deal with the operation of the business. The types of things that we've found that you might have expected would have been different. Property valuations are virtually non-existent, so when folio files are being reviewed, there's virtually no valuations, you could probably say there's five to six to seven valuations across the whole folio, to date anyway, and those valuations, I think, from memory are fairly insignificant in terms of the borrowings involved. MEMBER NEWMAN: Mr Grubb himself was not a licensed valuer?---Not that I'm aware of.

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And no one on his staff to the best of your knowledge was licensed valuer?---That's - - I'm not aware of anyone on the staff being a valuer, as having any experience with valuing properties. So the - - in making representations to investors about values of property, I wonder how that was able to be substantiated. Virtually no loan assessment data, and borrower information on the files. There's been no assessment by the broker, or little assessment at all from the broker as to the quality of the borrowings, the likelihood of the borrowings being repaid, the substance of the borrower. Were there any guarantees offered by directors of companies that were borrowers?---Quite often the mortgages have guarantees in them. Well, there are some borrowings that are guaranteed by specific directors or individuals. MEMBER NEWMAN: But there was no financial information in the files or provided to the lenders as to the substance of those directors and their ability to back up their guarantees?---The - - you see, I don't think I've seen a piece of correspondence or a copy of the correspondence by the broker to the investor attaching supporting - - independent supporting documentation as to the value of an investment, or a value of property. Thank you?---We found in the files executed but unregistered mortgages, executed transfers of mortgages, and executed discharges of mortgages on file. Investors had placed trust in the broker by providing these executed documents, and they were on the file. There is evidence that at one stage an item of correspondence was forwarded to all the investors indicating to them that because of the nature, or the profile of the investors, it is likely they would be taking regular holidays, possibly travelling overseas, be away from their normal address, and because there were pooled mortgages, it would be appropriate for them to execute these documents, and they would be held in escrow on the files. Some of those unregistered unexecuted - - sorry, executed but unregistered mortgages still exist in the files, and that has obviously caused some investors concern who wished to have those mortgages registered and transfer of mortgages that may have been transferring Oakleigh's interest in a mortgage to an individual investor remain on file. There we believe the situations were discharges of mortgages have been provided by the broker and resulting in a mortgage being settled without the investor being aware that the mortgage had been settled, and with those funds being deposited to the trust account and not being returned to the investor. These mortgage settlement proceeds and the new investor funds were deposited on occasions to overdrawn - - to an overdrawn trust account, which therefore the funds go towards replenishing or repaying in effect St George Bank rather than being placed in the trust account on trust for transfer to a borrower or back to the investor. And generally we found that the broker attended to the execution and registration of security documents, rather than delegating or transferring these to some other party to

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undertake on his behalf, and if this registration and execution of documents had probably been dealt with by another party, it would have led - - no doubt led to more investors interest in mortgages being properly registered. MR CHANEY: Can I just ask you in relation to this slide, the - -where you have an executed mortgage on file, and you mention that it's caused - - that has caused concern for the investors concerned that they want their mortgage registered, I think the committee has in fact heard of complaints from people in that situation. What impediment is there to you in acceding to that wish and simply registering the mortgage, if any?---The - - and some of my comments are based upon my legal advice. The - -there is a particular mortgage which from memory is for worth $400,000, one investor has provided $400,000 to be lent to a particular borrower. The legal representative of that investor has made claims that I have no - - I have no ability to retain possession of that mortgage, and I should hand it up and allow his client to register that mortgage, at DOLA, and on the basis that I hold that mortgage as their trustee. If I was to hand that mortgage up and allow the registration against that property, it would result - - it could result in that investor to the detriment of all other investors generally who don't have a registered mortgage, that particular investor obtaining an advantage. It may well have been that that investor's funds did not go to the borrower, the - - we have provided a copy of the mortgage to the investor, with the notion that they are more than entitled to place a caveat against the property using that mortgage as supporting document, but for us to allow the mortgage to be registered may then bring up the issue of indefeasibility of title, whereby if an investor is registered, it is very difficult to reverse that investor's interest in the property. CHAIRMAN: Has this gone before the court, or is it going before the court?---If I - - probably best if I ask Mr Hawkins to respond a bit more on this issue. Are you able to - - MR CHANEY: Do you know whether the matter's yet before the court or - - MR HAWKINS: It is an issue that we've asked the court for directions. CHAIRMAN: Thank you. MR CHANEY: So in short the problem is trying to accommodate the competition between investors in respect of the ultimate disbursement of funds that provides the difficulty? MR HAWKINS: The - - the - -because there are significant losses and because investors are aware that they - - a number of investors are aware they aren't registered, but they are aware that if they become registered at law they may well be placed at a far greater advantage than what they are at

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present, they are - - anyone who has an interest in an unregistered mortgage as most - -or a substantial number have made representations that we have an obligation to register it in concluding the finance broking activity. My advice is that I should not register those documents because I would be interfering with the status quo and I would be potentially interfering with the interest of all the investors who have an unregistered interest or who have claims against the trust account. Thank you?---The - - there are quite a few situations where a borrower has agreed to borrower funds from the trust account, or from an investor, purportedly on a drawdown basis, and there are investors who have been told that they are going to invest in a particular mortgage, and let's say an amount of $160,000, those investor's funds may have been just placed in the trust account for that purpose, or may have been in the trust account for some time, pending a suitable investment, the opportunity to place those funds in a suitable investment, the investors on - - would see that their funds have been placed in a trust account and they commence receiving interest and probably the belief that all those funds have been drawn down, there are a number of loans or some loans where the borrower has not drawn down the entire amount of the mortgage, may drawn down $80,000, you have the property having been sold, and the - -all the registered mortgagees are making claim against the settlement proceeds, they all believe they're owed $160,000, the property may have been sold for 120, and of course the borrower is making claims that he only ever received 80, and this then brings in the issue of who was the broker acting for, at which stage of the transaction in the dealings? Was he agent for the borrower, was he agent for the investor, was he agent for both? He's capable of acting as agent for both as long as those dealings are, well, it's then upon him to represent both parties' interests correctly. So we have situations where we have again applied to the court for directions on how we should deal with these types of situations. The borrower doesn't want to pay what the investors claim, the investors want further funds, so - -and some of these investors' funds that are in the trust account have been applied in other directions. But not recorded as that being the case. CHAIRMAN: Now these all have to be individual applications before the court, wouldn't they? The court can't deliberate overall - -?--- We - - - - decision with respect to that, it'd have to be individually?---We received a ruling from Mr Owens J in the Supreme Court in February this year, that he set aside an injunction proceedings, an injunction that was in place, but then set down a regime on how we would deal with these situations. He appreciated the problems we had. He indicated that if a mortgage was to be settled, then we were to be given 5 days notice in which we were to make a decision on whether

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we should ask the court for directions in regard to that particular mortgage. And we have since that date received a number of these notices, 5 day notices, and we have challenged a number of the - - challenge is probably not necessarily the right word, but we have lodged documents with the court seeking their directions on how we should deal with those settlement proceeds. Thank you?---Moneys were paid from the trust account to investors, even though the borrower had not repaid money to the trust account. You may have an investor for one reason or another, either for need of the funds, or fear that their investment was at risk, or whatever, requested a repayment of their borrowings, and there is a payment merely passed out of the trust account, someone's funds, some investors funds. The borrower's not in any way made a repayment against the loan, and then later on there may be a person who comes in and says I want to invest $20,000 saying that was the amount of the transaction, and they are purportedly given that interest in the particular mortgage, so that $20,000 is merely just replenishing what had been paid out to investor some time previously. MEMBER NEWMAN: Mr Conlan, you said purportedly. I take it there were no legal documents drawn up in which the interests were assigned from one party to another, or there's any documentary evidence to show that there was a legal arrangement in place in which one was repaid and the other one subsequently took their place on the mortgage?---There are - - there are instances where people have been repaid from the trust account investors, their interest still registered on the mortgage years - - some years after that occurred. The investor who was purportedly to take that interest at about the same time or after, their interest was not registered on the mortgage, or the transfer did not occur, and it's more than likely that those two investors were not aware of the arrangement that was in place. Right, thank you. MR CHANEY: Before you go on, Mr Conlan. I think when I interrupted you last time, you had just gone to the top dot point on this slide, but I'm not sure that you actually spoke to it?---Okay. Yes, I - - thank you. I did actually talk briefly about it previously, but the - - some time previously, the - -this point is saying that a mortgage is settled, or investors funds are paid back into the trust account and there are examples where those funds have then been on-forwarded to another borrower, with correspondence then being forwarded to the investor saying where those funds have gone, or saying that a settlement has occurred, saying that they took the liberty of transferring those funds to another borrower, providing them with the documentation to sign, to say it was all okay, or in order, and offering to place them in some other investment if that one was not suitable. The investors

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appeared to have, in most occasions, merely just accepted that recommendation of investment, accepted that their funds were already paid, and paid in breach of trust, without knowing the consequences of it, and accepting because they'd been regularly receiving interest payments, that it was all in order. Cashflow guarantee arrangement. In some regards a bit of a misnomer. But central to the marketing and the raising of finance in this organisation, and used on many documentation - - many items of documents, no agreement as such, or not aware of seeing any agreement as such, or a guarantee document - - well - - obviously hasn't come through, but the investors were attracted to this offer without appreciating the need to fund such a commitment. The offers - - the cashflow offer was that Graham Grubb Finance Broker would ensure that investors continued to receive their interest payments, even if the borrower did not commence repaying the loan, or commence repaying the interest to the trust account. Now if I just might look at the trust account for a moment, if a borrower made an interest payment to the trust account, it would be prudent for the finance broker not to pass those interest payment proceeds to the investor until such time as that payment had become cleared funds in the trust account. To pay them - - pay them earlier than when they became cleared funds in effect someone else's money would have been paid as interest to the investor. If there are a number of borrowers who were not repaying their interest, then there was considerable burden or commitment placed upon Rowena to find those cash funds from some source, to make payments to the investors. This may be a bit difficult to read, but I think it's - - I have some copies of these slides to be passed up. I understand that this document may have been discussed at some length previously. I - - the particular points that I wanted to draw out here are there's a question as to what is the cashflow guarantee agreement, and it says that it provides the added extra feature that Graham Grubb Finance Broker will pay to you the monthly interest regardless of whether the borrower has paid. CHAIRMAN: Well, Mr Conlan, first could you advise us generally how this - -whose document this is?---This document titled "Private First Mortgage Lending - Mortgagees Cashflow Guarantee, Questions and Answers" was located amongst the records of Rowena Nominees. We understand that at times it was passed to investors who may have had questions with regard to this arrangement or merely as just information attached to an offer, an offer to participate in an investment. Well, it's a Grubb document?---That's correct. Thank you?---The second issue, how does the cashflow guarantee work? Again I haven't put all these questions up here, the - - "The timely payment of your interest payments are guaranteed by Graham Grubb Finance Broker". The next question which is on the following page of the document handed up, sorry, the last page of the document, "What about my capital?" There is

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an area there that says "Generally our first mortgage lending is limited to a maximum loan of 66.6 per cent as allowed for under the Trustees Act as trustee type investment. This suggests that the broker was aware of some obligation, fiduciary or otherwise, to maintain a reasonable ratio of lending to the value of the security. Yes, as I gave as evidence earlier, we're aware of one situation where the value of the mortgage was in fact 100 per cent of the likely value of the security. The next question, "What if the borrower stops paying, or is late with the interest payment?" "In your eyes, the borrower is never late, as Graham Grubb Finance Broker will pay you the interest due within 7 days of the due date." There is a - - appears to be no recognition - - well, it's just simply saying that you'll get your interest whether or not the borrower pays those funds into the trust account, whether or not those funds are cleared funds. "What if the borrower defaults and the property needs to be sold?" "Graham Grubb Finance Broker will continue to pay you the monthly interest payments." The issues that this brings out is that the offer, the cashflow guarantee offers to fund borrowers interest commitments. Now our inquiries show that invariably in one form or another that interest commitment was funded by investors - - by other investors' funds having been deposited in the trust account. All investors receive their interest payment on the investments even though the borrowers are not paying interest. In the eyes of the investors, they were - -the loans were performing, or if they were not performing, then the interest commitments were being adequately funded and that probably never - - never have thought of theirs that in fact the interest commitments were being funded by other investors' funds who had been encouraged to place funds in the trust account. Move on to issues of related party borrowing. And this is a matter that is central to some of the problems that exist in particular finance broker. CHAIRMAN: Excuse me, is this document in evidence? MR CHANEY: No, I think it's useful to take it into evidence in this context, I think we do have a copy of an individual one - - CHAIRMAN: But I don't think it's in evidence? MR CHANEY: No, I tender the - - CHAIRMAN: Yes, thank you. MR CHANEY: - - mortgagee's cashflow guarantee. CHAIRMAN: 75. That'll be exhibit 75. EXHIBIT 75 Mr Chaney DATE (Unstated)EXHIBIT 75 Mr Chaney DATE (Unstated) Mortgagee's cashflow guarantee document

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CHAIRMAN: Thank you, Mr Conlan?---The loan borrowings of funds repayable by borrowers, 63.4 million. The analysis suggested 3.8 of that is repayable by Rowena, that 1.7 is repayable by companies directly controlled by - - or controlled or formerly controlled by the broker. The companies in which Rowena or Mr Grubb held a financial interest have borrowed 19 million, loans to closely associated parties of 9.9 million, the definition of closely associated parties are people that appear to be regularly involved in projects or investment or dealings with the broker. By way of example there may be a closely associated party who held an interest with Rowena and Grubb where that 19 million figure is so they are independent parties, but they are people who have regularly dealt, or have had a close association with the broker. MEMBER NEWMAN: Mr Conlan, does that include the loans to Sandgate, which I understand one of the auditors is a director of?---The Sandgate - - the Sandgate Corporation Pty Ltd, a company in liquidation, is included in the figure of 19 million, and those borrowings approximate about 12½ million. MEMBER NEWMAN: Thank you?---A pie graph of the borrowings. A - - over half were to Rowena and related or associated entities. Analysis of the losses. Again an approximation, but the losses could - - I'm sorry, look, this slide was to be 22 million, but the - -there's an error there, but that's - - those figures are 1.5 for Rowena, 870 for other companies controlled by Grubb, 10.7 million companies in which Rowena or Grubb held an interest and 996 for closely associated parties, and I think you'll find that they should add up to 22 million. The issues of - - we have views on the conflict of interest, the - - and I've already mentioned the problems occurred by whether the agent, broker acted as the borrower's agent or the investor's agent, or acted as both. And we have a situation where a particular borrower paid an amount of $46,000 to the broker. We have not examined exactly under what circumstances what conditions, what discussions were held between the parties. But I think there was an intention by the borrower that his mortgage be discharged, the mortgage wasn't discharged, the funds were misapplied, either by depositing to an overdrawn trust account. We have the situation now where the borrower wishes to proceed to build a house on the property, I think he might have even done some sites works and sought some borrowings from the bank, and the bank advised him that the mortgage was still on the mortgage, and then the mortgage - - the registered mortgagee or the investor has refused to discharge the mortgage. And as the situation that as to whether the investor should discharge the mortgage, or whether the borrower will receive the property unencumbered is an issue again a question that was placed before the court, not on that specific issue, but on that issue of in which capacity did the agent act? There is evidence that Rowena or the broker at some stage had multiple licences as a finance

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broker, real estate and business agent, and settlement agent. There are - -there's situations where the mortgage was to be foreclosed or was being foreclosed, because the borrower was not performing, and then the broker would also wear the real estate and business agent hat and be involved in the selling process and possibly in the past, although not on recent years, involved in the settlement agency process. The entities associated with the partners or trust account auditor, borrowed - - seemed to have borrowed substantial funds from the trust account, and Rowena has interest in trust funded projects, or projects that have been funded by moneys transferred from the trust account. Raising of finance. We sent questionnaires to all the investors, and received 304 responses. In line with the responses and meetings we've had with investors, it appears as though there's been extensive regional advertising in those newspapers. Seems to be the primary source of new business. Targeting middle aged and retired people attracted by the investment proposal and the cashflow guarantee, possibly the high interest rate being on offer. Heavy emphasis on the first mortgage security and interest rate - - and the interest rates in the advertising. And heavy emphasis on his history as a finance broker. The broker staff, broker or his staff called a potential client's home and often collected funds from - - for the investments. At a time there was mobile sales representatives, and on occasions we've become aware of situations where the broker has taken investors to show them security, or show them property purported to be the security, and we've since by representations made by the investor and inquiry has shown that those properties were never secured to the investor. Monthly circulars and fliers to the existing client base to attract new investments. Word of mouth by long term clients and a few professionals. I think the long term client situation, being the fact that interest was always paid, and the investor being none the wiser was attractive. Alluded to earlier that they're generally not represented by professionals in the dealings with the broker. Background statement document was often provided which said that the broker was always totally accountable for all mortgages, that they'd been a broker for over 20 years, that Mr Graham Grubb personally assessed all the lending proposals, he listed various qualifications as a real estate and finance broking memberships. Confirmed the cashflow guarantee situation and that never a dollar had been lost in the broker's time as a finance broker. Written proposals were sent to investors, rarely before the funds were received in the trust account, and passed on to the borrower. Confirmation letter was sent that advised of the financial terms of the investment, and quite often the security documentation, if it indeed was dealt with at all, was registered well after the moneys were advanced to the borrower, and not at the time of the borrowing. Again, a type of flier that would be sent to ...(indistinct)... and this is a small - - just a small excerpt of the document, indicating that the folio and the location and the money involved in the portfolio when it was

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required. There is again at the date of that document, 14th of August, I'm aware that there's one portfolio there which money came in, after the date of the document, an investor invested funds after the date of that document, and those funds don't appear to ever have gone to the investor, and in fact the mortgage was in place, may have been in place for some period of time. The - - some thoughts at the time of my appointment and well after my appointment there seemed to be a great degree of depth and trust in Mr Grubb's abilities as a finance broker, and his history of dealing with investors. Interest was always paid to investors and I've dealt with that in the previous part of my evidence. Misrepresentation of the status of DOLA dealings. That he may well have got a dealing number, or had a document lodged with DOLA and had dealing number placed on the document, and then withdrawn that document from the dealing, photocopied it, showed it to the investor that the investment actually had taken place, sorry, the registration had actually taken place, but that the document was never registered. I've dealt with the transfers and discharges of mortgage, and the misrepresentation of value of security. Resourcing of a business. Our inquiries suggest that it was a very autocratic, dictatorial management style of the finance broking business. There was high staff turnover and there was limited delegation of duties. MR CHANEY: Just in respect of that, the autocratic, dictatorial management style, was the autocrat involved was Mr Grubb himself, I take it, his managers - -?---Yes, being that the view is that the - - Mr Grubb being a broker dealt with all the investors, personally visited all of the investors, would not at times - - inquiries, just would not at times let staff with the investor, and attempted to - - and then when he delegated his responsibilities to other staff, they were very limited or direct or no scope for the staff to work outside the tasks that were given to them. Concluding remarks. I'm surprised my presentation has gone on for this long, but the - -and they're really just some remarks. Consumer education. Seems to be a lack amongst investors, of the risks associated with the large interest rate that was being offered to them. The risk associated with dealing with an agent and getting a first mortgage investment, the fact that you lose - - can lose sight of where your funds are directed. And I believe there is certainly scope for consumer education in the area of where you have unsophisticated investors and particularly as we move forward to a time when more and more people will be retiring with superannuation payouts, under the present superannuation guarantee arrangements imposed by the federal government, so you'll find that there will be a far greater number in the future of people who retire with significant superannuation payouts, and there is probably a need for consumer education in this area. Industry qualifications and education. My views with regard to this particular broker, if he was even aware of his trust obligations they appear to be neglected, but certainly there's a need for the - - for if a broker is registered, for the broker to be fully aware of the

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obligations he has as a trustee and also as an agent, and as to which capacity he's acting at which particular time. And certainly a need for proper loan assessment. Some licensing hurdles. There is a capital adequacy I think of $10,000 in the Act, but there needs to be far greater requirement for capital before a broker is to be allowed to be registered. Be able to display qualifications and experience at having worked in the industry for some period of time. Audit and regulations. Possibly an auditors panel to restrict the scope of auditors that are able to undertake assignments of the audit. More regular audits of trust accounts, peer and regulatory reviews by other brokers in the industry. And even audit to the principal entity. If you found that the principal entity's affairs were in a state of disarray, there's a fair chance that the trust account records would also be in disarray. Suggestion of fluid transfer of information between the various statutory bodies, and in this case, we were - - we talked about multiple registrations which go before different boards and if there's one decision in regard to one board, there should clearly be the conveying of information to the other board. That may well happen at present, I'm not saying it doesn't. I'm not aware of how these boards operate, it's just a suggestion. And remove or restrict the potential conflict of interest or tighten up on the interest, particularly with regard to transferring of funds from the trust fund to projects that are associated with the broker. And that concludes my presentation. CHAIRMAN: Mr Conlan, just one remark. Will the fact that these inquiries now, if not already, will have computers in their homes and - - I don't understand that at all, any of this, but I know it happens and it's transferred electronically, and advertising will be electronically, I take it you're well aware of all of that, much more than I am? But the basics of your conclusion, remarks, and I might add, helpful suggestions, are the same?---Yes, yes. There's a - -I mean it's - - as I mentioned earlier, there - - it seems to be evidence of regular visits to the investors home and with internet banking and the like, and immediate transfer of funds, if you - - It'll just be quicker?--- - - if you pass a cheque to a broker and the broker walks away and you happen to speak to someone, there's a cooling of period or a time in which you might be able to cancel the cheque, in this situation, you would - - there might be more immediate transfer of funds to a trust account that was in overdraft and immediately loss of those funds. If you - - if the music stops at that particular point, in time, which is what's happened in this particular administration, that when the music stopped, when I was appointed, when the various deficiencies became apparent that there was always going to be people that lost out. People earlier that recovered their funds from the trust account, and you know, probably hadn't lost their funds in this process.

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Thank you. Mr Chaney? MR CHANEY: I've nothing further for Mr Conlan, Mr Chairman. MEMBER BLIGHT: I just want to ask, from the pie diagram about the 22 million down and the nature of losses, recoveries are estimated to be 64.5 per cent. Would that be likely to result in the investors obtaining 64¢ in their dollar?---The - - just go back to ...(indistinct)... the position is that the - - the short answer is no because that would only occur if there was a pooling of all funds, from all mortgages, and there is likely to be situations where - - or possible again, depending on court directions, that some investors may well receive 100¢ from their dollar on their money invested plus all outstanding principal, all outstanding interest, and that would lead to therefore a reduction in the pool available to the remaining investors. Okay. I should have said would it have been an average of - -but you've answered the question, thanks very much. MEMBER NEWMAN: Mr Conlan, there's a lot of elderly investors of course who are in a financial stricture because of what's happened. When would you reasonably think that the majority, although not necessarily all of these people, will be able to determine their recovery and their losses on the various investments they've made?---The recovery of funds for investors is in the main, in most situations in the hands of the court, as to how the court, as to what directions the court tells me, we have to date funds in the order of about 12 - -12 or 13 million have been realised from mortgages that have been settled, and based upon advice those funds have been transferred back to investors and something in the order of about 7 million remains in the trust account for determination or for me to get directions from the court as to how they should be distributed. If I was to receive clear directions in the near future then those funds will flow to particular investors who I was directed to forward them to. There are - - there is one particular proceedings being Sandgate proceedings, that's presently before the court, 5 million, just under $5 million has been paid into court, and Mr Staedtler J, recent interlocutory decision, in an interlocutory proceeding indicated that it may take months, if not years, for the rightful claimants of those monies to be determined. CHAIRMAN: So the answer's at least 2 years?---A long time, it could be 2,it could be 4 years, it's hard to put a figure on it. Some funds may flow shortly, out of particular investments, and have been out flowing since my appointment but some moneys that are presently in trust or likely to come in coming months may still be there in a 3 to 4 year period. Thank you. Mr Hogan, any questions?

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MR HAWKINS: Hawkins. CHAIRMAN: Hawkins, I beg your pardon. MR HAWKINS: Perhaps if Mr Conlan went across there, so that I'm not whispering in his ear - - ...indistinct... CHAIRMAN: Yes, Mr Hooker? CROSS-EXAMINATION BY MR HAWKINS: MR HAWKINS: Mr Conlan, you're aware that there is a decision it pending from the Full Court of the Supreme Court, are aware of that?---Yes, I am. And the basis of the application to the court is to try and find out what powers you have as supervisor to take the steps you've been taking?---That's correct. And you're aware that some of the mortgagees are arguing that you have no power at all to apply to the court for interlocutory injunctions restraining the dispersal of funds on settlement of the mortgage?---That's correct. What has been the basis of the applications you have made to the court for an injunction?---The basis of the applications have been to - - to get directions on how best to distribute funds from the trust account, or who is in fact the rightful claimant to the trust funds and that if those applications were not made it is possible payments could flow to investments who at law are not entitled to those settlement proceeds. MR HAWKINS: Is this because the investors' money was paid into the trust account when it was overdrawn and so it was someone else's money went to the mortgagor?---Yes, and investment instances where the moneys - - or that's paid into the trust account when it is in overdraft or paid into the trust account before it's gone into overdraft and it's then gone into overdraft and funds have been paid out of the trust account to the borrower. With an intervening overdraft?---And an intervening overdraft. You were appointed as an independent accountant initially. At that stage how apparent from the records you saw was it that there may have been problems with the trust account?---Within a few days of my appointment it was apparent that there have been a considerable loss of investors funds by way of moneys being deposited in an account when it was overdrawn, or there were transactions out of the trust account that were very irregular in nature. Those types of transactions or loss of funds probably were more in the vicinity of 1 to 3 million or 2 to 4 million, that type of area. Still that certainly was

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serious at that time, I didn't envisage that the losses would be of the area that they are now. Now you were asked a question about the appointment of the receiver and the manager and the identity of the parties that appointed the receiver and manager, and those parties were a Mr Dickson, and a company Clear Lake Nominees Pty Ltd. They are both entities, or sorry, the company and Mr Dickson have both invested money with Graham Grubb Finance Brokers?---Yes. Or through Graham Grubb Finance Brokers?---Yes, that's correct. But you were not aware either of those - - that company or Mr Dickson as having gone into business with Mr Graham Grubb in any way?---No, I'm not aware. Thank you. With the mortgage registered in the name of Oakleigh, what was the source of the funds that were advanced to the mortgagor that led to the mortgagor granting the mortgage in favour of Oakleigh?---The source of the funds were transfers of moneys from the trust account, but as to which investor deposited those funds in the trust account is unknown because of the inability to - - because the trust account is presently unreconciled, and we're unable to identify the investor. 'Did Oakleigh have funds besides its own that it could lend to any borrower?---Oakleigh was - - no, it was non-trading at the time, and merely owned, I think I understand a Geraldton property in its own name. No cash funds. MR HAWKINS: Although - - CHAIRMAN: Sorry. Mr Conlan, isn't it possible, I hate using that expression, because anything's possible, is it likely that you could come to the conclusion the trust account is impossible to reconcile?---In my view it's impossible to reconcile, well it's certainly not commercial to reconcile. It's always possible to go back through all the entries and allocate them, an enormous amount of work to actually ascertain the nature of the transactions and to reconcile, it's an account function that could be done but in my view it's not commercially viable to do it. MR HAWKINS: Mr Conlan, was a receipt issued by the finance broker to each investor?---On most occasions a handwritten receipt was issued to the investor. Did that receipt identify the security that was to be offered to secure repayment of the loan?---It normally merely identified the loan folio, or the particular loan number in which the investor would - - the investment funds would be placed.

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Amongst the records that you have recovered, is there a full set of books that show the name of each party whose money was deposited into the bank account?---No. Do you have records that enable you to see if an investor paid money to a broker which the broker then deposited into the trust account?---Yes, in the sense of there are a combination of receipts, deposits and documents between the investor and the broker, and then tracing of those funds to the trust account, but there are a number of - - we can't complete that exercise because of a lack of documentation for all funds invested, all the funds deposited. Is it fair to say that on sometimes you can see that there's a receipt for a particular amount, and this a deposit in the bank within a few days of an amount sufficient to include the investor's amount?---Yes. But you do not have the record at shows the investor's cheque was the cheque that was paid into the bank?---Yes, in most instances. Yes, you do not have that record?---Yes. With the overdraft to the bank, you've provided a table that shows the overdraft was overdrawn on 84 days I think it was, close of business, 84 days, from June 1996 until you were appointed in May of 1999, can you recall when the account with St George Bank was opened?---The account with St George Bank was opened in early 96, by - - I stand to be corrected, but I understand it was early 96. MR HAWKINS: The table that you have, that's headed summary of dates upon which the trust account was overdrawn, that is the trust account that's operated with St George Bank at the moment?---That's correct. One of the entries you have in the table is for the 3rd of July 1998 showing an overdraft of $5,773,451.47?---Yes. Are you able to tell the committee more about the transactions that you believe led to that overdraft?---Yes, the transaction that led to that overdraft is in the order of 5.9 million, it is what's commonly known as a round Robin transactions in that funds flowed through a series of bank accounts, internally through - - it would have to be with the assistance of the St George Bank. The particular transaction is irregular and under investigation, and it relates to entities in which Rowena, the broker Mr Grubb, had financial interest. Is that a financial interest that to your knowledge was declared to any investor who agreed to lend money to any of the companies concerned in the round Robin?---It is unlikely the interest was declared, as our inquiries show, or we believe that interest was held by an interposing trustee,

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whether it was intended or otherwise, to possibly hide Mr Grubb or Rowena's interest in that particular project. If I can now ask you about the lodging of documents at DOLA. From the information you have gained investors - - did investors rely on Graham Grubb Finance Broker to give them instructions for the preparation of the mortgage?---Yes, I understand they did, that's my belief. And from what you have seen the broker retained solicitors and tell the solicitors what mortgages to prepare?---Yes, that's correct. The names of mortgagors?---In the name of the mortgagors? Well, did the broker tell the solicitor the name of the mortgagor?---Yes. The amount to the secured by the mortgage?---Yes. The name of the people to the shown as the mortgagee?---Yes. Did Graham - - did the broker then lodge the prepared document with the Department of Land Administration?---Yes, and also had the ability on occasions to - - or had the ability to stamp certain documents in-house. So there was in-house stamping done by the broker?---Yes. MR HAWKINS: For the payment of stamp duty?---Yes. There were discharges. Who prepared the discharges? Was it the broker or was it a solicitor, discharges of mortgage?---It - - I understand that on most occasions the broker prepared the discharges. And transfers of mortgages, so when mortgages transferred from say Oakleigh to an investor, who prepared the transfers?---Again I believe it was the broker in most instances. And if the - -if a party related to the broker had sold land, who prepared the transfer of the sale of the land?---Again I believe in most cases the broker dealt with that transaction. And was it the broker who lodged the document with DOLA for registration?---Yes. Are you aware of instances where - - in which people have, on the face of it, borrowed money from the broker in order to buy property from a party related to the broker? Borrowed money from the broker is probably incorrect, borrowed money through the broker?---To acquire property from an entity related? Yes?---I can't - - can't recall, I can't particularly recall a

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transaction at present. You've heard of the name All Ranch?, All Ranch Tree Farms?---Yes, that's correct. And you've heard of the types of business described as agribusiness?---Yes. Yes. Does that assist you in your recollection?---Yes. Yes, that's correct. Funds were paid from - - we come back to the question - - Are you aware of instances in which a company related to the broker has sold land to a person who has funded the purchase by borrowing money through the broker?---Yes, yes. And in those instances did the broker prepare the transfer, and lodge the transfer of the title?---In the All Range, there was a settlement agent that dealt with a number of the settlements, as to whether that particular settlement agent or the broker prepared and lodged the transfer documents, without reference to documents I can't answer. I'd say I don't know. Now can I ask you about what I'll describe as back-filling? Are you aware of any instances when it appears that back-filling has occurred, if you could tell the committee of what you understand by back-filling?---Yes. In general sense it's a - - we refer to back-filling as there being an advance from the trust account to a borrower or for a particular purpose, and then investors funds are attracted to replenish the moneys that have been removed from the trust account. MR HAWKINS: So moneys have been paid from the trust account to the borrower, and subsequently moneys have been obtained from an investor to top up the trust account?---Yes. And the investor whose money was used to top up has on occasions become registered as the mortgagee?---Yes. Although it was not that investor's money that was advanced to the borrower?---Yes, that's our view. You mentioned the deeds of appointment system. Was that a system in which the investor appointed the broker to act as the investor's agent for some purposes?---Yes. And did the document purportedly identify the security - - sorry, security offered for the investment?---Yes. Do the broker's records include a copy of the deed of appointment signed by each investor?---Only rarely. Most of the documents that we've - - most the deeds of appointments that we have that are executed have been forwarded to us by investors.

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And these deeds of appointment, were they always executed at the same time that the investment was - - or the money was paid to the broker?---It appears that in most instances the deeds of appointment were executed after the funds were advanced from the trust account to the borrower, and on some occasions could have been months afterwards. Are you aware of situations in which the person who has become registered as mortgagee did not pay funds to the broker's account until many months after the money had been paid, or money had been paid to the benefit of the mortgagor, out of the broker's trust account?---Yes. If I can now take you to that aspect of potential investor losses. Was it the practice of the broker to provide valuations by independent valuers when the broker canvassed for funds?---No. You gave an example of property represented as having a value of $1.6 million?---Yes. Was that a property that was purchased by a company with which Mr Grubb was closely associated?---Yes, indeed it was purchased by - - purchased in the name of Rowena itself. And the - - are you able to tell the committee the source of the funds that was used for the purchase?---The - - a number of investors became involved in this particular folio, or were to be involved as registered mortgagees. The deposit proceeds to acquire the property had - - were in the trust fund, the trust account, had been deposited in the trust account by a particular investor, then the property was purchased with something in the order a million dollars or just under a million dollars being paid from the trust account, and bridging, or leading up to and after that date, funds were deposited by investors who were purportedly investing in this particular folio. I think approximately two thirds of the funds that came from investors who are linked to this folio came into this trust account after the moneys were advanced to settle the sale - - settle the purchase of the property. MR HAWKINS: Thank you. In relation to the transactions that have gone sour, have you been able to form any view as to whether the transactions that have gone sour are in the main transactions involving arms length parties, or are they in the main transactions involving parties relating to the broker?---They are in the main transactions associated with party - - or with parties associated or dealings with parties associated with the broker. A substantial amount of the losses will be arrived from those particular loans. What is the practice of your staff if you are given notice that a mortgage is about settle? What do you do when you receive that notice?---A bit frantic. The - - if it's not a folio that has been reviewed then my staff are required in a

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very short period of time to detain? an understanding of that folio, to form an opinion as to the source of the funds that - - How do they obtain that understanding? How do they form that opinion? If you just tell the committee the steps that are taking place?---By tracing - - by trying to trace the investors' funds through the trust account to the borrower, and in most occasions that is limited because of the lack of records available to us. So it's the first thing to do to see if there's a record that money was received from the person who claims to be entitled to be repaid?---Yes. So you're looking for the receipt?---Receipt. The deed of appointment?---Yes. Do you then try and trace, if you find a receipt or a deed of appointment, do you then try and trace the money to the trust account?---Try and identify a date on which it was deposited to the trust account. And do you look to see if the trust account was overdrawn as at that date?---We look to see whether there are overdrafts around that time, or intervening between the time of the investor's in and out of the trust account. MR HAWKINS: And are you able to trace when money went to the borrower?---The - - either a view that immediately a trust account is deficient - - No, that's not the question that I asked you?---No. Can you see - - ?---No. - - what amounts were paid to a borrower?---No. No. Do you - - if you are able to see if money went into a trust account, and there was no deficiency, and the claimant is a registered mortgagee, what is your practice?---Our practice is to, if there is no intervening overdraft, is that the question? Yes?---And there are sufficient funds at all time in the trust account to allow the investor to take his share of the mortgage. And do you then allow the settlement to take place?---That's correct. Have you received any objection to that practice being put into place, if a claimant is not registered as the mortgagee?---If the claimant to the funds - -

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Yes?--- - - is not registered? Yes?---No. Are you aware that the Supreme Court - - submissions have been put to the Supreme Court on behalf of registered mortgagees that you are in effect acting as a judge in deciding who gets paid or not paid?---Yes. And are you aware that the submission included the submission that on no occasion should you permit payment to an unregistered mortgagee, even if you can trace that person's money through the trust account?---Yes. If I can now ask some questions about the cashflow guarantee. Are you aware of instances in which money was paid by the broker to an investor even though there had not been an advance to a borrower?---Sorry, can I have that question again? Are you aware of instances in which interest was paid by the broker to an investor even though money had not been advanced to a borrower?---Yes. Are you aware of one instance in which interest was paid to the investor as the investor left the office, having paid money to the broker?---Yes. MR HAWKINS: And so that was money paid before - - interest paid before the investor's money had even been deposited to the trust account?---Yes. Have your staff been engaged in an exercise where they have traced money, or the movement of money from the trust account to the so-called cashflow guarantee account?---Yes. And from the cashflow guarantee account out to investors?---Yes. And is that cashflow guarantee account operated or styled as a trust account?---No. Are you also aware of an exercise by your staff recently conducted in which money has gone from the trust account to a Rowena general account and then been applied by so-called intercompany loan to other companies related to Rowena?---Yes. And was that in reduction - - were the moneys applied in reduction overdrafts with St George Bank?---On regular occasions. And these accounts were operated with the bank by companies related to Rowena?---That's correct.

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With the related party borrowings, I - - CHAIRMAN: Mr Hawkins, I don't wish to hurry, but are you going to go for the next quarter of an hour or so, or more? MR HAWKINS: I have about three or four more questions, that's all. CHAIRMAN: Thank you. MR HAWKINS: Yes, but if that's a convenient time - - CHAIRMAN: Yes, I think it was. Yes, I think you may wish to discuss something with the witness over the break, and I think it would be a convenient time to adjourn. MR HAWKINS: Yes. CHAIRMAN: There's just one question I have, and I may as well ask it straight of you, you talked about the - - or you asked the witness about the Full Court hearing. MR HAWKINS: Yes. CHAIRMAN: What's the state of play there? Has it been before the court or just - -been argued, or are we waiting a decision or what, what's the situation? MR HAWKINS: 29th of September, or 30th of September, Murray J made interlocutory orders on an ex parte basis. It was an application by some of the registered mortgagees to have those orders set aside. Owen J made orders on the 18th of February in effect setting aside those orders, but restraining the registrar of titles from registering any dealing, unless Mr Conlan had been given at least 5 business days notice of intention to discharge the mortgage, and the type of notice and type of consent varied according to the identity of the party who had given the mortgage, whether it's a related party or not. There was an appeal from those orders, and an application was made to the Full Court by some of the registered mortgagees, to have the appeal struck out on the basis that Mr Conlan as supervisor, did not have the standing to have made the application for the interlocutory injunctions. That application was heard on the 18th of April, and a decision has not yet been given, it's reserved. CHAIRMAN: Thank you very much indeed. MR HAWKINS: In terms of the interlocutory applications, there have been something like 55 affidavits filed this year, in relation to interlocutory applications, there are I think 14 or 15 applications where we are waiting for the court to give hearing dates, including an application for directions to have representative party orders made, and to have certain issues decided as preliminary issues, such as what is the effect of a

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mortgage that's been registered in the name of an investor whose money had been paid into the overdrawn trust account. Whether or not that investor can claim the benefit of the mortgage, even though it was not the investor's money that was advanced to the borrower, or mortgagor. CHAIRMAN: Well, the estimate of 4 years I think is close. Thank you. 2.15 LUNCHEON ADJOURNMENT

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UPON RESUMPTION: CHAIRMAN: Yes, Mr Hawkins? MR HAWKINS: Mr Conlan, one of your recommendations was that there be the fluid transfer of pertinent information between statutory borders of investors' interests, and you gave as examples of finance broking, real estate and settlement agents boards. Would you include an organisation such as ASIC in that?---Yes. Is there anything from your experience that you can tell the tribunal, sorry, the committee, relating to the discharge of your function as supervisor and assistance you may or may not have been able to obtain from ASIC?---Yes. Whilst the various authorities which I've been working with have been helpful, there are times because of the Acts, or the laws that they operate under, it's difficult for - - there's been some difficulties encountered in having information flow between the various parties, and that's the ASIC, Australian Securities and Investment Commission have at times placed restrictions or have been prevented from the flow of information coming through to us, it's not to say it hasn't come, it's just that there are hurdles to jump to get the information which does in part impede the Finance Brokers Control Act, being a state act, and under which I'm appointed, limits my activities which it may well be far more appropriate for the role of the supervisor to be somehow linked to the powers and duties of a liquidator may have under the Corporations Law, which is the federal act, and it's been a number of hurdles and barriers to jump over and get through, to do the duties or the obligations that I have. It's not to say these organisations have been unwilling, it's just that they've in some areas, been unable, because of the various acts and regulations they operate under. Are you aware of information and documents that an organisation such as ASIC that you do not have, or do not have access to that would have made your task substantially easier?---Yes. Thank you. I've no further questions, thank you. CHAIRMAN: Mr Allanson? MR ALLANSON: No, I've nothing. MR HOOKER: I don't cross-examine, sir. CHAIRMAN: Thank you. Any questions? NO RE-EXAMINATION MR CHANEY: Thank you, Mr Chairman. I tender the bundle of documents entitled "Graham Grubb Finance Broker, Modus

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Operandi", which are the slides presented by Mr Conlan. CHAIRMAN: In our - - in the document before us, where does it - - MR CHANEY: It stops - -I think in fact your piles have been rationalised, so that all you have now is Mr Conlan's bundle. I propose tendering - - CHAIRMAN: Yes. Yes. MR CHANEY: - - the balance of what you had separately, separate bundles. CHAIRMAN: What do you call this document? SPEAKER: Exhibit 76. MR CHANEY: It's the - - CHAIRMAN: Modus operandi. Evidence of witness, exhibit 76. EXHIBIT 76 Mr Chaney DATE (Unstated)EXHIBIT 76 Mr Chaney DATE (Unstated) Bundle titled "Modus Operandi" MR CHANEY: Sir, that completes Mr Conlan's evidence. CHAIRMAN: Thank you very much indeed, Mr Conlan. Most appreciated?---Thank you. WITNESS WITHDREW MR CHANEY: I call Simon Cubitt. SIMON CHARLES CUBITT sworn:SIMON CHARLES CUBITT sworn: EXAMINED BY MR CHANEY: MR CHANEY: Could you tell the committee your full name please?---Simon Charles Cubitt. Mr Cubitt, you're a partner in RSM Bird Cameron?---I am, since 1987. And you work in the audit area?---I do. You practice from - - ?---8 St Georges Terrace. 8 St Georges Terrace. Could you outline to the committee please your background and experience?---Yes, I've been involved in audit work for over 25 years, I'm a member of the

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Institute of the Chartered Accountants of Australia, and a member of the Australian Society of Certified Practising Accountants, and a registered company auditor since 1987. MR CHANEY: In order to assist the committee in its inquiry, you prepared a presentation on Powerpoint in relation to the audit aspects of the operations of Rowena Nominees Pty Ltd?---Yes, I have. I have prepared a report for the Finance Brokers' Supervisory Board relating to the conduct of the audit of the trust account for the 4 years 1985 - - 1995 to 1998. And for this committee you've prepared a Powerpoint presentation?---Yes, I have. Can I invite you please to move to this position and make that presentation? Perhaps before doing so, you've divided the presentation into two segments?---Yes. The first segment deals with general auditing procedures and the normal requirements of an audit in relation - -?---Of a finance broker's trust account. And the second part of it deals specifically with the audit of Rowena's trust account. Right. And in respect of that second part, Mr Chairman, I propose to seek to move in camera. CHAIRMAN: Thank you. MR CHANEY: Mr Cubitt, we'll play musical chairs for a moment and - - perhaps hand to members of the committee an outline of the overheads, or the copies of the overheads that will be produced?---For the benefit of the committee the first overhead just deals with the provisions relating to trust accounts contained in the Act. The definition of a trust account is contained in division 2 of the Act. A trust account for a finance broker would comprise two components, a bank account designated as a trust account, which is in fact the trust account asset, and the client ledgers or those ledgers in fact represent the liabilities of the trust account. The trust account can be maintained manually, or it may maintained using computer software. The reconciliation of a trust account would involve the performance of a bank reconciliation, and that bank reconciliation must total individual - - must agree in total to the individual liabilities extracted from the trust ledger. Any client ledger in a trust account that has an overdrawn balance does in fact represent a deficiency of the trust account. The audit of a trust account of a finance broker as stated on the slide must be conducted by a registered company auditor. MEMBER NEWMAN: Mr Cubitt, would it be fair to say that a debit overdrawn balance and a deficiency in a trust account in fact should not be there because a trust account should never be overdrawn?---Any individual client balance in a trust

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account ledger should not be overdrawn, and were that to occur, that deficiency or that overdrawn client balance I would expect would be reported to the Finance Brokers' Supervisory Board under section 61 of the Act. MEMBER NEWMAN: Thank you. MR CHANEY: Mr Cubitt, if I can stop you there. Where you have that situation where there are a large number of client - - clients who have money in the trust account, and some of those individual client ledgers are overdrawn, but the others are in credit so that the overall balance of the trust account shows a credit amount, is that nevertheless an overdrawn trust account? And why?---That client account that is overdrawn has a debit balance, does represent a deficiency to the trust, because effectively the other balances in the ledger that are in credit are financing that debit balance, so by way of a simple example, if there are 10 balance of $100 each, totalling $1000, and one overdrawn balance of $100, so the net balance is $900, the 10 balances aggregating $1000 are financing the overdrawn of $100. Yes?---To the extent that it's overdrawn. And if each of the 10 people were to call on their $100 for payment, then the result would be the - - there would actually be a negative balance then in the account?---Pro rata they would suffer reduction of the $100. Yes. Thank you?---Section 50, subsection (2) of the Act sets out the audit of a finance broker should be conducted in accordance with accepted auditing practice. As I said, I've examined the audit of this trust account for the years 1995 to 1998. In 1995, there was a single auditing standard that applied called AUS1, and amongst other things, it dealt with skills and competence, planning, documentation and audit evidence. Compliance with that auditing standard AUS1 was mandatory, although in a self-regulatory environment. In 1996 and subsequent years the regulatory environment with respect to the audit - -to auditing standards was changed, and some of the auditing standards that were previously in AUS1 were codified into separate standards, which dealt more extensively with each particular area. So those five standards in front of you came into play, and each of them dealt with a specific aspect of audit work. Again compliance with those standards was mandatory, although in a self-regulating environment. Can I stop you there? For those members of the committee who don't have an accounting background, the standards applied to those various areas of quality control documentation, planning etcetera, in what way did they operate? How did they prescribe a standard - - a measurable standard?---In general terms they describe minimum amounts of work that an auditor should do, or should be qualified respect of to perform the audit of a trust account of finance broker.

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Thank you?---Before undertaking the audit of a finance broker, it would have been common to actually have planned the audit of that finance broker. Some of the matters that I would expect to be considered when the audit of a finance broker is being planned, those on the slide, such as the quantity and number of loans that were brokered as new loans during the year, or were in fact loans that were continuing from prior years. Some profile of the lenders and borrowers from the trust account, for example were the lenders elderly and perhaps not sophisticated, and were the borrowers from the trust account real estate developers, which represented high risk in terms of perhaps those loans being repaid. MR CHANEY: Just stopping you there, what you're suggesting is that as part of the audit process, the auditor would gain some sort of profile of the lenders and borrowers, and having completed that task of profiling, what does that tell you? If for instance the conclusion are that they're elderly lenders and developers in a high risk area, what does that translate to in terms of what the auditor will then do?---It puts the auditor on notice that there may be risk associated with the audit of this trust account, and that therefore the auditor may - - is put on notice that in conducting his work he's most probably got to be more observant than he may otherwise have been. All right?---You'd also consider the existence or otherwise of a cashflow guarantee, the essence of a cashflow guarantee to me as an auditor would increase risk associated with the audit of a trust account because its very existence indicates that there is the potential of defaulting borrowers. You would also examine whether or not there are pooled mortgages being offered, pooled mortgages being more complicated than single mortgages. You would also make inquiries of the finance broker as to whether or not any associated entities of the broker were in fact borrowers from the trust account, and you consider the control environment surrounding the trust account in such matters as is there a stable staff structure, are there divisions of duties regarding the people who actually maintain the trust account, and is there some form of management review of the reconciliations being performed monthly on the trust account. Having considered those matters in the planning stage of an audit, the auditor then develops an audit program. If the audit program did nothing else, it should test two areas of the Act, they being section 48(3) with respect to the withdrawal of moneys from the trust account, and the moneys not being capable of being withdrawn unless it's for the completion of a loan. And section 45 subsection (d), relating to the reconciliation of the trust account on a monthly basis. With respect to section 48(3) in performing the audit of a finance broker's trust account, you would expect the auditor to apply a sampling methodology to existing and new mortgage loans. You would expect as an audit procedure that the auditor would test that security is

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registered or contemporaneously registered with the advancement of moneys from the trust account, and the auditor would also be expected to perform DOLA searches of both the mortgage and certificate of title to ensure that security is properly registered. Relating to the reconciliation of the trust account, and section 48(5)(d), an auditor would normally review each monthly reconciliation of the trust account, and you examine that reconciliation in detail to ensure that there were no debit balances in client ledgers, and that all liabilities of the trust account are properly identified within the trust ledger, and as I stated, that the monthly reconciliations are reviewed by someone in authority. MEMBER NEWMAN: Mr Cubitt, would it also be fair to say that the person who's doing the reviewing should be independent of the person who has carried out the authorisations and the actual transactions being posted through that particular trust account?---Normally you find, even in the smallest office, that there is someone who's in charge of the trust account, and there is another person, normally the licensee who can, independently of the person who actually performs the work in reconciling the trust account, review that that work has in fact been done, correctly. Thank you. MR CHANEY: So, just before we move on, Mr Cubitt, in essence the process of auditing in order to comply with the Finance Brokers Control Act, involves more than simply reviewing the trust account itself in looking at the entries to see whether or not they appear regular, but going beyond that into some analysis of transactions?---Yes. A sampling basis?---Going back to section 48(3) which deals with the advancement of moneys from the trust account, and that section says that money can't be advanced until the loan is completed, with a loan involving mortgage security, my view of that particular section of the Act is that the moneys could not be advanced from the trust account until such time as the mortgage security has been put in place, so there are specific section of the Act that the auditor would have to test that the finance broker has complied with, and those two being the ones I've discussed being the main sections. Can I ask you a question which is relevant not necessarily to the Rowena situation, but to other matters that the committee may be looking at. If in the audit - - the annual audit report provided by an auditor, there is an attached list of individual client ledgers in trust account, some of which are shown to be negative balances, is that something which should immediately ring alarm bells, firstly for the auditor, and secondly for anyone who looks at that audit report?---To the extent that there are any debit balances contained in a trust ledger, as I've describe before, that represents a deficiency of the trust account. If they came to the knowledge of the

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auditor, or if the auditor came - - became aware that trust accounts within that ledger had debit balances, in my view they represent a deficiency to the trust account and would require immediate reporting to the Finance Brokers' Supervisory Board. Thank you. CHAIRMAN: Well, any auditor would find that, doing his job, would find that immediately, wouldn't he, because he'd have to look at the trust account?---Normally that would be the case, sir, yes. Yes, normally?---Yes. Thank you?---Just by way of example, the first reconciliation that we have been able to find, or records relating to the reconciliation of a trust account that we have been able to find in connection with Rowena's trust account, I have summarised on this overhead, and it relates to September 97. It's showing you that there are a total of 8982 reconciling items in the trust account reconciliation comprising those four categories. If I just perhaps to turn to one of them by way of explanation, the second item, bank statement deposits not recorded as cashbook deposits in the computer system. There's 506 of those. So what it's saying is moneys have been deposited to the trust account bank account of Rowena but have not then been recorded into the computer system. In that recollection at September 1997 the trust ledger records a bank balance of 6,721,658.67, the bank statement balance at that date is 444,672.42. In trust ledger there are 16 debit balances of 7,942.62, which prima facie represent deficiencies of the trust account. And there's about 35 trust ledger balances that are inadequately identified in terms of their description in the trust ledger, they bear the description settlement disbursements, folio - - whatever the particular folio number is. In my view, the trust account of Rowena at 30 September, 1997 was in a state of gross unreconciliation, that's the terminology you can use, or grossly unreconciled. MEMBER NEWMAN: Would it also be fair to say, Mr Cubitt, that it was very badly recorded, in view of the number of transactions that we're told when there were bank statement withdrawals not recorded as cash, but withdrawals of the computer system, because logically anything withdrawn should be recorded before it leaves the office and the account?---That's correct. MR CHANEY: And just - - sorry. CHAIRMAN: I'm sorry, I'm lost. This is September what year?---1997. Well, when did the audited accounts have to be forwarded to the Finance Brokers' Board, for that - - ?---The annual audit

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18.5.00 S.C. CUBITT XN 260

for the 1997 year was due to be lodged with the board by 31st of March, 1998. Was it?---Yes, it was. And did have an auditor's report on it?---It did. It was signed off?---It was signed off, yes, unqualified. CHAIRMAN: Unqualified. Well, that's where I'm lost. MEMBER NEWMAN: So none of these discrepancies have been reported in that auditor's report?---No, they haven't. SPEAKER: I'm lost. MR CHANEY: I think whilst this is being sorted out, you might as well turn the projector off. We're going to areas - - MEMBER NEWMAN: Mr Chaney, could I point out that the printout that we have doesn't have that conclusion page that was just put up? MR CHANEY: No, that's because you'll be seeing it in due course. MEMBER NEWMAN: All right. It shouldn't be part of this? MR CHANEY: No. CHAIRMAN: You're not supposed to see it, yet. MR CHANEY: On our way back to the first portion. CHAIRMAN: Do you want a short adjournment, Mr Chaney? MR CHANEY: The question may be better directed to Mr Cubitt, I think, Mr Chairman. CHAIRMAN: Mr Cubitt, would you like a moment?---Yes, thank you. Right. We'll adjourn. SHORT ADJOURNMENT

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18.5.00 S.C. CUBITT XN 261

UPON RESUMPTION: CHAIRMAN: Yes?---That was the position of September 1997, as I said before we haven't got any record relating to the trust account or haven't seen any records relating to the reconciliation of the trust account prior to that date, but using that September 1997 reconciliation - - MR CHANEY: Mr Cubitt, can you just remove the cap from the - - ?---I went back and looked at what the position was at March 1997, and again there were a number of reconciling items which would lead me to believe the trust account wasn't properly reconciled at that point in time either. So for the period from March 1997 to September 1997 then the 2 subsequent months, November - - October and November, that 11 month period the trust account in my view was not the correct - - was not correctly reconciled in accordance with the requirements of the Act and more specifically section 48(5)(d). MEMBER NEWMAN: Is there any evidence that someone in authority had reviewed the reconciliations, raised any queries, put any procedures in place to correct the problem?---None whatsoever. MR CHANEY: Again, Mr Cubitt, just for those of us who aren't accountants, the expression reconciling transactions, of which there were 8982 in September 97, what are you referring to when you refer to a reconciling transaction?---Well, just going back to that reconciliation, as I said by way of example in the second category, you've got a bank statement deposit, it's recorded on the bank statement, but it hasn't been recorded into the trust ledger. Now normally you would have to find out who deposited those funds into the trust account, and from there they would be transferred to a client ledger for that person who deposited the moneys. Yes. So - - ?---If you could ascertain who it was who deposited the moneys. So if one were to define reconciling transaction, it would be a transaction recorded somewhere which requires some explanation, so as to - - ?---It requires further investigation to identify, or to correctly identify the transaction. Yes. Thank you. Does that take us to the end of your general commentary in relation to the audit process?--- (No audible response). Mr Chairman, I'd seek to have the hearings in camera. CHAIRMAN: Very well. SHORT ADJOURNMENT

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23.5.00 E.W. BRUNTON XXN 358

CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Thank you, Mr Chairman. I've recalled Mr Ted Brunton for the purpose of cross-examination. CHAIRMAN: Thank you, yes, Mr Brunton? MR BRUNTON: Good morning. CHAIRMAN: Good morning. We'll swear you in again, you might have forgotten it. MR BRUNTON: All right. EDWARD WILLIAM BRUNTON sworn:EDWARD WILLIAM BRUNTON sworn: CHAIRMAN: Mr Chaney? MR CHANEY: I have no further questions before Mr Brunton's cross-examination. CHAIRMAN: Now Mr Hooker. MR HOOKER: May it please - - CHAIRMAN: Just before you start, Mr Hooker. Mr Allanson, do you have any questions of Mr Brunton. MR ALLANSON: I'd expect none. This is a witness who's primarily of interest to Mr Hooker, so perhaps if anything arises I may, but certainly I don't have anything at the moment. CHAIRMAN: Thank you. Yes, Mr Hooker? MR HOOKER: Thank you, Mr Chairman. CROSS-EXAMINED BY MR HOOKER: MR HOOKER: Thank you, Mr Chairman. Mr Brunton, when you gave the bulk of your evidence a few weeks ago, one of the things you covered was the fact that there was a variety of reasons why complaints which had been made either to the board or the ministry may not have culminated in a disciplinary inquiry by the board, that's right isn't it?---That's right, yes. One of those reasons that you referred was that sometimes complaints got resolved or conciliated?---Yes, yes. One of the reasons from time to time was that the complainant or the person with the grievance might not actually have wanted to give sworn evidence?---Yes, some of the elderly people weren't prepared to pursue it with a statutory declaration to support their evidence and - - of a complaint.

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MR HOOKER: You also made mention of the fact that sometimes one particular matter might have had several individual particular complaints about a certain finance broker?---Correct. And that's something that would have an effect on the total number of "complaints", for statistical purposes?---Yes, that'd be a factor. One other variable that you made mention of that affected whether or not you would have a disciplinary inquiry or when you would have it, was that you often had to wait a while to get legal advice on certain issues?---No, well, that'd be right. A complaint under investigation, they'd get to a point and we were informed that they had to get a legal opinion, and I recall one legal opinion that seemed to take 6 months. That was back to the Crown Law, in the Crown Law days. Was it the case that sometimes, on your understanding, issues got sent to the Crown Solicitor's office for advice whereas at other times an in-house lawyer of the Ministry of Fair Trading would provide the advice?---Yes, more the latter than the first point you mentioned. And again on the basis of your own observations did there appear to be any particular stability in the legal staffing of the Ministry of Fair Trading?---Say that again? Was - - how stable did the legal staffing at the ministry seem to be? Was it pretty fixed or did it seem to be in a state of flux?---It seemed - - it seemed to vary. I mean it would - -appeared to be stable for a while, and then you get a whisper around the traps, I thought at one stage they didn't have a solicitor, an in-house solicitor. Then, as I understand the evidence you gave before when legal advice on various issues had been obtained, there was some times an obstacle as to whether it seemed that the broker had been acting in the course of business which was relevant to the definition of finance broker in the Act, that's right isn't it?---That's true, that was a great frustration to me was the fact that we were told that when someone was caught, if that's the word, exposed, acting as a finance broker, albeit unlicensed, the fact that he was only doing the odd one, two or three transactions over a period of time did not constitute the business of a finance broker, so you know, another obstacle put in the way. But that was one of the various reasons which we're now canvassing which may have meant that even though a complaint had been made, there was no actual disciplinary inquiry that the board conducted, is that right?---That's right. I mean, even when - - and they were mainly through industry members reporting what they thought could be advertising by unlicensed brokers, and they were handed into the investigation and if

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they did, and that did expose some people in that category, and on some occasions then those people decided to apply for a licence, but - -I mean, it didn't act like if I'm caught driving a car without a licence, I can't say to the police well I'm going to get one next week, he doesn't overlook my fine, but here they would overlook those misdemeanours if the guy went ahead and made application for the grant of a licence. MR HOOKER: On this particular issue, was it something that you as a board member felt that your hands were tied because a decision was being made in the investigation process that affected what you as a board member could or couldn't do?---True, yes, but there was never the - - never ever the implication, or the suggestion that we had overriding powers to me, we'd always seemed to be subservient to what the ministry come up with. There's an observation been made, Mr Brunton, that industry members of the board had some particular duty to inform the rest of the board as to what was going on. Are you in a position to comment on the appropriateness of that suggestion?---Yes, well, I read that in the paper of recent days, allegedly by a solicitor and I find it very hard to come to terms with that. I mean, at a formal board meeting, do you think that my fellow colleagues would listen to me coming with tittle-tattle tales about someone who you suggest is exercising bad practice in his business? Who am I to say what's good practice, bad practice? Would it - - ?---At the risk of being immodest, I think I've got high standards, but someone down the road, he may have lesser standards, but he might still be on the right side of the double lines. I don't know. And therefore I cannot accept that that board - - industry board members were duty bound - - and the only way you'd find that out would be with a proper examination of 30 or 40 files out of that office. And would it be fair to say that it would be a meaningless thing to suggest that even if you as an industry member did acquire some particular information about a finance broker, you could bring that to the board and then conduct some sort of disciplinary inquiry there and then, that couldn't happen in any fair or rational way, could it?---Not to my knowledge, not to my knowledge, no. No, if we - - it comes to mind that on a couple of occasions say a finance broker got a mention in the press over some point that we thought might reflect on he's a fit and proper person, we have called those type of people in and had a talk and got their side of the story, and - - but no, otherwise it would have to go through the formal process. Going back to, Mr Brunton, some of the issues upon which legal advice was obtained from time to time, another one of those issues was the extent to which a finance broker had as a client the lender in a transaction, rather than the borrower, that's right, isn't it?---Yes, yes.

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MR HOOKER: And I think you've referred in your evidence to the fact that certain advice was received by the board which suggested a narrow interpretation of the legislation and doubted whether it necessarily covered the relationship between the broker and the lender?---Yes, well that only surfaced - - or, I'm guessing here, at the outside in the last 5 years. We were astounded by the fact that the client was not necessarily the lender. Do you recall yourself ever actually reading a legal opinion, or was it just something that was referred to, discussed, at board meetings?---I may have read it, Mr Hooker, I - -you know, if it was, it was very, very detailed and you know, so anyway, we just had to accept that, that was the legal opinion and the client was termed the borrower and then as I understand the people making complaints in the category of being a lender, had this thrown at them that the client - - they weren't a client, and therefore weren't entitled to make a complaint of something in that nature, I'm not sure. Did - - CHAIRMAN: Excuse me Mr Hooker. MR HOOKER: Yes. CHAIRMAN: Mr Brunton, the - - do you know how the instructions to counsel arose? I mean, in other words, what documents and or facts or statements were sent to counsel for his opinion, or don't you know how that happened?---No, no. All I know it happened within the ministry. I see, and you got it from the ministry?---Mm. It didn't originate from the board?---No, no, no. To my knowledge - - To your knowledge it didn't originate from the board?---No, very little if anything of that nature ever originated from the board. The board would instruct the ministry to initiate something. Right, but in this case you've no idea - - ?---No. - - what brief went to counsel for him to give the opinion on?---No. No. Thank you. Yes, Mr Hooker? MR HOOKER: Mr Brunton, you've referred on a number of occasions in your earlier evidence to the fact that the board had consistently attempted, with a number of state governments to have amendments made to the Finance Brokers Control Act?---That's true, yes. I can't understand why this hasn't

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been seized on by the media and others, I think it's a very, very focal point, important point, in this whole exercise, is the fact that the board perceived very, very early days, as back far as 1978, 79, that there were discrepancies in the Act, and they tried for 5 years, finally put a letter to their Minister of Consumer Affairs, it was known in those days, now trading - - fair trading, the minister of the day was Peter Dowding, he wrote back in August 1984 that he was very concerned with the concerns of the board and he would seek that these matters were put right to give the board the proper power to protect the whole industry and that would now be too late for the spring session, it would be tabled, and introduced into parliament in the autumn session which would have been 1985. As we all know, as brokers and the industry and the board especially, it never came to pass, and then successively the board and or the Institute of Finance Brokers met successive ministers, they were a star studded field, Graham Edwards, Yvonne Henderson, Peter Foss, Cheryl Edwardes, Ian Taylor, and when I finally met Doug Shave on virtually the same exercise, he saw me smiling, and he said what are you smiling at, Ted? And I said, well you bring up double figures. And I know what the result's going to be. You know, and he - - to his credit, he did make some concessions to us in the granting of exceptions, we got some conditions on those, but that's another issue and - - but yes, so it's a subject close to my heart and I followed it through as president of the Institute of Finance Brokers and as a board member, and we got precisely nowhere, precisely nowhere. We weren't looked on as an important industry. At the time, over the years, it has grown from say 60 or 70 licensed finance brokers with a certificate to trade to now there's probably about 160, and so we didn't have any clout, we weren't considered a big fish in the eyes of government I would say, and so you know, I don't want to be dramatic about this lady and gentlemen, but you know, this is the atmosphere that this board operated in all the time, and I'm pleased I had the chance to bring out a few of these frustrations, because I felt I was the wrong person, everyone else was right. MR HOOKER: Just taking that a step further, Mr Brunton. I wonder if the witness could be shown exhibit 28 please? Now Mr Brunton, that's not a document that went into evidence through you the first time, I know. I put that before you because it collates conveniently a number of documents I want to take you to. The first three pages of that exhibit just summarise the contents that follow, you've got the first three pages there. Then if you turn to the document which starts at the fourth page, that's a letter, isn't it, from Mr McComish, the then - - a then member of the board in June 1984?---Yes, he was the - - he was the legal practitioner on the board. Yes?---And we felt that he was the best person versed to pen this on behalf of the board. There's attached - -

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CHAIRMAN: Just a moment, Mr Hooker. MR HOOKER: Yes? CHAIRMAN: Just for the record I'd like to put it into - - on the record that this document is one which goes from the 6th of June 84, D Day, to - - purports to go the 15th of September 97. Yes, Mr Hooker? MR HOOKER: Thank you, Mr Chairman. (TO WITNESS): Just before we leave that letter from Mr McComish, Mr Barr ...(on tape)... first of all that's a letter you're familiar with and you've seen before, isn't it?---Yeah, I got a copy of it. And an attachment to Mr McComish's letter is a summary of submissions and action starting in January 1979, and ending at that time in October of 1983, you see that?---Correct, yes, I've got that. Then if we turn to the next discrete document in the bundle, it's a letter from Minister Dowding back to Mr McComish dated - - I think there are two separate stamps, there's one the 23rd of August, at the foot, and then there's one at the 27th of August, 84, at the front of the document, you see that?---Yes, I've got that, yes. Then the next discrete document is headed "Finance Brokers Control Act 1975, proposed amendments under consideration"?---Yes. That's the next stapled document?---Right. And on its face it lists a number of proposed amendments that have been prepared by Mr Glanville?---Yes. Then of the Department of Consumer Affairs in September 85?---Yes, Paul was the solicitor of the day there. Just taking you specifically to the proposed amendment headed "1" there Mr Brunton, that says, doesn't it, in section 4, in the definition of finance broker, "delete the words 'other persons' and insert in lieu thereof the words 'any lender or borrower'"?---Yes. Then if I can take you to the next discretely stapled document in the bundle, Mr Brunton. CHAIRMAN: Why is it discrete? MR HOOKER: Because it - - just for the ease of reference, Mr Chairman, we've got - - CHAIRMAN: All right. I just wondered why ...(indistinct)...

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MR HOOKER: The notes prepared by Mr Glanville which go five pages, and then there's a separate document, these are all in the attachment of exhibit 28. CHAIRMAN: Yes. MR HOOKER: Have you then got the document that's in handwriting headed "Board" with the words "Issued some time prior to September 1985", Mr Brunton?---Yeah, that's my writing. Yes. There's then a reference again in that document to that same proposed definition?---Right. To finance broker in the Act. Have you got that there?---Not exactly, not the - - CHAIRMAN: Well it's the top one. MR HOOKER: The top one?---The first page? Yes?---Yes, yes. Is there a reference to reason underneath that proposed amendment, have you got that there?---Yes. Can you read that out please, Mr Brunton?--- "The existing definition seems to cover one side of the

transaction only, but a finance broker can act for either lender or borrower. The amendment would eliminate any uncertainty and be more descriptive."

Is that the reason that is put forward there consistent with your understanding of one of the amendments the board had been trying to achieve for some time?---Correct. Thank you. That can be put to one side, that exhibit now, Mr Brunton. The final issue I wanted to canvass with you, and I know you touched on it to some degree in your evidence earlier, was the fact that you had some opportunity to observe the work ASIC have been doing in recent times?---Yes. Investigating or enforcing matters relative to finance brokers?---Mm. How, on the basis of your observations, how well resourced do ASIC seem to be compared with the resources at the Ministry of Fair Trading?---Well, I mean, there's no comparison. I mean, I was green with envy all the time when I saw the powers these people had to the point that in my frustrations and that when I made my submission to the - - my initial submission to the industry reference group in 1997 - -

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Yes?--- - - above all, and that was concerned with regulation, or deregulation, I said above all, whatever happens I believe that all private - - all finance brokers handling private investor moneys should be transferred and come under the control of ASIC. Exactly what you're saying because of their greater powers, their greater resources, they seem to have staff to throw in, whereas in our industry I say, in our board experience it was exactly the opposite, and the only way, the only way to properly be proactive would have been to have a team going in to various finance brokers of the private investor type to do snap audits and check what's happening, it's the only way you would have had any chance of trying to sift out whether - -what was going on was lawful or unlawful. And to go back to your question, yes, ASIC just seemed to have the powers, I mean, I'll give you a prime example. Recently I read in the press where they've stamped out - - or de-licensed or whatever the term is, one Ken O'Brien and Graeme Grubb. And I said to a board member, a current board member, how long will it be before the present - - our board does likewise? I mean to my knowledge not a thing has been done because there just doesn't seem to be the machinery and the power to do that. So again to go back to your question, Mr Hooker, yeah, I was green with envy with ASIC with those powers to protect people and control things. Thank you very much Mr Brunton, I've no further cross-examination. CHAIRMAN: Before Mr Chaney - - Mr Brunton, you've said that one of your frustrations was that if somebody who's acting as unlicensed finance broker was brought to the attention of your board, and they were then given a licence. Well, who gave them the licence that you're talking about?---The board would. The board did?---Yes. Did you have a say in that as to whether they should or shouldn't get one?---Well, there'd be some censure of the person involved, and so forth but I say the accepted thing seemed to be that he's now decided to be a good boy and get a licence - - And it was - - ?--- - - just let sleeping dogs lie. Just granted was it?---Well, not just granted, Mr Chairman, you know, going through the usual preliminaries, fit and proper person, material resources, experience in the industry and all those sort of things, but you know, maybe I'm from the old school, Mr Chairman where you know, I thought you had to pay the penalty for your misdemeanours. Well - - ?---You should have gone through the process of a fine, practising as an unlicensed finance broker, and then sure, once he's served his whatever that was, he could front up then and try for a licence.

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And what happened when you put that up?---When I put it up? Did you put that up to the board at a board meeting, and say hey, you should - - ?---No, I can't say that I, you know, tidily put it to the board, but I expressed my opinion along those lines on many occasions, but after a while, when you find that your opinions and so forth come to nought, you tend to - - CHAIRMAN: Decline to offer them?---Yes. You don't proffer too - - you know, over a period of years, bearing in mind I was on the board for about 16 years, so - - Okay?--- - - at just one point I'd like to say whether that's relevant - -and again at the risk of being immodest, having been managing director of Bevilaqua and Williams where I told you before no one ever lost a cracker, I was very mindful of private investors. I mean, it's all right to criticise them in this event for being so trusting, but they do trust when people get older and those people trust you so much and so I had a great empathy for them, and - - Nobody as far as I know is criticising anybody for being trusting?---And then in these cases was some again sold as for the sympathy for the investors, is the fact that quite often these brokers obviously had conducted successful transactions, over a period of time, and therefore people get lulled into a sense of security, and for some reason, maybe the propositions get a little bit more you know, nebulous or risky, but they say, never let us down before and you know, it has a snowballing effect. That's the only thing I can see happened, but I think if solicitors are ever chasing up for the investors it would be better employed chasing up auditors, valuers and people of this ilk that may have had a closer- - closer, you know, observation of what was going on. Yes, thank you?---And until you can go in to a place and you know what you're looking for, that - - and I brought that point up before, the ministry are now calling for compliance officers with experience in this field, which they never had before. Yes. Thank you Mr Brunton. Mr Allanson? CROSS-EXAMINED BY MR ALLANSON: MR ALLANSON: If you please there's just one matter, and I understand you were a member of the board in 1997?---Yes. Perhaps I'll see first if you can remember, and if you can't we'll just leave it there. The firm of Gamel Ward, do you remember dealing with Gamel Ward in 1997?---Yes. The reason I raise this is we've got a witness I see later

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today who's talking about Gamel Ward investors losing their savings after 1997. Do you remember the conditions which were imposed on the Gamel Ward licence at the beginning of 97?---Gamel Ward? This is when it was only Bill Gamel, I think. After Mr Ward was - - resigned - - ?---Yes, Ward had left the partnership, hadn't he? MR ALLANSON: Yes?---Yes. And do you recall the licence being conditioned so that they could only in effect receive funds from licensed credit providers, they could no longer - - ?---Yes we - - - - take funds from the - - ?---That came out of the inquiry into the - - from a complaint, but I can't be definitive about what it ended up. It did end up - - and also we were concerned that Mr Gamel, by his own admission, spent a lot of time overseas, and then we couldn't see where there was some person - - a licensed person in bona fide control. Right?---So the point he did put up a proposition to get another licensed finance broker to take up residence in his offices when he was away. I can remember those type of things, and yeah, I believe we did put a restriction that he could only - - conditional that he only could deal with credit providers, banks, finance companies etcetera. Yes. So that from that time the firm of Gamel Ward could no longer take funds from private investors?---That would be - -if that, I say I'm just only 70 per cent sure that you're telling me - - Right?--- - - and I think I recall that, so yes, that would be right, that he - - but there again, who'd police that I wouldn't know. Yes. Well, we'll be able to bring that in later through board minutes?---Mm. Thank you?---The only thing I was going to say too, the other thing that an investor brought up here, Mr Chairman was the fact that they're saying that something - - statute of limitations. Well, haven't they read the provision? The provision gives the right in the case where warranted, to get the minister's approval to extend the statute of limitations, and that is another area of my concern, was never ever - - was never ever exercised that getting a minister's approval just because some person, you know, makes a complaint, and sometimes took that long to investigate the complaint, and next thing it's out of time and they tried to throw the statute of limitations at them. And I felt that was an oversight that they could have got minister's approval and you know, because some - - some misdemeanours take a long while to

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surface. That's something that could be dealt with I imagine subsequently because just from the bar table I can tell you the record shows that decision was appealed to the District Court and the District Court determined that the statute - -that the 3 year limitation period under the Act doesn't apply to proceedings before the board, so that really is a bit of a non-issue that one now?---When was that as a matter of interest? When was that - - MR ALLANSON: 1997, it was following the inquiry into complaints by Mr Bowman. CHAIRMAN: Bowman, yes. Mr Chaney? MR CHANEY: Thank you, sir. A couple of matters. RE-EXAMINED BY MR CHANEY: MR CHANEY: Mr Brunton, you've mentioned that you can recall in one case that getting a legal opinion took some 6 months. What was the average time, when something came to the board, and it was decided that it needed to be referred off for a legal opinion, how long in general would you expect to wait?---Possibly a little bit off the top of my head, John, I'd say 2 months. And generally speaking, if that was your expectations, was that sort of time within which - - ?---Well, we tried to, you know, we used to say this has got to be given top priority, high priority. Yes. And high priority meant you got an answer in 2 months, or something else?---That wasn't our expectation, but that's what quite often happened. MEMBER NEWMAN: Mr Brunton, Mr Glanville was mentioned earlier in the evidence that's been given. Did Mr Glanville not become very seriously ill and I believe may have died?---He is deceased, yes. Was the 6 months delay around the time when he was so ill?---No, I think it was long after that, Dr Newman, long after that, I would say. So that wasn't a part of the - - your problem that someone who was a legal officer was seriously ill?---Because Paul Glanville, to my knowledge, actually - - he left the Ministry of Consumer Affairs, and he took up a role I think Perth Building Society they poached him, and he was the one who was aware of the exception provision in the Act, and he got approval for exceptions for quite a few agents who were dealing with Perth Building Society finance, so I remember Paul's role there, and that sort of opened the floodgates a

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23.5.00 E.W. BRUNTON REXN 369

bit in that area, that we weren't - - say another area, we could - - completely unhappy about and we could never get you know, anyone, because that says - - it could only be granted where adequate safeguards exist, and we weren't always convinced there were adequate safeguards to grant these exceptions. All right, thank you. MR CHANEY: Just on this question of the delay, or the time to get legal advice, so that we can get things in perspective, you say you recall a particular opinion that took 6 months. What was that about, do you remember the subject matter?---Was something - - it had to go to the Crown Law, no, I really can't. It just is a few years ago, but it's in the 90's for sure. MR CHANEY: But I take it because you remember that distinct occasion that was quite exceptional that 6 months was not something that regularly occurred or that sort of ...(indistinct)...?---It went down to the - -it went out of the house, you know, it was - - Yes?--- - - to the Crown Solicitors, they were getting an opinion through there, I don't know whether they had any difficulties internally in the house, over that one, but yes, so that took quite a while to - -to come to light. What I'm trying to understand from your evidence is from your perspective how effectively and efficiently legal advice was obtained in the general case, and putting aside the odd exception, so my question is was that 6 month one really quite exceptional, or was that something which occurred regularly?---That was exceptional and yes, it must have been a complicated one. If I'd had a prior notice, I could have probably you know, recalled, but in the main, I mean I'm not here to criticise the ministry's overall performance as far as you know, servicing things - - Well, it's not really - - ?---But - -and then you tend, and when you get the drift of things, what's going on, you're appreciative then of their difficulties. Yes?---As I was saying, I was appreciative of these investigators, with all respects to them, it would be like sending me to give a report on accreditation for a motor mechanic. I wouldn't have a clue, and with all respects, I don't think these guys knew what they were looking for. I'm - - it's not really an issue where criticism necessarily follows any particular person, all I'm seeking to do, Mr Brunton is identify the objective facts - -?---Yes, I - - - - from your observations?--- - - see the point.

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There may be all sorts of good reasons for it, but do I take it that your evidence in summary is that the normal expectation for legal advice after it was asked for by the board would be about 2 months and that generally that that was met?---Yes, that would be my estimate, and then I say it's got to be seen in light of we weren't the only cab on the rank. I mean there's all these other people had come under the jurisdiction, I believe they only had the one legal department, I'm sure of that, and they would be asked for opinions and whatever on a variety of things, so we more or less - - not - -there wasn't a million you know, looking for legal opinions, they weren't cropping up, they might only crop up two or three times a year, four times a year. MR CHANEY: Yes, thank you. The other issue that I wanted to ask you about was in answer to some of Mr Hooker's questions, you talked about this client issue?---Mm. People not being clients because they were - - they were lenders. Whose decision was it, whilst you were on the board, and this issue arose, to cease pursuing a complaint because of that determination the complainant was not a client? Was that a decision of the board or a decision of the investigating officer in the ministry or the legal department, who?---My recollection of that, Mr Chaney, was the fact that it just - -this opinion was tabled and given and so - - Tabled - - well, sorry, let me stop you there. Tabled to the board?---To the board, yes. Sorry?---So we were cognisant of the fact that that was the ruling there, and so when they brought up each month the investigating man, and the registrar, the list, the collated list of outstanding complaints, some of them were automatically crossed off because they felt that that had ruled them out as a complainant, because they were made by investors who weren't considered a client. And who had ruled them out as a complainant?---Well, in the ministry. So it was ruled out of your list, rather the board metaphorically putting a line through it?---Yes, we were sort of told and didn't seem to be any point in opposing that, it would have been - - That decision had been taken?---Yes. I've nothing further, thank you, Mr Chairman CHAIRMAN: Yes? MEMBER BLIGHT: I'd like to just follow that point up which I was going to ask. You've made a - - on a number of occasions you asked for the definition in the Act to be changed so that

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there would be no doubt that lenders were clients of the brokers, as well as borrowers. That didn't eventuate?---No. But up until the stage when you received this legal opinion, in about - - when did you say, 97?---Yes, I would say it was round then. How did you deal with complaints brought to the attention of the Finance Brokers' Supervisory Board by lenders?---Well, they were given full treatment. Okay?---My understanding, but bearing in mind, Mr Blight, that as I've made on many occasions, we - - we had to be careful how involved we got, because of this being the judge and jury and couldn't be seen to be getting a clouded version of things, and so we relied on the submission, and that was at the board's instigation, I forget when those lists came in, they had been in vogue for quite a while, and yes, they would be listed their complaints and so forth, and be it lender, be it borrower. MEMBER BLIGHT: And after that opinion had been - - CHAIRMAN: Just excuse me Mr Blight? MEMBER BLIGHT: Yes. CHAIRMAN: But when they were there listed, what - - were they referred to who, the investigating officer?---No, he's presenting them, Mr Chairman. He's collated this on a list. Yes. Well who - - ?---For the information of the board each month. Okay, well who investigated the complaint?---The investigation division of the Ministry of Fair Trading. How many of those did you get a month? The result of the investigation?---Well, we got progress reports. I mean this complaints list would be, as I said, tabled each month, collated and tabled, and then next month, it might have a couple more complaints or points on it, and some have gone off because you know, it's been successfully conciliated, or whatever. MEMBER BLIGHT: Can I - - go on? CHAIRMAN: Yes, go on. MEMBER BLIGHT: I'd like to just pursue that. After the legal opinion had been received, the investigators still brought these complaints to the attention of the board, did they?---I'm not - - I'm not sure whether they still put them on there, but said we can't look at it, no, I fancy more that,

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Mr Blight, it was they just, you know. The annual report indicates the number of complaints received, and I deduced that you wouldn't normally receive complaints from borrowers, so probably the complaints were brought to the attention, you know, via a lender. And I'm just wondering whether you noticed an increase in the number of complaints being received, number of complaints from lenders, and whether that rang any sort of alarm bells?---We were concerned when they were all rooted back to the one broker. So they must have been channelled through to the supervisory board in one way or another, you know - - ?---Well, they must have been - - MEMBER BLIGHT: Even for your - - ?---Yes. We relied on this list. We never saw any actual written complaint or anything like that, it was all on this list and what the alleged contravention was, section 26 or - - Okay?--- - -item 4 of the code of conduct or whatever. CHAIRMAN: And were they all - - relate to one broker you say?---No, I was just answering there Mr Chairman that if they did root back to any particular - - or one broker, one broker. Well, it would start to occur that you could see one broker was being complained about more than any others around that time, 97?---I would say it was starting to emerge. Okay. Well, let's not be shy about it. Which - - who was the broker?---Well, Graeme Grubb comes to mind. Yes. Now what did the board do about it? Not the ministry, what did the board itself do about the fact that there was all these complaints about Grubb? Did you just rely on - - ?---Well, let me answer that in a couple of parts. Part 1, I would say that the majority of those complaints subsequently were withdrawn, or fixed up. Whether he was robbing Peter to pay Paul in hindsight now, we won't know, but yes, quite often Mr Chairman those matters were resolved and I remember I had occasion when I president of the institute, and that was earlier days, because this man had been under notice. Yes, well you see that's the point I'm getting at. He's under notice, and you're sitting as a board, and it doesn't matter whether - -well, to me anyway, that's beside the point, resolved or unresolved, or whatever, how many hearings were there regarding Graeme Grubb by the board?---I can't answer that because I can't remember. Any?---Yes, we had one - - I'm sure we had one case where he was fined. That was over like housekeeping matters rather than any you know, discrepancies of money or anything of that nature.

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Was it ever suggested by anybody on the board that an auditor go in, have a look at this time, when Grubb's name was appearing all the time?---I'm not saying his name was appearing - -like -- there was others starting to appear. All right?---But the point I'm trying to make is, well, we did end up looking for a auditor and then the ministry, you know, would be sort of they're on a budget, and so - - Yes, but I'm talking about - -?---It did - - the board were looking at putting in - - and then you really want an independent auditor, you don't want the same auditor. No, but I'm talking about 97, any suggestion of an independent auditor going in 97, by the board?---Well, there could have been Mr Chairman, I'd have to go back through my minutes, or -- well, I've tossed most of those out now, but yes, we certainly, naturally, had you know, our eye on him, but until we got something - -something, you know, damning, no one seemed to be of the ilk that it would go any further. I mean we called Grubb in once, I recall that, Mr Chairman. And it's about the last words I said to him was - -because I was concerned that at the time he was living in Albany. CHAIRMAN: What year - - ?---And running an office - - Yes, all right. What year are we talking about, Mr Brunton?---I reckon about 98. And we called him and just - - I wanted to know specifically how he could run a business and be spending 3 or 4 days a week down in Albany, and he had a - - his own private plane or something of this nature. And my strong suggestion to Grubb was to get a good lieutenant, but then he countered that by saying, have happen to me what happened to Owen Blackburne, when a couple of his staff walked out with half the files. I can always remember that and probably my last words to him was that I feel if you don't get a proper lieutenant and run your office properly - -bearing in mind he always had an excuse, you know, the computer broke down, his number one computer girl had taken off and things of this nature. I said if he didn't get a you know, a reliable and experienced man to run your office, I feel that you'll be out of business. But at no stage did - - at around this time, did you send in an independent auditor?---No, because there was no real evidence - - there was no real evidence, Mr Chairman, I will say of any defalcations. MEMBER NEWMAN: Mr Brunton - - ?---People were complaining late payments, something else, but they seemed to get remedied, and I'm sure I'm talking with a fair amount of recall here, that that was how we were placated. CHAIRMAN: Yes, very well.

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MEMBER NEWMAN: Mr Brunton, around about 1995 or 1996, there was a qualified audit report from the then auditors of Grubb. Grubb then changed auditors and the next auditor sent in 2 years reports that were unqualified. Did the board at any stage consider asking any questions of the new auditor as to why they were able to give an unqualified report when the previous auditor had given a qualified report, particularly in view of as you've already said yourself, you had concerns about the way Grubb was operating, the fact that he was down in Albany for so long, did not, to your knowledge, have a good lieutenant, and you were getting complaints to the board, so was there ever any thought by the board that they should query the current auditors as to the fact that they had given unqualified audit reports?---You're probably aware of the dates, Dr Newman, better than I am, but 95 his name hadn't emerged with any regularity and - - and to a fair degree I can't recall seeing the audit report, the adverse audit report. CHAIRMAN: Well, the answer's no to the question I suppose?---No. Yes. MR ALLANSON: Just on that, Mr Chairman, I can check the dates, but my recollection is that the qualified report is 92 or 93. There were then 6 monthly audits with the then auditor - - MEMBER NEWMAN: Who was Grant Thornton. MR ALLANSON: And it was only after I think it was two 6 monthly reports which were clear that there was then the change of auditor. So the clear audit reports after the qualified audit report were with the existing auditor, before there was a new auditor appointed. MEMBER NEWMAN: You may well be correct Mr Allanson, but my understanding of the information that we heard earlier in this hearing was that there was some suggestion that there had been a qualified audit report in the last year that Grant Thornton actually submitted a audit report. They then changed - - they being Graeme Grubb, changed to Steansman? and Bocso, their first and second audit reports were unqualified. MR ALLANSON: Yes, but I'm - -what I'm saying is - - MEMBER NEWMAN: I accept that I could be incorrect. MR ALLANSON: - - that my understanding is that there were unqualified reports from Thornton between his qualified report, and the appointment of the new auditors. MEMBER NEWMAN: Right, thank you. CHAIRMAN: And none of this raised any alarm bells with the

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board?---Well, it was concerns on the board, but we had no factual evidence, and it was never proffered to us from the investigation division, till we had a - - well, a defalcation, and someone was really out of pocket. And I can say that in all - - Yes, but did it ever occur to you that there may be a problem with his books? Not necessarily defalcation, or any fraud, or anything else. Just a problem? I suppose the answer's no?---Well, the answer would be semi-yes, Mr Chairman, but to what degree and - - I was only one person on a board. Now we mustn't forget that, and the board consists of three government appointees and two industry, and if it ever comes to the crunch, we could be outvoted. Were you?---I beg your pardon? CHAIRMAN: Were you outvoted?---I - -I'd say on three or four occasions yes, I can't recall what the issues were - - No?--- - - but we were outvoted when we wanted to do something and the other members didn't see - - didn't think it was necessary, and bearing in mind in the last - - and this is no reflection on any of that category present, in the last 3 or 4 years I would say, that I was on the board, the chairman was a legal practitioner, and the legal practitioner obviously on the board, just coincidental, the chairman, he can be just a man of you know, experience, commercial experience, whatever, which was the previous chairman, Mr John Yull, who was a top line chartered accountant, but as it was the evolution and that or whatever, John Urquhart, he was chairman, he was a legal practitioner, and Linda Keys, and then someone else, and then there was the normal legal practitioner, so you're sitting on a board we're you're outvoted, and also you've got two solicitors there that, with all respect, and I'd be same, you know, mindful of all technicalities, and legalities and you know, you couldn't do an ASIC and rush in and crunch his licence, crunch his licence, it was all had to be done very, very formally, and very, you know, was a great deal of patience, I would say, Mr Chairman. Thank you, Mr Brunton. MEMBER BLIGHT: If I could just pursue it slightly, if the board had felt that because of the number of complaints aimed at a particular broker, there was reason to pursue the matter further, could it have done so under the Act as it then - - or as it now exists? There's been a lot of play about amendments to the Act having been raised, but which particular things could you not have done that you might like to have done under the Act as it is? If the numbers of complaints were increasing all the time, and bells had rung, as you said they had with you, what could the board have done that it didn't do?---Well, with all this hindsight, I mean, we are now singly putting our mind on the things, when I'm talking about a board

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that has a busy agenda every - - every month, sometimes flowed over to another meeting, and all this. We never really had the time to stop and we did the best in the circumstances, possibly would have been to order an investigation, by a qualified man to go in and know what he was looking for. So you could have done that if you had - - ?---Well, I presume we can, what's coming out now, but where I sat I didn't see that opportunity. I'm not being critical of what you did. I'm endeavouring to -- ?---I know, it's a good question, Mr Blight and I take it the way you're saying it, but - - You indicating now that time may have been more of a problem to the board than the Act?---Well that came - -no, but we were mindful, we - - but I only can go back and repeat we had no documentary evidence, no factual evidence of any discrepancy or misdemeanour, apart from what was revealed and so forth, and had, you know, and you do get some more - -some brokers are a bit sloppy with their bookkeeping and so forth, and you know, so possibly to some degree we put Grubb in that category that he was - - I don't know what he what his original background is, because see some of these brokers, you'll appreciate, they got their licences under the grandfather clause when the Act came in and they'd been in business prior to the Act they virtually automatically got a licence, so we were stuck with them, whereas in more latter days, there's an educational requirement and a more thorough examination and whatever. CHAIRMAN: Thank you, Mr Brunton. MEMBER BLIGHT: Thanks very much for that. CHAIRMAN: Mr Chaney, anything further? MR CHANEY: Nothing arising thank you, Mr Chairman. CHAIRMAN: Thank you once again Mr Brunton?---Thank you for the opportunity. Yes. And it has been of great help, don't worry about that?---Yes. Okay. Thank you. WITNESS WITHDREW MR CHANEY: Mr Chairman, I don't know whether you want to take a morning break. CHAIRMAN: Yes, we will. Thank you. SHORT ADJOURNMENT

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23.5.00 F.J.B. TIMMS XN 378

UPON RESUMPTION: CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Call Francis John Butler Timms. FRANCIS JOHN BUTLER TIMMS sworn:FRANCIS JOHN BUTLER TIMMS sworn: CHAIRMAN: Yes? EXAMINED BY MR CHANEY: MR CHANEY: Mr Timms, have a seat. There's some water there if you need - - ?---Right, good. - - to assist you. You're a retired farmer?---Yes. And you live at 292 Estuary Road in Dawesville?---Yes. In order to assist the committee you've had prepared a statement - - have prepared a statement of the evidence you wish to give, is that correct?---Yes. And you have that statement with the attachments in front of you?---Yes. Can I ask you to start reading that statement at paragraph 1?---Right, good. Yes. "My full name is Francis John Butler Timms. I'm known by

name as Jack Timms. I'm retired and prior to retirement I worked as a farmer. My wife and I started investing with finance brokers in the late 1980's. We first used a Mr Lewis, and then Gamel Ward, then John Bell, and then Graeme Grubb. We've not had any problems with John Bell or Mr Lewis. However we had problems with both Gamel Ward and Graeme Grubb. Gamel Ward. The first contact with Gamel Ward in about 92 after seeing an advertisement in the paper. We had a total of three separate investments with Gamel Ward. Out of these I have had one problem investment. This was a company called Fineland Holdings Ltd. Fineland Holdings Ltd Investment. In November 95 my wife and I decided to invest 40,000 in the pooled mortgage investment called Fineland Holdings Ltd. Gamel Ward brokered the loan."

Actually Fineland Holdings Pty Ltd?---Pardon? It's proprietary limited company, rather than - - ?---Yes. Yes. It's a technical distinction?---Might I add here that $30,000 of this 40 was an expired mortgage handled by Gamel Ward, and we added 10,000 to make the 40,000.

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"The information provided by Gamel Ward in respect of

this investment was contained in a letter to my wife" and the copy is here. "The total of four investors in this investment. The borrower was a company called Fineland Holdings Pty Ltd. The total sum of 160,000. The term of the loan for 1 year. Mr Vernus? Polinksna? provided the personal guarantee for the loan. The rate of interest was 12 per cent per annum, the property had been valued at $215,000. The loan value ratio was meant to be 47.42 per cent."

MR CHANEY: Okay. Can I just stop you there? You say that the land had been valued at $215,000, and that's the figure shown against the valuation in the letter of 8 November, 95, which is attachment 1?---Yes. Did you see any other information about its valuation? Did you see a valuation?---No. Not in the valuation. We took Gamel Ward's word for it actually. Thank you?--- "The property was subject to a joint venture operation

between Fineland Holdings and the builder, Robert Zampanovic. The purpose of the loan was build 10 units on the block of land in Kenwick. We were told that four of the units had been pre-sold for $105,000, and that one unit had been pre-sold for $99,750. I was shown the development plans of the units and also a shire approval notice for the development. My wife and I drove out to the property prior to deciding whether to invest and everything looked okay. I was provided with a copy of the valuation" - -

Never provided?---Sorry. "Provided with a copy of the valuation report. I later

found out that at time of the loan was brokered that shire rates, water rates, and land taxes were outstanding."

Thank you. Can I stop you there?---Yes. Did you have - - that came as a surprise to you?---It certainly did, yes. And whose responsibility did you see it as ensuring that rates weren't outstanding at the time?---Well, we didn't expect - - we expected the rates to be up to date. It wasn't - -it was a few months after. The first payment was due in December and when that - - when that didn't arrive, we then contacted the Gosnells Shire Council and made inquiries and they said that the rates were overdue, and we found out that the water rates and land tax were also overdue.

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MR CHANEY: Yes. Did you think that in the transaction where you'd lent money on the property, that anybody would have checked to make sure that rates were paid?---You would certainly think so. And who did you think would check that on your behalf?---Well, I thought Gamel Ward would check that. I thought also that they'd check whether the block was mortgaged, and it wasn't until we got the return of the mortgage documents that we found that they'd used our money to reduce their - - or cancel their overdraft with Challenge Bank. That comes further in this - - Yes, I think we'll get to that in due course?--- "December 95 our names were registered on the first

mortgage over the title deed. Gamel Ward sent us a copy of the title deed. First investment payment was due in December 95."

Interest payment I think?---That's right, the first interest payment. "Was due in December 95. We did not receive this payment

or any others. The borrower defaulted on the loan on December 95 and has not paid any interest or capital back since. We later found out that the borrowers did not use the loan money to carry out the development. Our money was used to pay out an existing first mortgage over the property to Challenge Bank. I telephoned Gamel Ward in December 95 to find out why our interest had not been paid. Mr Ward told me that it was because he had not received money from the borrower. I tried to call him again but my calls were not returned. On 15th January Gamel Ward wrote to me advising the property had been sold and asked us to sign a discharge of mortgage papers." Some of these statements, where it says me it should really mean us, because my wife and I were in this together. "I signed and returned the papers. I later found out the property was never sold. In February 96 I went into the office of Gamel Ward and spoke to Bill Gamel. He told me that the property had been sold but there was a problem with the builder. Gamel told me that there was a fund that would pay me my capital if things went wrong."

Can I stop you there? Did he say any more about the fund? Where it came from?---No. He asked me was I concerned about losing my capital, and I said well, I certainly am. I said we've had no interest payments, and I was concerned about the capital, and he said well, if things go wrong, there is a - - what do you call it? An indemnity fund, that will cover your problem.

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And did he say that was a fund he was holding or - -?---No. MR CHANEY: - - some statutory fund? What did you understand?---I don't know. You don't know what he was talking about?---No. Can you resume at paragraph 21 thank you?---Well, I assumed it was a type of insurance run by the brokers. I see?---But that's - - He didn't go into detail with it?---No. About it with you?--- "Number 21. In March 96 Clairs Keely solicitors for

Gamel Ward." There is a slight alter in the print here. The solicitors were for Gamel Ward. "Issued a notice of default against Finelands. Clairs Keely also acted for us - -for the lenders. I contacted Vern Polinksna in 96. He told me that he had organised refinance with the Commonwealth Bank and that the investors were to be paid out. On October 96 Paterson Property Consultants valued the property at 150,000 on instructions from Clairs Keely, solicitors. In April 97 investors became mortgagees in possession and authorised First National office at Kelmscott to sell the property. The property sold in July 99, some 43 months after the borrower had defaulted on the mortgage. The property sold for $130,000 and the investors made a total loss of $127,000. Attached is the final statement from Sheridan Settlement Agency dated 26th of July 1999."

That $127,000 loss includes capital and accumulated interest I take it?---Yes. A fair bit of that was we had to pay shire rates, land tax, settlement fees and there were by this time, there were several caveats put on the blocks. Now why a shire council would put a caveat on a block like this I wouldn't know, because they must know they'd have to be paid out before the block can be sold or transferred. But it cost us - - I think it was over $130 just to remove the caveats. I understand John Ward is still working as a finance broker and is a director of First Charter Finance Brokers. I also understand that Polinksna worked as a real estate agent in Perth for some 3 years after defaulting on the loan. "1997, complaint to the Finance Brokers' Supervisory

Board. In about February 97 my wife and I, together with an investor called Mary Marsh, made a complaint to the Finance Brokers' Supervisory Board. In May 97, Inspector Wallace sent me a copy of a statement which he had prepared and asked me to sign. Attached is the copy of Mr Wallace's letter dated May the 22, 97. Our statement is also attached."

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Yes, can I take you to that for a moment? That's under tab 5 - -?---Yes. MR CHANEY: - - in the documents. It's dated 22nd of May 1997. Do you know when you actually lodged your complaint?---No, I - - I've - - I kept copies of most letters but I'm afraid I can't find the copy. Can't find a copy of that?---No. It would be on the records of Fair Trading. On one of these documents is their file number 97. Yes, I think there's been a problem with locating that file ...(indistinct)... but in any event, perhaps if we can do it by reference to this letter of 22 May. So by - - obviously by that time Mr Wallace had prepared the statement that's attached to the letter?---Yes, actually Mr Wallace went to Geraldton and took a statement from Mrs Marsh, who was another share in this thing. He went to Manjimup and took a statement from one of the other shares in the investment, and he contacted me and I said I'd prefer to go to his office than he come down to in Dawesville. And I went to his office and outlined and then he typed it out in a form of a statement, and gave me a copy and he kept the signed copy. And did all that happen in reasonably - - or in reasonable time of you having made the complaint?---Yes. Yes. You were content with the - - with the way that it was addressed at that point?---I'm not too sure just how long it took actually, but it - - the time lag was reasonable. Right?---On 4th of July, 98, Mrs Marsh wrote to Mr Wallace asking for a response to a complaint, and there's a copy of the letter here: "In July 98, the ministry wrote to my wife and I advising

- - If I can stop you there thanks?---Pardon? If I just stop you for a moment?---Yes. Take you back to that - - the letter?---Yes. Which is under tab 6?---Yes. That's dated the 4th of July, 1998, which is some 14 months after the letter enclosing your statement. What had been happening in the interim, so far as you were aware?---Well, we were sent a letter, which I'm afraid I gave to somebody else for evidence early in the piece. We were sent a letter stating that we - - that no action would be taken because we were not the client of the broker. We were the lender and the

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borrower was the client on the broker. Well, I think that - - Mrs Marsh's letter to that effect is - - is attached, and just so we can follow, if you look at document number 7 there?---Yes. MR CHANEY: I think in your statement you deal with this, but that's a letter to Mrs Marsh saying you're not a client?---Well, I'm afraid we had a letter similar to this, stating that we weren't the broker's client. At about the same time?---It may have been a bit later than this, I'm not sure. I'm not sure of that, but it wasn't a month or so either side of that date, I'm not sure of that. All right. Well, so that was the end of it, the end of the story. What I'm interested in asking you about is between May 1997, when you had your statement prepared, and you signed it, and then some time in about July 1998, when you received this letter saying you're not a client, what happened in that 14 month period?---Well, the man behind you might be able to tell you actually, Mr Greg Harvey, now I'm not too sure if it was at that stage, or it was a bit later, but he rang me on several occasions, and explained to me how sympathetic he was for our situation, and pointed out that they could do nothing about it, because we weren't the client - - he said that they'd received advice from a QC and that they could do nothing about our case because we weren't the client of the broker. Yes, well, one - - I assume that that was after you'd received the letter?---Yes. Saying to that effect so - - ?---Yes. - - later in - -some time after July 1998, Mr Harvey reinforced what you'd been told in the letter?---Yes, yes. But can you remember - -and if you can't, that's understandable, it's a couple of years ago?---Yes. But can you remember whether anything happened between when you signed the statement and presumably you were expecting - - ?---Something would happen. - - the matter to proceed, and then it's 14 months till you get a letter saying, well, nothing's going to happen, because you're not a client, whether anything happened in that period?---I really don't know. No, I'm sorry, I don't - - just what happened in that time. Okay?---What do you want, the 31? Yes?---

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"July 98. The ministry wrote to my wife - -" we've had that, haven't we? "32. After receiving the letter I wrote back to Mr Willers. We stated that in our view we were clients and that the ministry should not allow Gamel Ward to continue operating as he would rip more people off."

MR CHANEY: And that letter is attachment 8?---Yes. Can I take you to that for a moment? You say irrespective - - and this is in the third line "Irrespective of who the client is, it's our opinion the borrower and the broker were in collusion to defraud the lenders"?---Well, that was the opinion we came to ourselves. We thought it must have happened, in that frame of mind, for Gamel Ward to give such a - -an assuring reference for Fineland Holdings, and also an assuring reference for Mr Polinksna, and assuring that their financial situation was that they could cover the interest payments adequately. And then to find that not even the first interest payment was paid, and then to find out that they hadn't paid the shire rates, council rates, land tax and that sort of stuff, it made us pretty suspicious, and we came to the conclusion, whether that's right or not, that's up to you people to work out, but we were of the opinion that the borrower and the broker were in collusion to have our money and the lender to reduce his mortgage with Challenge Bank. Yes. I was going to ask you about that. Do you know - - now at the end of the day what actually happened to the money, $160,000 that was lent? What it was used for?---I don't know how much the mortgage was with Challenge Bank, but I know that the mortgage was paid off on the very day that our certificate of title was issued. And was any money spent on the development? Any money spent on the development of - - did anything happen?---No, none at all. When we started to try and sell the block, Vernus Polinksna rang me and asked me if he could be of any assistance, and this is not in this statement, but I said, well you could pay a couple of months interest might help. And he said that he didn't mean that, he said he could sell the block for us and wouldn't charge us a commission for selling the block. I thought I'd had enough to do with him anyway. CHAIRMAN: Did you ask him about his guarantee?---I asked him - - I said, well at the time I said, well, you were guarantor. And I think he said, well, you've got the block. At that stage we were mortgagees in possession, and that was his statement, well, you've got the block. MR CHANEY: Have you taken any steps to pursue him on his guarantee, by the way?---Do you know how much trouble that fellow's been in? To send good money after bad - -

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You answered my question?---You fellows know more about him than I would. Right. MEMBER NEWMAN: Mr ...(indistinct)... I could answer that question for you. Vern Polinskna is a bankrupt, or I think he's now been discharged, but he did become a bankrupt as a result of that transaction?---That's - - MR CHANEY: Of this transaction?---This entered our mind of course, but we just thought that we'd send good money after bad. Yes. Undoubtedly very wise, Mr Timms. Could I ask you before we leave attachment 8, do you know whether you ever received any response to this? You've told us Mr Harvey rang you on several occasions?---Yes. Was that in response to this letter?---Well, we put in - - further over, we put in 99, up until we sold the block, we didn't know just how much we'd lost. Yes?---And when we found out how much we'd lost, well then we got back to the Ministry of Fair Trading hoping that they would reconsider our original appeal. Yes. Well, we'll come to that in a moment, but I'm interested to know whether you have any recollection - -this letter was written - - it is undated, but I assumed that it was written not long after you received the letter of - -in fact it refers to your letter of July 13. Sorry, don't want to confuse you. If you look at tab 8?---Yes. You'll see - - you're referring to a letter and presumably that's the letter which says you're not a client?---Yes. And therefore we can't take it any further?---Yes. So presumably this letter was written not longer after the 13th of July 1998?---Yes, yes, I think it would have been, not long after that. Yes. Do you know whether - -forgetting when you went back in 1999, to follow the thing up again?---Yes. Whether you received any response reasonably shortly after the couple of months following July 1998 to this letter, attachment 8?---No, I don't think so. I think that letter was - - we wrote back, as you said, later, but we let it die at that stage. We right for 32? Yes?--- "After receiving the letter I wrote back to Mr Willers,

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and stated that in our view we were the clients and the ministry should allow Gamel Ward to continue - -" I've already read that bit. "33. August - -16th of August 99. My wife and I wrote to the Finance Brokers' Supervisory Board and requested further action to be taken against Gamel Ward. We also asked that the claim for compensation to be made against the indemnity money - -" there's a copy of that letter here. "In our letter we stated that we disagreed with the ministry's 1998 conclusion that we were not the clients of the broker. We referred to board to section 83(2)(b) of the Finance Brokers Control Act, which was meant to provide protection for the consumers. We also referred the board to the Law Reform Commission discussion papers in 1997."

MR CHANEY: 1975 I think that - - 1975?---Sorry, 1975. "And the Hansard recording of a speech by Mr O'Neill - -

Mr McNeill, the then Minister for Justice on 12th of November 97. Mr McNeill - -"

Again that's 1975 I think?---Sorry. That's right, 75. "Mr McNeill was recorded in the Hansard as saying the

board in the ordinary course of its functions will adequate protect the people."

The - -what was the source of your information as to the contents of the Law Reform Commission discussion paper and Hansard?---Denise Brailey sent us - -I think you've got a copy of the letter here. Denise Brailey sent us a circular pointing out different statements. But that's where we got our information. Yes. And what actually prompted you to make this renewed approach to the board, in August 99?---Well, when - - by this time, we knew just how much we'd lost. Prior to this, but prior to selling the block, we didn't know whether we'd made a loss or not, we knew we'd lost the interest, and we were hoping to get a bigger price for the block, but it took us 43 months from the time of the start of it to sell the block, where we actually took it from one agent to another, because we thought the first agent wasn't trying, but the value of the block just wasn't there. At one stage we had 85,000 offered for the block. And then this fellow offered 120,000, and we counterclaimed with 140, he came back with 130, with a footnote that there was a time limit on it, and if we counterclaimed he would withdraw, so I think - - I didn't mention here, but in the meantime, we put it up for auction, and this auction experience was really new to me. The auctioneer auctioned about 15 blocks or houses etcetera on the one evening, and I don't think he sold any of them. They pretended to knock things down, and when our block had a bid on it for 1400,000 I thought, well, that's not too bad. And the young fellow came and whispered in my ear "Don't get too

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excited, it's one of our fellows doing the bidding." MEMBER NEWMAN: No?---Right. We'd better get on with it. 34 is it? No. MR CHANEY: 35?---35: "On the 14th of September 99, Mr Milford, the registrar

of the Finance Brokers' Supervisory Board wrote to us advising that our complaint about Gamel Ward was dealt with in 97 and that we had been advised of the result of that inquiry. Mr Milford also advised that he would be seeking legal advice with respect to our claim for indemnity and would get back to us. On 8th of November 99, Mr Milford wrote to us and advised that the board had received legal opinion that the finance brokers bond only provides protection against defalmation ...(on tape)... - - " what do you - - yeah, "by the broker and the claim would not be admitted. Graeme Grubb Finance Broker. My wife and I used Grubb in around 1990 to 1992. At the time one of our investments with John Bell had matured and Mr Bell did not have a replacement investment for us. We wanted to reinvest the money and saw an advertisement in - - for Graeme Grubb, so we contacted him. We've had about 20 separate investments with Grubb. At the time that the administrator was appointed we had 11 investments with Grubb. We currently have a total of $391,000 plus outstanding interest tied up with Grubb. I didn't realise there was a problem with Grubb until the administrator was appointed. Nolka Pty Ltd and Sabre Way Pty Ltd. In 1995, a - - " sorry, "a 50,000 investment I had made with Grubb was due to expire. When I went into Grubb's office to collect the capital, Grubb asked me to reinvest the money with two companies called Nolka Pty Ltd and Sabre Way Pty Ltd. I agreed. The guarantors for the loan were Graeme Grubb and Margaret Grubb. Grubb told me that as security for the loan I would be registered as first mortgagee over three blocks of land in Armadale. I have $20,000 invested in each of two blocks, and 10,00 interest in another block."

MR CHANEY: If I just stop you there for a moment. It was - - you were told when you made these investments that Grubb himself was a guarantor and therefore you knew - -?---Yes. - - I take it that he was involved in the companies who were borrowing?---Yes. Was that a matter of concern to you?---Well, up until this stage, may I explain a couple of earlier movements with Grubb? The first one we had with him was a block in Huntingdale and he came - - we lived in Applecross at the time, and he came round with his car, picked us up, took us to the block in Huntingdale, then took us to several other houses that were for sale in the area to compare the value, and his service was

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pretty good, and after several incidents like this, another investment we had up the back of Araluen, the fellow - - the borrower went broke, and by the time Grubb finished with him, I was a bit sorry for him, I tell you. He went back on every statement where he'd paid 3 days overdue, and raised the interest rates. Now Grubb sold the block, acted as settlement agent, returned our money to us, and the excess to the original owner borrower, and the service that he gave was pretty good, and you trusted the fellow in other words. The trust begin to wane a bit about 2 years after this 95 investment: WITNESS: 41. - - MR CHANEY: No, I think 42?---Yeah, 40 - - 43: "My name was registered on the title." Sorry, 42 you haven't read, Mr Timms: "Grubb told me that the blocks were of standard size.

However I later found out that they were extremely small. As such they have little - -they have very low sale value on their own. My name was registered on the title deed of the three blocks. After making the investment I found out that the three blocks formed part of Pioneer Village development in Armadale. I received interest up to April 99. The investment - - the investors have not yet become mortgagees in possession. We have been advised by real estate agents that we would be far more profitable to sell the Pioneer Village as one property rather than try and sell off individual lots. Liquidators have told me that there appears to have been no mixing of trust funds in respect to this project." I'm running a bit dry here. "On the 6th of January 2000, my wife and I wrote to Doug Shave stating that we consider the appointment of a liquidator and supervisor for Nolka Pty Ltd and Sabre Way Pty Ltd absolutely essential, particularly to organise a sale of the property. We received reply from Doug Shave, undated, advising that supervisors had been appointed for Rowena Nominees and Oakleigh Acquisitions Pty Ltd and that these companies were not involved with Pioneer Village project. 10th of April - -"

Can I just stop you there for a moment?---Yes. And ask you to turn to document under tab 13?---Yes. That was the minister's response to you. Did you - - in the final paragraph on the first page it reads: "I'm advised that neither Rowena nor Oakleigh have an

interest in the Armadale Pioneer Village. In such circumstances the individual mortgagees may initiate

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legal proceedings against a mortgagor who is in default of the loan. The supervisor has informed all investors that depending on the outcome of the review of the loan any funds recovered under such action may need to be placed into a trust account pending further direction of the Supreme Court"

?---That bit surprises me. Yes, why does that surprise you?---It - - how the man could write that and believe it as truth, first of all Oakleigh Acquisitions - - Oakleigh and Rowena are Grubb - - 100 per cent Grubb companies. Sabre Way and Nolka Pty Ltd are also 100 per cent Grubb companies. Rowena - -what would you call, organised the mortgage of these three blocks, organised the mortgage for 25 blocks actually, to three to us, but 25 to different people. Now it astounds me why you can't put Pioneer - - put the two companies, Nolka and Sabre Way, why they can't pool them in with Rowena and Oakleigh. They have pooled Oakleigh and Rowena to make it easier for the supervisor to handle. Now I'm at a loss to see why they can't put the other two companies in as well. MR CHANEY: Well, accepting that as being the position they were adopting, did you think it odd that you were being told you need to take action by yourself, fund it - - recover some money - -?---Yes, and the money would have to go into the trust fund. Under the control of the supervisor?---Yes, that's a bit of a roughie. Yes?---I can't understand that. No. Right, could we go back to your statement please?---Where'd we get to? I think we got to 50?---50, yes. "On the 10th of April 2000, we received a circular from

Mark Conlan of Bird Camerons partners regarding Nolka and Sabre Way. Conlan recommended that the liquidator be appointed for these companies."

Well now, I've been in touch with the Ministry of Fair Trading, and with the Securities Commission hoping that they would act and put them under the liquidator, but with no result. This circular from Mark Conlan is dated the 10th of April 2000?---Yes. Relatively recent?---Yes. Has anything - - it recommends in fact that somebody should

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take the step, some creditor should take the step of seeking - - ?---Well, it's not an easy job. No?---There are 25 mortgages, admittedly there are only 11 people involved. But there are 25 mortgages, and it's a pretty complex thing. I acted as mediator with the Gamel Ward thing, and there were only four of us in that lot. And that was the amount of phone calls and postage and of course one fellow lived in Darwin, didn't help much, but to get these people together and that every move you made you had to have a written instruction from them, before you do anything, it's - - it has entered my head to have a go at it, but it wouldn't be easy. MR CHANEY: So at the present state of affairs is really as outlined in Conlan's memorandum?---Yes. That's right. Nothing further's yet been done?---Yes. And I was out there a couple of months ago and the vandals had been in and broken every piece of plate glass they can lay their hands on, really wrecked the place, torn doors off hinges and pushed lampposts over and - - now, whether there is - - there should be, according to the mortgage document, there should be an insurance policy. I doubt whether it would be current. Right?--- "All Range Tree Farms Pty Ltd. April 97 my wife and I

invested in 220,000 All Range Tree Farms Ltd. We were told that we would be registered as first mortgagees over five blocks of land in the project. About 2 weeks after we made the 220,000 investment, we decided to invest another 20,000 towards the project. We were told that we would be registered first - - registered as first mortgagees over the sixth block of land on the project. Mr Baker and Mr Ken Williamson provided personal guarantees for the loan. The written information provided by Grubb in respect of this loan was contained in Grubb's letter to my wife and I on the 3rd of July 97."

Can I just take you to that for a moment please, under tab 15? There are a couple of handwritten annotations to that letter? Are they - - ?---I didn't think it would ever come to public view actually. That - - ?---There are some questions that I asked - - I asked Mr Grubb what the assets are of All Range Tree Farm's worth, and what their liabilities were, and the assets of liabilities of the guarantors, and asked if the two guarantors had signed the statement, but at this stage, Grubb wasn't answering his phone. I wrote to him and got no reply. CHAIRMAN: You asked the questions to nobody?---I asked the questions, and - -

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Got no answers?--- - - got no answer. You'd ring through and the receptionist would take your phone number, and the number of times they took my phone number, I couldn't count, and that would be the last you'd hear of it. MR CHANEY: Did you actually leave - - did you say to the receptionist look, I just want to know the answers to these questions, or did you not actually ever ask the questions?---The receptionist would just take your phone number then. MR CHANEY: So you never actually asked someone. You wanted to ask them, but you didn't actually?---I wrote a letter. I haven't got a copy of it, but I wrote a letter asking these questions. Right. And then you - - similarly on page 2, well, it's really the same question, what are the assets of All Range Tree Farms under the security offered?---Yes, that's right. Paragraph?---6 down the bottom. Yes. So you didn't ever receive an answer to your letter?---No. So therefore didn't know the asset position but you went ahead in any event, with the investment?---Yes, that's right. At this stage - - yes. We went head with it. Whether that was wise or not, in hindsight it's - - you can always be a bit wiser. Yes, I don't - - nobody's seeking to be critical of you, just - - ?---No. - - trying to understand the process really, but you - - CHAIRMAN: But you did ask all these questions, got no answer?---I got no answer. And went ahead with it?---Yes, yes. Grubb in his initial recommendation for the project, he assured that it was sound and one thing and another. Yes?---Got a couple of flash - - the brochures - - we had 11 mortgages with Grubb and he used to pay the accounts about five times a month, and every time he paid the account he'd have two of these in it. I think I put about 50 of them in the bin. MR CHANEY: When you're talking about them, you're talking about the brochures - - ?---The brochures on the project? Attachment 16 and 17? You just kept getting flooded with those?---Yes, yes.

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That's of some interest. So they came - - brochures of that nature came every time you received - - ?---That's right. - - an interest cheque?---Yes. Yes. You'd better prompt me where we're at. 55? 55, yes?--- "Grubb also provided us with a glossy brochure outlining

that investment. Our funds were to be invested in four folios of $46,000 each, one of 36,000 and one of 20,000, towards other folios that were worth 46,000." In other words we had 20/46ths in one and 36/46ths in the other. "Grubb told us as soon as the land had been subdivided, our names would be registered on first mortgagee over six blocks. We later found out that our names were only registered on five of the blocks. We were not registered on the block for 36,000. We later found out that on - -as late as March the 23rd I think it was, of March 99, Grubb registered Oakleigh Acquisitions as the first mortgagee on the 36,000 block."

WITNESS: Now this is a real ripper. How that - -if that's not fraud I'm a Dutchman: "The borrowers of the two blocks worth 46,000 have paid

interest up to date. When Grubb went into liquidation, the borrowers paid interest to the liquidator for 3 months or 4 months. However since then they have forwarded interest payments direct to myself."

Can I stop you there, Mr Timms? The letter of - - proposal letter, which is attachment 15?---Yes. Describes the borrower as All Range Tree Farms Pty Ltd?---Yes. And that's the only borrower described. You've said that you understood, or that Grubb told you that as soon as the land had been subdivided, your name would be registered as first mortgagee over the six blocks, but did you ever get told anything about some other person buying those blocks and becoming your mortgagor?---I don't think so. We were under the impression that the loan was going to stay with All Range Tree Farms, but they were going to be subdivided so that separate mortgages could issued. Now I don't think we were told that they would be - - later on we were told, that these fellows were going to take over the mortgages. We were told that they were working for BHP in Queensland and that their salaries were high, their income deductions were practically nil, because they just had no expenses to - - and they wanted to invest in this lots to supply them with a type of superannuation for a later date. So before they actually became the registered proprietors of

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the lots, you were told that this was going to happen?---Yes, I think it was, yes. Thank you. Now I think I interrupted you at - -?---About 40 - - 61 rather. No, 60, I think?---60. You'd read 59?---Yes, I read 59. "The borrower on the block was 36,000. Paid - -" yes,

"Paid interest to March 99 and then defaulted." He paid that interest to Grubb and Grubb paid it on to me, and then most of the interest stopped when the Securities Commission took over. "The borrower of the block 46,000 over which we have a 20,000 share, paid interest to the liquidator for 3 months and then defaulted. After Grubb went into liquidation, I found out that there were problems with Grubb's trust account. According to the liquidators, someone else's money was used to purchase the land."

WITNESS: Now I don't know - - according to Mr Conlan, how money went into the trust fund, and then it was overdrawn and then All Range Tree Farms or these fellows bought the blocks, which means that according to Mr Conlan anyway, that our money was not used in the direction that we thought it was going to be used in. Now of all the dealings we've had with - - we've got several others that are pretty shaky, but I thought these four in particular were fairly solid. But after receiving that information, it makes you wonder. Also I suppose you know that the Securities Commission at one stage were working to have the mortgages annulled. Now this also staggered us, but in the meantime, they have withdrawn that portion of their - - CHAIRMAN: Yes, unfortunately, Mr Timms we all know, and you know, it's all before the Supreme Court and it's going to - -?---Yes. - - to take a long, long time to work out?---Yes, okay, I'm only 78, so I might see it. Got any grandchildren?---Yes, got half a - - seven grandchildren. The six loans - -yes, six loans are supposed to mature in August, 2000. "Sandgate Pty Ltd. In 98 my wife and I loaned 81,000 to

Sandgate Pty Ltd. Ronald Borso- - " is that how you pronounce it? I don't know whether the spelling's right there or not.

It's Bocso, I think?---Bocso, yes: "Arthur Barker and Graeme Grubb provided personal

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guarantees for the loan." I had at this stage 80,000 of that 81,000 was from the loan from a mortgage expired. One of Grubb's mortgages that expired, and the units were $27,000 each, so we sent him a cheque for 10,000, 1,000 sorry, to make up the 27 units: "Grubb provided us with the glossy brochure outlining the

investment. We were told that we were the first mortgagees over 27,000 each registered over number 141, 142 and 143."

I've got a plan of the whole project and those three projects were marked in green: "May 98. Grubb provided us with a copy of a mortgage

document which we thought had been registered." WITNESS: Now this document, to us, appeared a copy of a genuinely registered mortgage. However we found out that DOLA had refused to register the mortgage and another mortgage was registered 6 months later in December 98. Only about half the investors were registered on the title, and we were not registered on the title deed. Now the first mortgage we had, our names were on there as mortgagees, and to look at that document, you'd have to be a lawyer to know the difference between them, because it had already been through DOLA, and then put their stamp on it and they'd even put the fee that it is to require to register it, and we just thought it was genuine until the Securities Commission came in and started to tidy things up and found that - - well, we were like the little bird that fell out of the nest. We just weren't on it: "We received interest up until April 99. We have not

received any of the outstanding interest or capital since. Rowena Nominees. In early 99 my wife and I loaned 20,000 to Rowena Nominees Pty Ltd for the purchase of a property in Albany. We were told that we would have first mortgage over the land at Cheynes Beach."

However, our names again were not registered on that title of deed. The $20,000 was another one of Grubb's mortgages that retired or expired on that date. We never received any documents from Grubb. I contacted him several times, I tried to get documents, but it didn't happen: "We received interest payments up to March 99. We have

not been paid any of the outstanding interest or capital. In July 99 I visited the office of Ministry of Fair Trading and spoke to Mr Greg Harvey. I recommended that the Ministry of Fair Trading and also the ASIC investigate Nolka Pty Ltd and Sabre Way Pty Ltd, and All Range Tree Farms Pty Ltd, as they were companies that Grubb had been involved with. I also recommended that assets of the Grubb group and the guarantors should be

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frozen as soon as possible." Of course, no action was taken. "In 97 I alerted the board to some very serious problems with the finance broking industry involving fraud. The board should have taken some action if not to protect me, then to protect the general public. If the board had taken some action it could have prevented a lot of Gamel Ward investors post 97 from losing their life savings."

MR CHANEY: Can I stop you there? You were in the inquiry earlier when some questions were asked about a condition put on Gamel Ward's licence in 1997, restricting its ability to raise money from the public. Did you know anything about that?---I didn't know about that. MR CHANEY: No?---I did know that - -about 98 I think it was, Vernus Polinksna's real estate licence was relinquished or what you call it. But actually John Ward left Gamel Ward's and went to another company, and he's still trading now. Yes?--- "I think the Finance Brokers' Supervisory Board is not

meeting the objectives that the board was initially designed to meet. These objectives were discussed in parliament in 1975 when the Finance Brokers Control Act was introduced. The board was meant to protect the public and it has not done so. It is clearly displayed in the board's response in my 1997 complaint interpretating ...(on tape)... the word client. On 27th of March 2000, my wife and I made a submission to the Gunning committee." And led me to be sitting right here.

Mr Chairman I tender the statement of Mr Tibbs?---This stays here does it? CHAIRMAN: No just - - leave it there for the moment, yes, thank you?---Right. MR CHANEY: With the attachments. CHAIRMAN: Statement of Mr Timms and attachment is exhibit 84. EXHIBIT 84 Mr Chaney DATE (Unstated)EXHIBIT 84 Mr Chaney DATE (Unstated) Statement of Mr Timms and attachments MR CHANEY: I've nothing further for Mr Timms at this stage, Mr Chairman. CHAIRMAN: Mr Allanson?---That the lot? No, no, just a moment?---Sorry.

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It's all right. MR ALLANSON: No, nothing. CHAIRMAN: Mr Hooker? MR HOOKER: No, I don't cross-examine, sir. NO CROSS-EXAMINATION CHAIRMAN: Yes thank you very much indeed, Mr Timms?---Thank you. Thank you very much?---That chair's a bit of a trap, isn't it? WITNESS WITHDREW CHAIRMAN: Yes. We're worried about that. We'll get sued soon. MR CHANEY: I think the next witness is at 2.15, Mr Chairman. CHAIRMAN: We'll adjourn. Thank you. LUNCHEON ADJOURNMENT

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UPON RESUMPTION: CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Mr Chairman, I call John Thomas Durbin. JOHN THOMAS DURBIN sworn:JOHN THOMAS DURBIN sworn: CHAIRMAN: Yes, Mr Chaney? EXAMINED BY MR CHANEY: MR CHANEY: Mr Durbin, you live at 237 Dampier Avenue in Kallaroo?---That's correct. You're retired?---I am. You've formerly worked as chartered secretary?---That's correct. For the purpose of assisting the inquiry with its task, you've had prepared a statement of the evidence you were to give?---That's correct. You have a copy of that statement and its attachments in front of you?---Yes, I do. I invite you to read the statement commencing at paragraph 1 please?---Can I remain seated? Yes, remain seated?--- "The first time I used a finance broker was in 1996.

I first used Graeme Grubb and then First Charter. With regard to the investments with Grubb Finance, my daughter told me about Grubb. She had previously arranged finance through Grubb for an investment property. That was as a borrower. On the 2nd of October, 1996 I invested 46,000 in a single first mortgage investment to a borrower called Mr Wilkes. Grubb brokered the loan. The information provided by Grubb in respect to this investment was contained in Grubb's letter to myself dated the 2nd of October, 1996."

Can I take you to that please? It's attachment 1 I think?---Yes. That line proposal, is for an amount of $46,000?---That's correct. Although multiples of $1000 up to 46 would be accepted. It's for 3 years and it's a mortgage over lot 28 on a particular strata plan. Did you know where the land was?---I knew it was down near - -it was beyond Margaret River.

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MR CHANEY: Yes, and there's - -in fact that's over the page, the reason for borrowing, the top - -?---Yes. - - the page the borrowers are purchasing these income producing Mt Barker properties in order that they must invest their savings, which are a result of their high income positions in the long term property - - in long term property investment with sound growth, long term income and security?---That's correct, yes. It was said, going back to the previous page, that the net equity in this security was $65,000. See that?---I beg your pardon? Sorry, on the previous page, point 6 in that letter of proposal?---Yes. Net equity of $65,000?---Yes. What did you know about the nature of this property and the - - ?---I was informed it was a timber plantation, Wilkes was working up in Port Hedland or some such place with a lot of spare capital, because he was on a high income, and they'd invested in this property down there. It was going to be 10 acres, and it was going to be - - it would be planted by a consortium, but you would have a strata title on 10 acres, and the right to half an acre for a block of land. This was - - turned out to be, or this was a lot within a development by a company called All Range - -?---That's correct. - - Pty Ltd? CHAIRMAN: Who told you of this?---Grubb. At his office?---No, I've never been to his office, and never met him. He came to your house, did he?---No, he sent a lady called Sonia Reilly. She actually told you?---Mm-hmm. MR CHANEY: So did you see the prospectus in relation to this tree farming operation that this formed part of?---No, I was never - - I was never offered one. I went by what I was told and the correspondence. Yes, well the correspondence really, in a roundabout way, I guess that's what I was getting at, correspondence suggests that this was a simple, one-off transaction where you lent money to Mr Wilkes?---Wilkes. Yes.

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He was buying a property which was going to produce him some income?---That's correct. MR CHANEY: In which he would have an equity of $65,000, so this property was said to be worth - -?---Yes. - - $112,000 - - $11,000, your 46, plus 65, is that what you understood?---Well, no, I understood at the time that the - -it was worth 65,000 unplanted and that that then - - those values would accrue as it was going on and that I would - - I would be loaning 46,000 on something that was worth - - 65?---65,000. I see. So the net equity wasn't net of potential liability to you of 46?---No, as I just said the - - as I understood it, the valuation of those 10 acres was 65,000. I see, thank you. Right, well can I ask you now to go back to paragraph 6 of your statement?---Yes. "I decided to enter into a cashflow agreement with

Grubb whereby Grubb guaranteed the interest payments, even if the mortgagor defaulted. I signed the transfer of mortgage documents in October 96. However, despite numerous requests on my part, the mortgage was never registered. Interest payments were extremely late and I frequently had to telephone and write to Grubb to chase them up. I was not paid my capital back until April of 1998, after making a complaint to the Finance Brokers' Supervisory Board. I did not get any of the outstanding interest back. Prior to receiving that, in October 97 I made another investment with Grubb for 11,000, interest payments on this loan were extremely late. I did not receive the capital back until April 1998, after making a complaint to the Finance Brokers' Supervisory Board. Again I did not get any of my outstanding interest back. On the 23rd of December 97, I wrote to Grubb complaining about late payments of interest and the outstanding capital. In that letter I told Grubb I would be lodging a complaint with the Institute of Finance Brokers. I forwarded a copy of my letter to the Institute of Finance Brokers in January 1998. As Grubb was not a member of the Institute, I wasn't aware of that, the Institute forwarded my complaint on to the Ministry of Fair Trading. In February 1998, the inspector, Mr Willers, from the Ministry of Fair Trading, contacted me. I found Mr Willers to be very helpful. He telephoned Sonia Reilly at Grubb's office and told her that I'd lodged a complaint. On the 20th of February, 98, I wrote another letter of complaint to Grubb. I forwarded a copy of this letter to Inspector Willers and I let Grubb know that I had done

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that." Can I just stop you there and ask you go to attachment 3 please?---Right. MR CHANEY: That's the second of the letters of complaint you wrote to Mr Grubb?---Yes. In the second paragraph of that letter, you say "I note that the mortgage shows the mortgagee as All Range Tree Farms, as at 29th of May, 96"?---That's correct, yes. That was a mortgage in which you had a share, was it?---Well, that was - - that was - - what he had said to me I'd asked him for a copy of the mortgage documents, showing that I was the sole mortgagee for that piece of land, and that was what he sent me, and I could see it didn't refer to me at all. And then the next paragraph says you signed and returned a transfer of mortgage document on the 12th of October, 96. Was that a transfer - - ?---Yes. - - to you - - ?---That would have been a transfer to me. From All Range?---From All Range. And none of that had been covered in your - -?---No. In the letter of proposal, you were actually taking over a mortgage some other company had?---No. You knew nothing about any of that?---There was nothing about that at all, and it was when I - -that was what spurred me to write this letter, was the fact that I checked with the land titles office and there was nothing to do with me on the title at all. So it was obvious that he had just taken my money, I don't know what he did with it, but he certainly didn't register me as a mortgagee. So at that point the actual money trail in terms of your money was a mystery to you?---It was, yes. Just while we're on that letter at attachment 3, there's a reference to re Sandgate, down towards the bottom of the page?---Yes, well, they had told me about Sandgate, I don't remember what it was now, but it was another proposition, and I said - - I put that on the bottom - - I was chasing my capital at this stage, and I just said that I should be pleased to study the prospector? and I would consider adding to our investment when the above queries are resolved, and I think if the truth be know, I wasn't strictly truthful there, I was just trying to get my capital back and I wanted him to think that I was going to reinvest, which I wasn't. But I take it from that that in fact you were being urged to

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reinvest?---Yes. Yes. Or this was being promoted to you, notwithstanding - - ?---Yes. MR CHANEY: - - the complaints you had?---Yes, they had told me - - this was - -the very thick - - very thick-skinned I found. They - - I - - my previous letter I go into great detail of the, you know, of their short-comings and they still urge you to invest some more money. Now I think I've interrupted you at - - ?---14. 14, yes?---"On the 3rd of April 98, Grubb paid me 57,000, being the outstanding capital on both of my investments", and I am convinced that this is because I made an issue of it and a nuisance of myself with them, and with Mr Willers was always prepared to pick up the phone and chase them. And did you know whether or not that $57,000 had come in part as to $46,000 from Mr Wilkes, the person who apparently had borrowed this money, or did you now inquire about the source?---Yes. I remember getting a letter saying that Mr Wilkes had wanted to make an early repayment. I think that was - - that was what happened. He had repaid the capital. At least, that was the story I was given. Yes. As it happens at the same as the other person who had $11,000 of your money also repaid the capital?---I don't think that was ever - - I don't think that was ever invested, I think that I just - - I think he wanted me off his back. I see. So you think that 11,000 just sat in the trust account?---Very likely. ...(indistinct)...?---We didn't - - we never saw any details of you know, the finance of - - his financial side. Thank you. We'll return to the statement please?--- "On the 17th of April I wrote to the Ministry of Fair

Trading confirming that my capital had been paid back, expressing my regret the ministry was not in a position to assist in ensuring that my outstanding interest was paid."

I'm still not quite sure what that was about, but I think it must have been that Mr Willers said to me look, we'll help you get your capital back, but it's not for us to chase your interest, that's - - that's for you to do. MEMBER NEWMAN: Mr Durbin, did you get any advice from a solicitor or anyone of that nature as to the possibility of your taking legal action for recovery of your interest?---No, not that I recall.

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I mean this obviously is your retirement fund, or your investment fund, why did you feel that you should not pursue recovery of the interest which is obviously the income that you would expect to derive out of such an investment?---Yes. I think it was mainly - -it was mainly penalty interest that was owed and I was just after the fuss I had with him, I was just too relieved to get the capital back. MEMBER NEWMAN: So you had received some interest?---Yes, yes. But you hadn't received penalty interest because of late payment?---No, it was alway late and there was never any penalty interest paid on the late payments. Right, thank you. MR CHANEY: Just if we can follow that sequence of events, the document attached, with the number 4, is letter of the 8th of April to Mr Willers, confirming that your capital is returned?---Yes. And telling him that there are still outstanding - - some payments - - ?---Yes. - - of interest, and giving him a full break down of - - ?---Full breakdown of everything, yes. - - those. And then the next letter on the 17th of April, so shortly afterwards?---Yes. There's further confirmation and there's reference to you being grateful for the assistance received, but regretting you're not in a position to assist in - - the board's not in a position to assist in ensuring that interest is paid. Do we take it from that sequence of events that between those two letters, you'd had a conversation with Mr Willers who said he can't help you in relation to the interest?---That must have been the case. I don't have a clear recollection, but it's obvious that that is what happened. Yes?---Because he would have been the only person that I could have got the advice from. Thank you. CHAIRMAN: Excuse me Mr Chaney, while we're on this point, Mr Durbin, if I could take you back to page 2 of your statement, paragraph 9. Have you got that?---Yes. April ...(indistinct)... making a complaint to the Finance Brokers' Supervisory Board. You did make that complaint to the board?---No, that was after I had made a complaint to the Supervisory Board. I had made the complaint. I got my capital back, but I did not get any of the outstanding

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interest back. Yes?---I didn't complain to them about - - But then the next paragraph you go on you say you made another complaint to the board?---Yes. CHAIRMAN: April 98? MR CHANEY: Is that the same complaint - - CHAIRMAN: The same complaint or different - - ?---Yes, the same complaint. It's just that the - -that October 1997 11,000 investment was made, was made prior to - - well obviously prior to getting my capital back. Well, that's one complaint you're talking about?---Yes. Yes. Then there's - - I'm sorry Mr Chaney. MR CHANEY: Just for the record, the document under tab 3 is that one complaint - - I'm sorry, that's - - CHAIRMAN: No. MR CHANEY: No, that's Mr Grubb. But copy to the ministry?---Yes, this is where I - - CHAIRMAN: It's 4 isn't it?--- - -I've shown them - - 8th of April, 98?---Number 3 is the 20th of February 1998. Yes, but your complaint to the board, is that - - or to Mr Willers, is that the 8th of April, tab 4?---Yes. We have had telephone conversations prior to this, I did see somewhere he had got a better record than I with my contact with him. Yes, but then you went on to say as a little bit of an aside, Mr Willers would just pick up the phone, he was very good, I think that's what you said?---Yes. Well, what happened? Did Mr Willers ring up Mr Grubb and then you got your capital back? Is that what - -?---It was a combination on - - it was a combination of this letter, and the fact that at the bottom of it I put carbon copy to Mr Willers, Ministry of Fair Trading, and it's quite obvious that Mr Grubb didn't like my way of applying the pressure to get my interest in my - - and my capital back. And I found that by referring to the Ministry of Fair Trading I got - - I got results. Yes, it came back?---Mm. Yes, I'm not criticising you for it?---No.

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But then of course - - then you go on again, by tab 5, the 17th of April, you wrote a complaint to the Ministry of Fair Trading?---Yes. And that - - you - - and the final paragraph is this. "The reason I am longer - - " I am - - "The reason I am longer require assistance - - " was that - - ?---That should be "no". CHAIRMAN: Yes. "The reason I no longer - -" ?---Yes. "- - require assistance is that my outstanding complaints are not actionable by your office"?---Yes, well that would be outstanding interest. You're only referring - - ?---I was asked to write a letter to say look - - and then what Mr Willers said was he could close the file, which I'm pretty certain he did. But Mr Willers said write this sort of letter, we can close the file, because you got your capital back?---No, what Mr - - he said, look, you've got your money back, and are you happy, and I said, well, I'm not happy about the fact that I haven't got my interest, but he said well, you know, would you write a letter saying that you've received full reimbursement of your investment capital, so I did that, and then I added the rest. And that was the end of it as far as you and Mr Willers were concerned - -?---Yes. - - for that particular - - ?---Yes. Yes, I don't think I ever contacted him again. MEMBER BLIGHT: And when you say interest just there, you're referring to penalty interest?---Penalty interest, basically. You received your interest, you didn't receive - - ?---I received - - - - penalty interest?--- - -most of the interest, and if you have a copy of the letter I wrote to - - Yes, it does talk about penalty interest?---I mean, I sit down and I - - I spent so much time on this that the - -you know, the fact that I had the capital back was - - You were saying really in effect you got your capital back, you got your interest, there is some penalty interest but - -?---Yes. I don't know whether there was - - there was something that - - I was obviously under the impression that they - -they could pursue one avenue but not the other. MEMBER NEWMAN: Mr Durbin, can I just clarify? In your letter of the 8th of April, to Mr Willers, item 1 and item 2, you refer to interest due on the 2nd of March and then to the 17th of March. That doesn't indicate that's penalty interest, it

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indicates it's just general outstanding interest. Can I clarify?---There's so much happened since - - in between this, that would be the case, that from the interest due to the 2nd of March was 35 days overdue, and the - - from the 2nd of March to the 17th of March was still overdue, penalty on the interest for early repayment, because if they repay early, then they pay penalty interest, and - - MEMBER NEWMAN: It just seems to me that you did in fact have some ordinary interest outstanding as well the penalty interest?---Yes, I would say what - - what I've written here is the case, but I had - - I had received the capital, and I think that that was just one last attempt by myself to get the - -to get the balance. CHAIRMAN: Look, just while we're on this point too, Mr Durbin, first of all don't think we're critical of you, at all?---No. We're - - but on this letter you wrote on the 8th of April, tab 4, you then list with respect to Grubb Finance?---Yes. Overdue interest?---Yes. From 2nd of October 96 through to the 2nd of February 98, and that's - - ?---Yes. Well, that's about 20 times. And that went to Mr Willers?---Yes. And then you tell us that - - on Mr Willers' request you wrote the letter of the 17th of April, tab 5, is that right?---Yes. Yes, that's all I wanted to know, thank you?---Yes. MR CHANEY: Now Mr Durbin if we can go back to the statement, I think you had got as far as paragraph 18. Except we didn't do it by reading, I think we got there otherwise?---I think I was round about 16, was I? Well, perhaps for the record, you might - - yes, read 17?--- "On the 17th of April, 98 I wrote to the Ministry of

Fair Trading confirming my capital had been paid back, expressing my regret that the ministry was not in a position to assist with my outstanding interest", or ensuring that my outstanding interest was paid. Then "I decided not to reinvest with Grubb and I used First Charter for my next investment. I had a total of 4 different investments with First Charter. Out of these I had two problem investments." I still have. "When I first contacted First Charter, I was provided with a glossy embossed brochure that detailed the company's mode of operation. I was impressed with the brochure. In the brochure First Charter stated that

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they used an expert licensed property valuer to establish the value of the properties." This also impressed me. I - - this was the brochure, and - - "This is all to encourage us to invest and give us confidence. The value is established by an expert licensed property valuer." Now I've subsequently discovered that this man was a convicted thief, that he was - -

CHAIRMAN: Does it name the person?---I beg pardon? Sorry - - Ron O'Connor. Right?---The property valuer used was Ron O'Connor, and at this time I knew absolutely nothing about it. I think that this is the problem with all of us. We've been naive, and we believe that because these people were licensed by the ministry that they were - - that their bona fides had been checked and everything was in order. Paragraph 7 of this brochure, "What happens if the borrower's late in making payments?" And they say about the penalty interest, and it's prudent to start default procedures to save time and protect your investment in the event that the borrower continues to default. Then if the borrower ignores the default notice, First Charter Mortgage Services will immediately commence procedures to sell the security property. Once the property is sold you are then paid your original investments plus any default interest you were owed. All legal expenses are then deducted from the remainder of the sale proceeds. What they don't say is that if it's grossly overvalued, then this doesn't happen. And our experience has also been that we've been left on our own, that First Charter Mortgage Services, while they reply to telephone calls and they'll respond to letters, then the practical assistance isn't there. Then going on through here, it says "Why don't these borrowers obtain bank finance?", and inter alia here they say it avoids extra charges on the bank statement each month and security grabs by the bank often require all the borrower's available security far in excess of the value of the loan. Well, I've added there, "and very wisely too". I mean that's the sort of thing that we didn't do. Then the next question is "How do I know the borrower can pay? First Charter's highly experienced mortgage managers will assess a borrower's serviceability and security and will submit to you their recommended proposals." Well, as I come onto this - - the second mortgage that I have with them, but I don't think you'd want me to say about it then, but I would bring your attention back to there when we see what First Charter's highly experienced mortgage manager let us into. And then "Who is First Charter Mortgage Service? The division is licensed as a finance broker with the Ministry of Fair Trading and specialises in private mortgage investment." Etcetera. And the benefits of the first mortgage investment are that everything is secured by a first mortgage. And this is - - this is the document that one studies and - -on which you decide to make the investment, plus a personal visit from the property - - the finance broker concerned. So

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having received this: "In about April 98, John Ward, the general manager of

First Charter came to visit me to discuss a potential investment with a company called Rancher Enterprises Pty Ltd. Mr Ward brought with him a letter addressed to myself dated the 30th of March 1998, attachment 7. The letter outlined the nature of the proposed investment. Mr Ward also brought a short summary valuation report by Robert A. Elliott, licensed valuer and dated the 27th of March 98. The purpose of the loan was fund for - -" it says here "it was to fund a 16 block subdivision at the Westbank private estate." In actual fact it was four blocks. "Ward told me that he had a valuation report for 117,000 done by a licensed valuer, and that the loan to value ratio would be 68 per cent. Ward also told me that Manton and Ferris would provide personal guarantees for the loan. Ward told me that Rancher and the guarantors all had very strong financial positions. Ward provided me with a copy of an assets and liability statement for Rancher Enterprises, dated the 8th of July, 97, another for Ferris dated the 30th of June 97, and another for Manton dated the 30th of June 97. Mr Ward strongly recommended the investment to me. I decided to invest 80,000 with Rancher. I did not do any of my own investigations prior to deciding on the investment. Once again there was a very nice glossy brochure of the estate that we were going to invest in and I thought that I could rely on the accuracy of the information provided by Mr Ward, because he was a licensed finance broker. I also relied on the general information provided in the glossy brochure. My name was registered as first mortgagee over the property on the 22nd of April. I received regular interest payments up to the 22nd of March 99, and I received late interest payments for April, May and June. On the 6th of May 99, First Charter wrote to me asked if I would extend the mortgage for a further 12 months? I completed the mortgage extension form and returned it to First Charter. However, the mortgage extension was never processed or registered. Rancher defaulted on the mortgage in July 99 and I have not received any of the capital or outstanding interest back since. After Rancher defaulted, I telephoned First Charter on numerous occasions and asked why the interest had not been paid. I was given a lot of promises that payment would be forthcoming. I didn't complain to the Ministry of Fair Trading or the Finance Brokers' Supervisory Board because I didn't think they would do anything."

MR CHANEY: Can I stop you there? Why did you not think they would do anything about - -?---Although Mr Willers had been - -had been most helpful, and I hadn't known what had gone wrong

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with Grubb, I knew what had gone wrong here because there was so much publicity about it then. And unfortunately I don't take a newspaper, and possibly if one did take a newspaper, one would have been more au fait with what was going on. It was only when it started to appear on the television news and things of that nature that I started to make inquiries and found that I was one of many, many people. CHAIRMAN: You didn't think of giving Mr Willers another ring? It worked before?---Yes, but then as far as I was concerned, I was convinced that Grubb had my money and he could give it back to me. With this, the people at First Charter and Mr Ferris, one of the Rancher's directors had said to me, look, we're caught up in this finance brokers thing and there are no more borrowers coming forward, and we just - - we just can't get the money to borrow on, and then of course, when we started making inquiries, we found out what a mess it all was. We found out about Ron O'Connor and his background, and then we started looking at the brokers themselves, and of course Mr Grubb and Global had been the first, and I'd already had experience with Mr Grubb and I just formed the opinion that it would be pointless - - it would be pointless going to them. The other thing was that from First Charter and there is a history of the mortgage that you've got somewhere, where I'd recorded all the letters, and - - or sections of the letters where they'd said look, give him till the 16th of next month. He's going to get an offer next Friday. This will be resolved by such and such a date, and then he went in to see their solicitors, Clairs Keely, and he had a meeting with them, and put certain points to them, and they said no, they were going to trade out of it, and we hoped they would, and this is why we were led on, led on, led on, by the nose, from July right up until now. MEMBER NEWMAN: Mr Durbin, were you aware that there is a bond put up by each finance broker, and in the event of a negligence claim, clients of that broker may have access to that bond?---No, not aware of that, and this is the first time I've heard it. MR CHANEY: I think the bond relates to defalcation, rather than negligence, Dr Newman. MEMBER NEWMAN: Yes, that's probably a fair comment, Mr Chaney. MR CHANEY: You weren't aware of the bond in relation to - -there was no defalcation here that you're aware of?---Aware of - - sorry? There was no defalcation, there was no stealing of your money by the broker in this case?---No, in this case the money that we put in went where they said it was going. Yes?---And our - - we were registered as first mortgagees.

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Could I just - -just before we leave this question of your not thinking the board would do anything, is it a fair summary of your explanation of that that really you'd lost confidence in what the board might be able to do because of the publicity and what people were saying generally in the community?---That - - that sums it up, yes. Yes. So rather than your own personal experience, it was really the publicity - - ?---It was other people's experience, the publicity, plus the fact that we thought maybe - - maybe it would come right, maybe it would come right. MR CHANEY: Yes. Thank you. Perhaps if you can resume at paragraph 27?--- "I'd been in contact with the directors of Rancher

Enterprises and they have agreed to try to sell the property. On the 22nd of March, 2000, Ray White Real Estate Agents wrote to First Charter and advised that in their opinion the blocks of land should be advertised for sale at 65,000 to 80,000." Now this is the one that was valued at 117,000 on which we loaned the 80,000. "To date the properties have not been sold."

These are properties at Greenough and they're all about - - all of 5 acres and the ministry of - - well the Water Corporation have just put water through, which will increase the value and sale of the - - well it'll increase the saleability of the properties, possibly not the - - and once again, you see, they're saying just hang on, you know, we're trying to sell these. And I mean, I'm not in a position to say that they're not. I think it's in their interest to sell them if they can. And this is what has gone on, and this is why - - what concerns me more than anything else is the - - is the fact that we were encouraged to invest in people - - in people and properties where valuations were suspect and moreover, the people were suspect, and the finance broker should have known that. MR CHANEY: Perhaps if you can resume at paragraph 30 please?---Yes, this is the - - now this goes on to the next investment that we have which is four commercial units at Rockingham. "In December 98, John Ward came out to visit me and

asked me if I would like another investment with Rancher Enterprises for the purchase of four commercial units in Rockingham. Ward brought with him a letter addressed to myself dated the 9th of December, outlined the nature of the proposal, he brought the copy of O'Connor's valuation report, dated the 10th of July 98. In the proposal letter First Charter advised the total loan would be 440, the term

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of the loan was 12 months, that O'Connor, a licensed valuer, had valued the property at 630,000 on the 10th of July 98, and the loan to value ratio was 68 per cent." I wasn't happy - - I told Ward I didn't want to put all my eggs in one basket, but he assured me it was a sound investment, I had nothing to worry about. "Ward told me that he had investors who would only invest with Rancher because they were so regular with interest payments. Ward personally recommended the investment to me." Now at this stage, I had had the one investment with Rancher, and they had paid for nearly 12 month, and just a couple of those payments had been late. So I still didn't want to go in, you know, with the as I said my eggs in one basket, but because Mr Ward was so persuasive, I decided to invest 102,000 towards the project. My name was registered with others on the title deed. However on the same day that my first mortgage was registered, First Charter also registered a second mortgage over the property without notifying me. That was in contravention of my mortgage agreement and attached is a copy of the certificate of title. The first, second, third and fourth interest payments were late. Rancher had not paid any interest since July 99. To date I have not got any of my capital or outstanding interest back."

WITNESS: The point I want to make here is that when Ward was convincing me that this was going to be a safe investment, he stressed the asset backing that they had and there were copies of the asset backing there and it was over - - 4½ million. But what he didn't tell me was that he had been involved with Gamel Ward and there had been failed mortgages and that the asset base - - and I realise this now, as I said, we were all naive, I - - I didn't think that I was a naive person, but I truly believe that the - - because these things were under the auspices of the Ministry of Fair Trading, that I was safe, and that we would be dealing with people of repute. I telephoned First Charter on numerous occasion after Rancher defaulted, and organised various meetings with them. Ferris, director of Rancher, attended some of these meetings. Ferris told me that he was trying to sell some of this assets so that he could pay out the loan. After Rancher defaulted, the investors formed a syndicate to discuss issues concerning the unpaid loan. The investors have not taken over the property as mortgagees in possession, instead the investors have agreed with Rancher that it will try to sell or lease the property. None of us are real estate agents, or know anything about the real estate business. The Rancher Enterprises - - they are licensed real estate agents. I found out subsequently that Mr Ferris was fined by the Real Estate Board, I don't know in what connection, but obviously had to be a real estate matter. None of these things - - I consider that Ward knew all of these shortcomings. I obviously can't prove it, but he's in the business and I think the parlous state of the industry was

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well known by him, and other people at the time, even though it wasn't known by innocents like myself. "A further thing that happened was in trying to sell

it, in October 1999, DTZ Debenham? International, property advisers, carried out a roadside appraisal of the property on instructions from Rancher Enterprises. The directors of Rancher commissioned the valuation to assist them in trying to sell the property. They asked DTZ to provide a concept valuation based on a hypothetical situation, namely that there was a secure, long term lease over the property." They also said what the rentals would be and the terms of the lease, which would have been 9 years. "On the 4th of October, 1999, DTZ wrote to Rancher Enterprises advising that they had valued the full properties at 698,000. Attached is a copy of the valuation report in respect of unit 4.

WITNESS: And they're all identical except for the figure, but the figures add up to 698,000. Now this is a property that was valued by Ron O'Connor at 630, and we considered grossly overvalued, and suddenly in October they come up with this. MR CHANEY: This was - - I'm sorry?---It's a very doubtful and immoral valuation, I think, because basically what they were looking for was another sucker to buy it, and it just didn't make sense to us, particularly when Ron - - CHAIRMAN: When you say to us are you - - ?---The investors. You or your wife, or you and the investors?---No, the investors, and my wife. I see. And at no time did you approach Mr Willers again?---No. And Rancher Enterprises tried to auction the property on Wednesday the 10th of May. That was just 2 weeks ago, sir. "There were no bidders, and the reserve was 360,000." Now 4 months before it had been valued at 698, and then in 98 it had been valued at 650,000. So even though the reserve was below the mortgage, we didn't get on bidder. MR CHANEY: But I take it that the property is completely vacant at the moment?---Yes - - The lease upon which - -?---It's been vacant for 2 - - it's been vacant for 2 years, we think because - -because they were asking too much for it, and the one thing that we looked at, we went to the Ministry of Lands to check, on what stamp duty they'd paid, because we thought it might be just a fiddle with the figures. But the developer had paid the stamp duty on the 630,000 valuation, so - -because we had wondered whether he'd bought it for 400 and had paid stamp duty on the 400, but he hadn't. He'd paid the full thing, so whether that was to cover his back or not, we're not sure. But it's presently

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there's about 15,000 outstanding for water and shire rates. 440,000 in capital and over 50,000 in interest, and the properties, they're in Rockingham in a very good position, and surrounded by properties that are let, and within 2 kilometres there's another 60 or 70 identical units, all standing vacant, so it's been grossly overdeveloped down there. During - - I was going to say,"During the course of my dealings with John Ward, he always stressed that I was his client and that my interests were paramount", and I raise this because of the Real Estate Consumers' Association who had said that there was a legal opinion which I understand that you have had sight of now, and it was just that we had - - there's an agency agreement from First Charter Mortgage Services and they say here "The lender wishes to appoint First Charter to act as its agent with respect to the collection of moneys due by the borrower to the vendor", and "The lender hereby appoints First Charter as his agent for the purposes of collecting all interests from time to time payable by the borrower and the lender pursuant to the provisions of the securities." Now this was sent to us after we had invested the money and after the mortgage was registered. And on the second page it says "No guarantee. Nothing in the preceding clause shall oblige First Charter to make any payments to the lender and the lender acknowledges that First Charter does not guarantee the performance of the borrower under the securities or otherwise." If they'd given me that and said this is what you're going to sign before you give me the capital, I wouldn't have passed it over, but they sent this with a covering letter on the 28th - - the 28th of the month, I forget which month it was. CHAIRMAN: What year did you get that?---This was 98. Page 1 is in here, excuse me. Had you heard about this opinion saying that you weren't the client at that stage?---No. This - - I don't know whether I've been robbed. But - - MR CHANEY: I don't think it's necessary to bother yourself about it?---No, but the whole thing is that the mortgage was registered on the 22nd of - - the mortgage was registered on the 22nd of the month, and on the 28th of the month, with the mortgage, documents all completed, they sent the agency agreement, which I didn't think was fair. And you didn't sign that agreement?---I quite honestly couldn't recollect whether I signed it, whether I signed it or not. I know that I phoned them and had a few words with them, but they said you don't want to worry about that. Don't worry. But in any event they continued to collect the -- ?---Pardon? They collected the interest - - ?---Yes - -

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- - on your behalf, notwithstanding whether or not you signed it?---As a matter of interest that was - - that agreement, they sent me that agreement with regard to the first loan, but not the second one. And I've spoken with other mortgagees and they've said, no, they've never had an agreement. Yes. CHAIRMAN: Did you ever refer that agreement to the finance board?---I know you said you're not criticising me, but I didn't, no. You know, you reach a stage where - - I think I've been just about - - because the other mortgagees asked me if I would take over all the dealings and I've been on it almost full time for weeks. Yes?---Yes. And - - MR CHANEY: I think paragraph 43 you'd reached, Mr Durbin?---Yes. I've gone back to Mr Ward. I said: "He had an extensive knowledge of the industry and he

should have warned me about the viability of the two Rancher investments. Ward should also have warned me that the assets and liability statements for Rancher, Ferris and Manton were not credible. First Charter should have also warned me that Ferris was a discharged bankrupt and that O'Connor had a criminal history of misappropriation of trust funds. I didn't think O'Connor should have been entitled to a valuer's licence",

and I have spoken to someone in that department and they said well, we're bureaucrats, we issue the license when the board tells us to. And well, wasn't prepared to comment any further. I believe that First Charter was negligent in recommending the Rancher Investments to me. And this goes back to the assets and liability statements. I mean over 4 million and we're only - - we're only going to lend them less than half a million, but what he didn't say, and what I think should be investigated by someone, is that how many - - how many mortgages did he sell on the strength of those assets? Because it's like someone coming along with a television set, as far as I'm concerned, and saying well you put down a deposit on this and you put it - - and to me, it's fraud, that - - CHAIRMAN: Well, I can assure the question is being investigated?---Thank you. I'm pleased. Yes. As I said I believe that they were negligent in recommending the investments to me, and I get the impression now that they - - that they just didn't care. All they wanted to do was to try and keep that money rolling, and the longer it rolled, then the longer it would be before they were - -they were caught out:

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"I used Graeme Grubb and First Charter because they were licensed finance brokers. I thought they would be supervised and regulated by the appropriate board. I later found out that this is not the case. I believe that the Finance Brokers' Supervisory Board has totally failed to regulate the industry in that they - - "

Once - - I think that once the licence had been granted then they don't take any further interest in the company or what they are - - how they are operating, unless of course the complaints come in. I - - go back to, you know, did I - - did I go to them with this, I didn't because there was so much publicity at that time I thought, well, you know, I'm just a voice in the wilderness here. MEMBER NEWMAN: Mr Durbin, could you give us a brief outline as to what you feel should have been done by way of supervision and regulation?---By? By way of supervision and regulation, you said you thought that they would be supervised and regulated. I'd just like to get an idea as to what you thought would have been supervision and regulation?---Yes. Well, I thought that they would have had a code of conduct and that the code of conduct would - - would have covered most of the things that had gone wrong. I had high hopes the other day, I was told that there was some new legislation brought in for joint - - for joint mortgages, and I raised this with Ms Babbage? and she explained to me that it was for mortgages over 2 million, and there had to be over 20 mortgagees, so you know, once again, we're out in the cold again. You know, there is no provision for several types of mortgagees, and I would have thought that they would have - - that they would have had staff that would have been looking for this type of thing and would have ensured that it was covered, and whether it would be practicable for them to have an audit of their - - you know, the type of things that they're doing, the mortgages are processing. Mr Durbin, you said at one stage in your statement that you didn't complain to the Finance Brokers' Supervisory Board. If you were looking for them to supervise and regulate, would you not have felt that perhaps people bringing forward complaints would have facilitated ensuring that duties were carried out and that if there were a problem, it was investigated?---Yes, but I mean, our major problem started in July last year, and by that time, you know, the major - -all the major defaults had - -had taken place and there was so much publicity about it that I thought that if one contacted them, they'd - - well, I would have imagined that they were absolutely snowballed with - - with complaints, and a lot of the complaints that I've seen, you know, were far more serious, I think ours was serious enough, but some of them are far more serious than ours.

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Okay, thank you. MR CHANEY: I think your final paragraph just refers to your submission to this inquiry which is attached?---Yes. I wrote to Minister Doug Shave on the 23rd of March and forwarded a copy of that letter to you with the history of the mortgage and the history of the mortgage reveals the manner in which - - in which we were led along by First Charter. The - - and I make the point here that of what Mr Ward would have told me that the valuation was suspect, as he must have known with O'Connor's. And I don't know whether there has been a conspiracy between the borrower, the valuer and the broker. I mean, one would have had to ask the other, well, look, you push this up a bit and - - I don't know, I mean obviously only - - they're the only ones that could tell us. But the type of thing that we go up - - I won't go through it all, but on the 12th of July, after this fellow defaulted, First Charter wrote: WITNESS: "I have been satisfied by Rancher Enterprises that

progress has been sufficient to bring their cashflow back to normal and resume regular monthly payments. They have given me a written commitment to pay all arrears and penalty interest by Friday the 16th of July and they will be regular from then on. Should they break this commitment, I will immediately issue a notice of default."

The notice of default, now that was on the 12th of July, the notice of default was only issued at our insistence on the 22nd of January. On the 29th of July they stated Ian Clairs to issue a notice of demand on Rancher, should no payment be forthcoming within 14 days, they would issue a notice of default. That wasn't done. Then this went - - this went on and on and on and on, and you will see these fellows were always coming up with a fresh idea, and we, because we wanted our money back, were always prepared to go along with them, and this is the way it went, until, now as I say, now it's over 10 months and they are still trying to sell the properties, but they're not - - they're not succeeding. And mainly it's because of the - - of the bad valuation and the fact that we were - - we were made to believe that their assets and liabilities were what they say they were. MR CHANEY: Mr Chairman, I've - -subject to speaking with Mr Allanson for a moment, he's indicated he'd like to speak to me just before I complete examination of Mr Durbin. CHAIRMAN: Do you wish - - want us to retire? MR CHANEY: If you wouldn't mind, Mr Chairman, for 5 minutes. SHORT ADJOURNMENT

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UPON RESUMPTION: CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Thank you for that indulgence, Mr Chairman, members. Mr Allanson with his eagle eye had discerned some inconsistencies in some of the evidence - - or apparent inconsistencies in some of the evidence and some of the details on the certificate of title which is attached. We've now clarified those matters and really I don't think we need trouble the inquiry with the detail of them. CHAIRMAN: No, thank you. MR CHANEY: So that concludes Mr Durbin's evidence for my part. CHAIRMAN: Thank you. Mr Allanson? MR ALLANSON: I have nothing. All my concerns have been allayed. CHAIRMAN: Mr Hooker? MR HOOKER: Nor from me, sir. NO CROSS-EXAMINATION CHAIRMAN: Thank you. Thank you very much indeed, Mr Timms?---Could I just say that my fellow mortgagees when they heard I was coming here, they said they had read in the paper that unfortunately you were not in a position to get our money back, but I had written to Chief Justice Malcolm and said that could they not do something? They've got the unrepresented criminal appeals board or some such - - some such thing where by - -if they can't afford to be legally represented, and they don't get legal aid, then the law students help them. And this was an article in the paper that said that these people were helping, so I - - Now they're on criminal matters?---They - -yes, that was criminal matters, yes. Which doesn't get you your money back?---No, just helps you to get out of prison I suppose, but the only thing I'm saying was that I wrote to him and I wrote to - - I thought you were going to say you wrote to him for him to pay you the money back?---I wrote and asked them if they could help us, UWA, and they wrote back and said no, I wrote to the Office of the Premier, he said about me requesting state funding to pursue recovery of losses, he said I have noted your comments and appreciate you keeping me informed in this matter, Richard Court, MLA. And I wrote to him and said what I'd hoped was that you would inform me of what your government

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intends to do to assist us in righting the wrongs committed in the main by the negligence of two agencies of your ministry. I won't bother with all the rest. I wrote to Mr Hockey, I wrote to Chief Justice Malcolm with copies of all of those and he said amongst the other things, he says "You may wish to take steps to have this matter included in the inquiry which is being conducted by retired District Court Judge Gunning", so I just thought you might like to know that he's just passing the ball. CHAIRMAN: Yes?---I wondered whether you - - when you do have your - - or make you recommendations, that you could bear in mind that we've lost enough as it is and if there's any possibility of us being assisted with legal costs, then it'd be very much appreciated. Thank you very much?---Thank you, sir. WITNESS WITHDREW MR CHANEY: Mr Chairman, that completes the evidence for today. CHAIRMAN: What's tomorrow? MR CHANEY: 2.15 tomorrow, Mr Lenz, who is - - the witnesses we had originally anticipated for tomorrow morning will now not be ready. CHAIRMAN: 2.15 tomorrow? MR CHANEY: 2.15. CHAIRMAN: Thank you. MEMBER NEWMAN: Just tell me, before you close, should we not be treating this statement as an exhibit? MR CHANEY: I'm grateful Dr Newman. I tender the statement of John Thomas Durbin. CHAIRMAN: Statement of witness with attachments is Exhibit 85. EXHIBIT 85 Mr Chaney DATE (Unstated)EXHIBIT 85 Mr Chaney DATE (Unstated) Statement of John Thomas Durbin with attachments CHAIRMAN: Thank you. We'll adjourn. HEARING ADJOURNED UNTIL 2.15PM WEDNESDAY, 24TH OF MAY 2000

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CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Mr Chairman, I call Carl Eric Lens. CARL ERIC LENS sworn: CHAIRMAN: Yes, Mr Chaney? EXAMINED BY MR CHANEY: MR CHANEY: Mr Lens, you're retired?---I'm retired, yes. And you were formerly a draftsman?---Correct. You live at 8 East Road in Shoalwater?---That's correct, sir. I think in order to assist the inquiry with its task you have had prepared a statement of the evidence you wish to give, is that correct?---That's correct. And do you have a copy of that statement with you?---Well, which one in particular? The one that Ms Babbage - - Nicolina Babbage has given to you this afternoon?---This? Yes, that's it. With the attachment and the little flags, like that. That's it. Do you have that in front of you? That's right, that - - you don't need to - - ?---I do my best. Okay. What I'd like you to do is go to the front page of the document, no, the front page. MEMBER NEWMAN: The first page. MR CHANEY: The first page of your statement?---Yes. That - - No, no, turn it over. That's it. And I'd like you to start reading the statement - -?---Yes, please. - - at paragraph 1?---However before I - - CHAIRMAN: You may sit down, Mr Lens?---Good. I wish to thank Judge Gunning and his panel for me being here. CHAIRMAN: Thank you?---I know that all of us will achieve something for those that have to go through the trauma of losing their savings like I did. CHAIRMAN: Yes, thank you?---And I do my best to answer the question of the gentleman to the best of my ability under the freedom of speech act, but I thank you all for being present. You to read me the first paragraph?

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MR CHANEY: Yes, please. I want you to read the whole statement until I tell you to stop?--- "My full name is Carl Eric Lens. I am known by the

Rick Lens as the short name. I live at 8 East Road Shoalwater with my de facto wife Dorothy Burn. I'm at the moment 79, in a few weeks I will be 80." Remember. "I'm retiree. Prior to retirement I work as a draftsman in the State Housing Commission for nearly a decade. I was thereafter self-employed for a number of years and I was opposite your office, which was then named Kott Gunning. I was self employed for a number of years and my own company was called Superior Designs Home Planning. The first time I used a finance broker was in 1993. The finance broker I used was Blackburne and Dixon." You may have read it in the paper many times. "Since then I've had one investment with Graeme Grubb, the broker we've heard so much about, and a handful of investments with Global", and that's the one that I'm here for. "My investment with Blackburne and Dixon went okay, and I developed a good relationship with Kim Woods, who was then and there active member of the group and invited us for interview and finance investments. Kim Woods is a very good appearanced and well mannered woman, and through her I met her partner, John Margaria, who made also a good impression at that time, because business has to be very efficient and inviting." Remember that. "Graeme Grubb Finance Broker in about 95 or 96 I invested 30,000 with Graeme Grubb for the Pioneer Village property." You know the Pioneer in Armadale, and he said my investment went to his personal shop. I forget now what it was, the type of shop, but he said it is his shop, in Armadale. "I was not impressed by the way Grubb operated." Can I explain that a bit fully?

MR CHANEY: Well, I think - - ?---Because the monthly repayments were different. Understand that the fixed mortgage, with your permission, your Honour, is a fixed mortgage of a fixed amount. I didn't receive a fixed amount every month. Then it was 4¢ short, then a 4¢ too much, all over the place. And sometimes a dollar in my - - fixed is fixed. I could sleep better. I rang him up and he said well, that is the bank. They hold money back because of the purpose - - Mr Lens, I think a lot of this is covered in the actual typewritten statement - - ?--- "Each month my interest payment varied slightly from

a couple of cents to couple of dollars. I thought this was strange and there was a fixed interest rate." You see, quite - - "I questioned Grubb about

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the varying interest payments and he said it was due to the bank. I followed it up with the bank of South Perth, and they said they had nothing to do with it. It's between you and Grubb. So my investment matured, I took the money and decided not to reinvest with Grubb any more. I thought that if I reinvested with Grubb I might be more problems with my investments, because we got frightened about the treatment. At the time that my Grubb investment matured, I still had one investment with Blackburne and Dixon. That investment matured on the 7th of April in 1996. Kim Wood told me that she was leaving Blackburne and Dixon to start up her own company with John Margaria. Correct. And would be calling the company Global Finance Investment Group. I decided to follow Kim and invested with Global because of both of them being fairly obliging. Well mannered I might say, and I followed them, because I trusted them. That was the start of my bond of trust in the brokers. So I left them. I made a total of 11 investments with Global, and only one problem, and that was the ...(indistinct)... the Balga Plaza Shopping Centre, it's called now Westminster Plaza Shopping Centre, was the old Balga Shopping Centre. I thought that my investment with Global were very secure because I was registered as a first mortgagor." I mean, if you possess a house, at the moment, you are therefore with the bank, the first mortgagor, or the bank is, but "Balga Plaza Shopping Centre investment may effect? the wife and I invested in that shopping centre in July 1996. The borrowers were Mr Gregory Johnson and his wife Ms Corinna Johnson. Corinna Johnson, his wife, is also nee Pavlinovich." If you remember that name. "The borrowers were them. Kim Wood told us that the Johnsons were fairly rich indeed, and have assets worth $9 million." Is better than Alan Bond at that time, I think. "Kim Wood also told us the Johnsons were very reliable and trustworthy." Yes, to themselves probably. "Kim Wood highly recommended the loan as a secure investment. We fell for it because we trusted them." You see, when you invest you put the money where your mouth is, because why, you trust whoever you deal with. If you invest in me you trust me. And I have to do my duty the best for you as I can, and no skulduggery or deals under the table or with other criminals and I help you, you help me, business. Now then. "The total loan in my group was for 350,000, and that was pooled by six investors of which my share of the 350,000 is 150", so I'm the top man, and that's all I have. If you lose therefore all you have, what are you going to do? They are in a trauma. "The information provided by Global in respect of the investment was contained in the letter from Global to my wife and me, dated the 15th of July 1996." And that letter

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is therefore produced and it reads all the details of, I can read that particular one - -

MR CHANEY: Well, I think Mr Lens we have it in evidence, you've covered the salient points already, so I don't think - - ?---Well, if they know the context of that - - Yes?---Is over to you. MR CHANEY: Yes, the committee will read it - -?---Yes. - - in the fullness of time. So if you can move on to paragraph 14?---Hang on. I thought I had that one: "In that letter Global correctly lied about the

financial stability of the borrowers. The value of the property and the drawdown loan arrangement that was to be managed by Global. Global told us that they would initially be registered as a first mortgagee over the whole property." Fair enough. So the money went there. I wouldn't have done it, but I wasn't told at that time. But it would be going in there to release apparently the bank overdraft or something. Fair enough, but then I was subdivided into smaller lots, the project, and we would be allocated the first mortgagee over unit 12. That is at the moment that shop there in that plaza shopping centre, shop number 12 in the corner. That is where my money went. "We relied solely on the information provided by Global and did not carry out our investigations and not at that time, because we lived too far away in Rockingham." And I don't drive a car, and my wife is not so good at her age in the town, you know. All over the place. So we never got that. We didn't feel that we needed it at the time because we fully trusted the staff and that is George Knowles", correct? George Knowles was the financial assistant who was introduced as being the sound.

And Kim Woods - -?---We did not receive - - Kim Wood and Margaria were in that category that you trusted?--- "We did not receive a copy of the valuation report.

It was not Global's policy to provide copies of the valuation report, which I've asked for, because I want to know how secure that loan was with the investment of that project. We thought that Global Finance would protect our interest throughout the period of loan." And that is where honesty comes in. If you loan to somebody, you like to have the honest service back to you. "We received interest payments up until the 10th of November 1997. When

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we started to have problems with the Balga Investment", it is actually the Westminster Shopping Centre investment, "we decided to get our money back on the other investments. We were successful in doing so, but were required to pay a penalty",

and that is where we pay as honest people the penalty. If I cut the contract, I know that I have broken the agreement. I have to pay, and I paid. I paid 2300, that was deducted, paid me my money back less that amount. And also another one which I was penalised for 1200, a bank cheque paid, got the money back. That total's therefore a mishap of my side for 3½ thousand. That is what it cost. But my wife was right, she said look Rick, if something is there a bit cloudy, take your money out and we look for better avenues. MR CHANEY: So these were other investments besides the Westminster Shopping Centre one?---Well, that is what we did to look around, say it's AGC or with quick of the mind, bank interest, the banks had got better or any of the outside investments, Perpetual Trustees. Yes. But you had several investments with Global and you pulled your money out of - -?---Yes. - - the other investments but not the Westminster Shopping Centre one?---No, because that was tied up. Right?---I couldn't touch it. I called on it, and that was just the funny part. If I may interrupt here, and it's very important, Global told me that we were under protection of their solicitors. SPEAKER: It's not important really, continue on. MR CHANEY: No?---No, I must get that name. I mean, Watt's - - SPEAKER: Hyland and Watts?---Hyland and Watts. And Kim told me that they are the very solicitors on behalf of the borrowers - - not the borrowers, the investors to protect our interest. I never had any help from them, nor have I had any letters from them. MR CHANEY: All right?---But through Kim, and ...(indistinct)... said they will protect the interest. Right?---That never happened. Can we go back to paragraph 20, please?--- "The Johnsons defaulted on their mortgage and have

not paid us interest or capital since November 1997." Now while I'm here, being invested - -investigated by your Honour, I have not received one

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cent. Not one cent. Nothing. Not even a part of it. "When the interest payments stopped I contacted Global and asked them what was happening. Global told me that the Johnsons were experiencing financial difficulties, but where I wasn't told. And that they were trying to raise funds to pay interest." Of course, Peter pay Paul. Somebody else got to bleed, and get out to pay me, pass on the buck. "We kept ringing Global for another 2 or 3 months, and didn't get any response because they knew that I was not standing still." I have been in World War II and I never stood still. "We kept ringing them. We tried to contact the other investors, but they were not interested."

WITNESS: Why? Fancy this woman that is so old crying over the phone Mr Lens, what do you want me to do? 70, 80, 90 years of age? She was waiting to die in peace, live her last few days, weeks or years, like I did. Never got it. I lost one friend already from the group, and that is John Longmire. And when I hung up the phone on Global, I got a stroke myself. She rung the ambulance and they carried me off, and I thought that was my time coming up. But when the doctor said all right, you're out of it, you can go home, some days later, I said there's to me straight, how long to go? He said take it by the day, because that is something in the hands of the Lord. How right he is, I'm still here, and I still will fight and give you all the evidence necessary, out of the deepest of my heart. MR CHANEY: You need a drink of water, Mr Lens, are you - - there's some water there if you'd like a short - -?---It makes you nervous. Yes?---But I fight. Well, I think it might help you if you try to stay reading the statement and - - ?---I'll do my best. CHAIRMAN: Yes, just read the statement to us Mr Lens?---Paragraph - - "We decided to instruct solicitor Ellis MacKinlay?

and Co in Booragoon to help us get our money back. When he said - -

MR CHANEY: Just - - ?---Just a moment, but that must be filled in. When he said it cost me 500 I went to the bank and got him 1000 to show my courage and to show my faith in him, because his charge was there and then of that price. It cost us nearly 2000, when I walked out on him. So let that be a lesson that the solicitor can sometimes differ too. ...(indistinct)... don't walk out of a solicitor.

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"In March 1998, Gregory Johnson rung me." Yes, true. "And said that he wanted me to keep quiet. He said his wife Corinna was a real estate agent." She didn't get the licence from me, I tell you honestly. "And was trying to organise the sale of the property." Well, she didn't achieve very much. On 18th of June 1998, I was listening to a talk back radio show and heard a lady called Denise Brailey, to give her account on an investment that went wrong. I just happened to listen. Her story was a lot like mine and I got interested. I rung the radio station and left my number for Denise or that woman to call me. Denise subsequently rung me and after telling her my story, visited me promptly. I've got much grateful for her. Denise said she wanted to get all the investors together and to sort things out. So she visited them and organised a committee, an investor committee. As a group we hired a lawyer through her media called Doug Solomon, which you must have seen on radio everywhere and on TV.

WITNESS: "Through Solomon - - Doug Solomon is his name, we

were able to get Global to hand over the title and deed. When we got the title and deed we found out that we registered as second mortgage." You see that is where the script is sometimes misunderstood by the investor, especially those pensioners and of old age. "And we were therefore only a second mortgagee over unit 12, not first mortgagee. Global had put itself down - -himself down as the first mortgage - - mortgagee", which is very cunning, good and brainy. "We also took the Johnsons to court and got judgments against them. We became mortgagees in possession and tried to sell the property. We had an auction and that - - but there was no bidders." That was Lasalle? - - Lasalle the auctioneers ...(indistinct)... agent. We still haven't sold the property as yet. Corinna Johnson has gone bankrupt, lost her licence, I hope, to learn a better lesson. However, Gregory Johnson obtains - -and listen to this part 10 exempt from bankruptcy. When I heard that part X? are written I rung up the society of law Barrack Street, number 33. And they said to me that is you have agreed by the court that you can get that law on to you, you are free of bankrupt, so none of us in this room can send him bankrupt. I suppose not even honourable - - even Gunning.

MR CHANEY: Right, well Mr - - ?---Is that so, or is that not so, that's the question I will ask the honourable gentleman. CHAIRMAN: Yes?

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SPEAKER: Keep on going. MEMBER NEWMAN: We should perhaps correct Mr Lens' statement there. It wasn't the court that approved the part 10 administration, it was the actual creditors of Mr Johnson themselves voting at a meeting, in accordance with the provisions of Bankruptcy Act, the court was not involved. CHAIRMAN: It was done according to law?---Thank you. You have to read further please. MR CHANEY: Yes, problems with Global Finance?---Well, then we get the problems with Global Finance. "Global misrepresented the true value of the

property. The valuation report which was done by Ferris and was inflated."

And that is what I reckon should be given priority of investigation. If you get the wrong valuation, so high, even Alan Bond will fall for it and get rich on the return of it. MR CHANEY: All right?---Thinking that that's the right valuation. We did. And look where we finished up. "Global lied about the loan to valuation ratio.

Global told us it was 70 per cent, but it was actually a lot higher. Lots of misrepresentation. Global lied about the financial position of the borrowers." What I read before earlier. "Some of the loan money did not go towards the project." Well, we have to ask him that. And I think that they didn't, because Peter pay Paul is the whole business. "Global misled us by telling us that it was a sound investment." Oh, yes, for sure. "For example, in Global's letter of the 15th of July 1996", and that's a few years ago, "they said interest payments on this record are undoubted." Do you understand what that means? Without any flaw. "Global misled us about the management of the loan account. In their letter of the 15th of July, 1996, Global said they would organise a closely managed and supervised drawdown loan. He also said that Global would inspect the site to make sure that the loan funds were going to the correct purpose. And Allbuild is the builders that did that work." Just to remember the name. Allbuild. "Dealings with the Ministry of the Fair Trading and Finance Brokers' Supervisory Board went as follows. I wrote the CEO of the Ministry of Fair Trading on the 12th of July, 1998 and detailed my concerns about Global, because I was fed up so far by that time, and also down. My health was not the best. In about July 1998, I received a letter from Patrick Walker, the CEO of the Ministry of Fair Trading." I hope I got it

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24.5.00 C.E. LENS XN 426

right, Fair Trading and not between brackets that fair, because to me there's no fairness at all there. "The letter acknowledged receipt of my complaint, and that's why the Ministry of Fair Trading inspector call Jack Willers would contact me. He did. On the 24th of August 1998, Mr Willers wrote to me stating that he had telephoned me on the 29th of July, 1998, and that I was not prepared to disclose the details of my complaint because I wanted to get legal advice first." What would you do, give it over the phone?

MR CHANEY: Well, now - -?---No, I said first my lawyer. Doug Solomon. Now Mr Lens I just want to ask you some questions about that?---Yes. That letter is tab 3, the number 3 down the right-hand side?---Fair Trading, correct, sir. That's a letter written on the 24th of August, 1998, so that was - - ?---Yes. - - a little over - -?---That's correct. MR CHANEY: - - a month after you'd complained, and says - - Mr Willers says to you that on the 29th of July you were contacted by telephone concerning the matters of your complaint. That's correct, is it? He did ring you?---Yes, that's correct. And it's correct, is it, that you stated to him that you were not prepared to talk - - to disclose any details of your complaint, and you would contact the ministry later?---That's correct. And at that stage, when you got the letter you hadn't contacted the ministry?---Mm. Which is what it says. To this - - to this date there have been no contact received at the ministry from yourself, you see that?---He also promised me a report. Well, just let me establish first, is it - - ?---I see. - - is it right that up until the 24th of August, that the position which Mr Willers sets out in that letter is correct, is it, that he rang you and you said I'll contact you after I've spoken to my lawyers?---Quite right, yes. And that you hadn't then contacted him before you received this letter?---No, I didn't. All right. Thank you. Now perhaps if we can go back to

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24.5.00 C.E. LENS XN 427

the statement, that's right at - - paragraph 39?---Sorry, I'm not. Paragraph - - 39 was where we're up to?---39. And you were half way through after get legal advice first?--- "I wanted to get legal advice first. The letter

further stated that I wished to continue my complaint, I would need to contact the Ministry of Fair Trading." And that refers therefore to this part here.

Yes. Now did you then contact the ministry and tell them that you wanted to pursue your complaint?---Well, the thing is it may have varied at the time, but it may be that I contacted him by phone, but my usual way of business is to write an answer to any letter I receive. But I have therefore not contacted him, I must apologise, that I was probably wrong in not doing so. Yes?---But it doesn't mean at all that I wouldn't sort of see him or any of the trading officers at the later stage, by correspondence or over the phone. Yes. At - - around this time, you had Ms Brailey helping you, did you not?---That's correct. MR CHANEY: And was she so far as you knew, talking to the ministry on your behalf?---Well, I've asked - - being a woman so well informed on so many of these types of - - of subject, or objects, and that she therefore has sort of the power with my agreement to contact whoever she saw fit to contact. Yes. And did you know that she was contacting the ministry and talking to them about - - ?---Well, I think so, because - - Yes?--- - - we talked about the whole issue as Fair Trading is the of, in this Liberal government, to deal with the matters like mine. Yes, all right. Thank you. So if we go back to paragraph 40?--- "On about 15 September, 1998, Jack Willers and

Stuart Dowling - - " that's right, those two came to my house in person. "And they took copies of all the papers that we put in front of them." They took them at my house and its bigger than the West Australian newspaper, all the files and letters I've got there. Anyway, "They came sorted out with my wife, at the library got prints made for their information."

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24.5.00 C.E. LENS XN 428

Right?--- "They took copies of all my papers and said they

would seriously investigate the matter." I hope they were serious about that. "This interview was some 2 months after my initial complaint." Well, fair go, 2 months. You know. I mean, I may not be there, do they care? I'm sorry to say this all the time, your Honour, but it is my inner that speaks the truth. The truth - -

CHAIRMAN: Please settle down, and just keep reading the thing and you'll go a lot better. Don't get upset please?--- "I recall that Mr Willers was very negative." As I

talk to you people I like I do now, he was no bar of listening to the actual detail of my conversation. "He said to me words to the effect there is nothing much we can do." Easy way out. "You can't get your money back. Clear as that." Doesn't need an explanation to me by now, 3 years later. "Willers told me that he would interview the six other investors." I hope he did. There was a lot of tears that he left when he left there. "Attached as a copy a typed personal attendance record dated 15 September 1998."

MR CHANEY: That's something you prepared was it, that you typed up after you'd seen them?---Let me - - well, if it is one of mine, I would have signed it and signed it. Yes, it reads therefore today the 15th of September - - MR CHANEY: Yes, it's all right, you needn't read it?---No. We can all read it - - ?---Just to give the date that they visited me. Yes, well you've given that I think?---All right. So - - ?--- "On September, on the 26th of October", September,

October, the month after "Denise Brailey wrote to the CEO of the Ministry of Fair Trading, complaining about the lack of action taken by the Ministry of Fair Trading." I would agree with her, because it took so much to even do anything for myself. "At ...(indistinct)... stage Willers asked me to sign a statement that he had prepared. I told him that I would have to get my lawyer, Doug Solomon, to check the statement I was prepared to sign it." Wouldn't you? I can sign my death notice. "On about 26 November 1998 Mr Willers wrote to me advising that

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24.5.00 C.E. LENS XN 429

the report on his investigations," not mine, his, "into my complaint had been forwarded to the legal officer of the Ministry of Fair Trading for legal opinion." I never got an investigation letter so I wouldn't know.

MR CHANEY: Can I just stop you there? You say in the previous paragraph that Mr Willers had asked you to sign a statement that he prepared that you said you wanted to send it off to your lawyers first?---To give you the exact - - the exactness of it is, that he said I make a report and you sign it. I said, that report could be a good one which I will sign, or one against me, that I won't sign but, there is the law. All right. Well - - ?---Obeying the law, and Doug Solomon to check it first before I sign. All right - - ?---I never even now have received that. At some time before - -?---Did he send it to - - to the lawyer straight away, I don't know. Well, I'm going - - did you take it to Doug Solomon?---No, I told him to bring it to Doug Solomon. Right?---To give it to Doug. And Doug - - Do you know whether - - ?--- - - would give it to me to sign and I would send it back to Willers. Do you know whether as at the 26th of November 98, which is when you - - this letter was written telling you that the matter had gone off to the legal - - for a legal opinion, that statement had been signed and been sent back to Mr Willers?---Well, I haven't got a clue about what the content is of that, I don't recollect it all. MR CHANEY: You never saw the statement?---Well, to my recollection honestly I couldn't tell you. All right. SPEAKER: No?---I mean, do you remember that? No?---We didn't? We didn't. We heard no more. MR CHANEY: All right. Thank you. (TO WITNESS): Paragraph 46, I think, Mr Lens?--- "46. On about 30 December 1998, Mr Willers wrote to

me advising that he had forwarded the investigation report to the Crown Law Office for further legal opinion." I haven't got a clue what that contains,

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24.5.00 C.E. LENS XN 430

but "On about 13th of January 1999", the year thereafter, remember, "Mr Willers wrote to me advising that the members of the Finance Brokers' Supervisory Board had agreed that an application for inquiry relating to my complaint should be considered by the board, but that further legal opinion was needed from the Crown Law Office."

I think you just said a year later. It was just the next month after your previous correspondence?---Yes. 1999 is the next year, that's what I meant, you know, the following year. I see?---Must I read out the attachment A please? No, I think that speaks for itself, so we don't need you to read it?--- "On about the 3rd of March in 1999, Mr Willers wrote

to me advising that the members of the Finance Brokers' Supervisory Board had agreed that an application hearing in respect of my complaint would be approved." I was fairly happy about that. "I have not had any correspondence from Mr Willers since the 3rd of March, 1999. I believe that nothing - -"

Can I stop you there, Mr Lens, I just want to ask you something about that. The board's records show that on the 28th of April - - ?---April, March - - - -99, it's not in your statement, but they showed on the 28th of April 1999, inquiry on your complaint was adjourned because by that stage Global was about to have a supervisor appointed, or had had a supervisor appointed and there were other matters to do with Global, and it was simply adjourned - -?---I see. MR CHANEY: - - without setting a date. Did you know anything about that?---No, I never had been informed about that adjournment by nobody. All right. Thank you. Paragraph 50?--- "I believe that nothing substantive was done by the

Finance Brokers' Supervisory Board to shut Global down or warn new investors of the risk with Global." For sure. "Before Global went into administration in February 1999."

What I can't understand if I may interrupt here is that in all of this here the Hyland and Watts, the solicitor, not even put a claim a report or a word in, nor to any of us as on this side of the table, nor to Global apparently. What was their job? Your Honour, I mean in all due respect of the law, is a lawyer not required to

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substantiate his willingness between the borrower and the lender. CHAIRMAN: Well, Mr Lens, I don't know the answer to that because I don't know who they were acting for, but they act only for one person?---I presume that if they're in the service of the broker, in this case therefore Global, would you say in your right mind that they therefore are bound to sort of correct any misconstruction or misunderstanding - - No, depends on their - -?--- - - between the two parties to borrow one on the land. It depends on the instructions from their client?---I see. And they certainly wouldn't be under any obligation to write to everybody?---Would they therefore correct in not telling me or any of my group - - Mr Lens, I can't answer that, because I do not know?---I see. If you just kindly - - ?---I'm sorry to ask you a question, sir. That's all right. Carry on?---Yes. "For the last 2 years I have been constantly writing

to Doug Shave and Richard Court." Well, they must have a library there because I tell you I wrote many letters. "There was never any action. Everyone just passed the buck on to the other."

I even written to the Archbishop of Perth, whether he can in his speech to the community seek help for those like me at my age who lost so much money, and for the blind man, Eric ...(indistinct)... who lost so much in his savings. These - - MR CHANEY: Yes, Mr - -?--- - - are things that we ask and turn to the people can do something for us, even through the Bible. And Mr Lens, the letters which you wrote to Mr Shave and to Mr Court, did you copy those to the Ministry of Fair Trading, or just - -?---Well, the thing is at the time, they made a visit to my place, whatever I had on the file was all spread out, take what you like, they went through it and - - Yes?--- - - they took what is evidence and is good for them. Yes. It shows - - ?---Therefore the later letters to

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Richard Court and Doug Shave are not there. That's the reason they took at that moment - - Yes, I -- ?--- - - what was there. Well, in fact on your file at the ministry there are as you say a library of letters to Mr Court and others?---I've written - - Just listen for a moment, that show you're writing almost weekly through - - through certainly the later months around October 1999, September, October, November and that would be accurate is it, that the file - - ?---Well - - - - that every week or so?--- - - if that is in the limit and the time limitation of them visiting us and going through it, so be it, yes. All right. Well, we'll leave I think for the moment?---But I want to express also to the people and those interested parties that I've written to the federal government as well. Yes?---To those higher than the state government. Jocelyn Newman, John Howard, the finance minister, Mr Fahey, I forgot the name, it's all there. Yes. Can I just ask you - -?---In relation to the investment and senior priorities. Yes, but Mr Lens, if you just listen to my questions for a moment?---Sorry, sir. Yes. I asked you a little while ago whether you were informed of the outcome of the inquiry which was held against Global on your complaint, do you remember that?---Where was it held, if I may ask? Well, at the Ministry of Fair Trading, but there's a file note on the file which suggests that Mr Harvey, Mr Greg Harvey, from the ministry rang you on the 11th of March, says: "I rang Mr Lens and informed him of the outcome of

yesterday's meeting. He asked for a copy of the discussion from yesterday's meeting. After some discussion I agreed to send him a copy of the board's press release. I also advised him that a letter would be sent to him regarding to yesterday's meeting"

MR CHANEY: Do you remember that call from Mr Harvey?---Well, let me say this in all honesty, every phone call is registered with Telstra. If they can check that and I answered them that is right - -

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Yes, but I'm - -?---From memory - - - - just asking from memory?---I think there is lots of people that rung me, and quite likely the gentleman could have rung me, but whether I've got evidence in typed form or letter form, that I don't think so. Well all I can ask you to do Mr Lens is to cast your mind back and see if you can remember. Do you remember such a phone call or not?---Well, not at this very moment. If I probably see the file or be brought my memory to that point, I will substantiate that. All right, well - -?---But if it is of importance to your records - - Well it's just - -?--- - - could that be - -could that be opened up please? Well - - ?---I didn't like to be wrong. No, no. Well, nobody's arguing with, I realise there've been lots of things happening - -?---I still like to be right. Yes. Well, I'm asking you, and if you have no recollection of that, that's fine?---No. But - - ?---But it doesn't mean it hasn't happened. No?---I could be wrong. Yes, certainly?---At my age sometimes I forget, sorry. I can tell you at my age, sometimes I do too?---I do my best, that's all we can do. Yes. All right. Well thank you. I think we were at paragraph 52?---"Out of the numerous letters that I've sent to the minister and Ministry of Fair Trading, I have only kept a couple. The originals will be with the ministry." All right, it is. If you want any information that I have written, they must have on the file system. So - - but even Telstra or anybody can - -can lay their hands on, because I sign my letters. All right. Thank you Mr Lens?--- "I believe that my complaints about Global were very

serious indeed, and that minister and the Ministry of Fair Trading and also the Finance Brokers' Supervisory Board should have taken urgent action at the time to either shut down Global down or warn investors. As it turns out Global remained licensed, and that is just a fact. And more innocent investors lost life - - their life savings,

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24.5.00 C.E. LENS XN 434

because they were in trouble, they got to catch other fish to plug that hole and that is white collar crime." Whereas I was explained I'd have kept them - -

MR CHANEY: Mr Lens - - ?--- - - white collar crime is only a hearsay. "On the 15th of March 2000 I made a submission to

the Gunning inquiry" With all due respect sir, I did. I wrote further letters to the Gunning inquiry on the 27th of April, and the 28th of April, year 2000."

Thank you. Mr Lens?---I hope that in having done that it will clarify to all parties the seriousness behind this, but most of all if I may ask you sir, to put your mind and attention to not only the borrowers, but also the valuers. I think that right from the start, even the borrowers borrow money, they must know what value they borrow of. CHAIRMAN: Mr Lens all these matters are under consideration?---Thank you, sir. Very well?---Good. MR CHANEY: I've nothing further for Mr Lens, Mr Chairman. MR ALLANSON: I have nothing further. CHAIRMAN: Mr Hooker? MR HOOKER: Nothing from me sir. NO CROSS-EXAMINATION CHAIRMAN: Thank you very much indeed Mr Lens?---Thank you ...(indistinct)... Thank you. WITNESS WITHDREW MR CHANEY: I tender the statement of Mr Lens with its attachments. CHAIRMAN: That'll be exhibit 86. MR CHANEY: Mr Chairman, I've had produced chronology of events which form the basis of some of the questions I put to Mr Lens, which is an extraction of the events recorded on the complaint file, Ministry of Fair Trading complaint file in relation to Mr Lens' complaints against Global

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Finance Group, being - - CHAIRMAN: I think that should form part of 86. MR CHANEY: Yes, that might be appropriate. It's not Mr Lens' document - - CHAIRMAN: No. MR CHANEY: - - but it does I think fill in some of the sequence of events. CHAIRMAN: Yes, that chronology will be part of 86. EXHIBIT 86 Mr Chaney DATE (Unstated) Statement of C.E. Lens with attachments, including chronology MR CHANEY: Thank you. CHAIRMAN: No - - sorry, Mr Allanson? MR ALLANSON: Just in relation to that, at page 16 of the chronology. CHAIRMAN: Yes? MR ALLANSON: You'll see the second entry is the 5th of March 1999, the notice of hearing being served on Mr Margaria, and the next entry being the 18th of April. I wonder if it's appropriate just to insert between those two the 11th of March, the phone message to Mr Lens from Mr Harvey advising him of the outcome of the adjournment? CHAIRMAN: Any record of that, Mr Chaney? MR CHANEY: Yes, that's a document I put to you Mr Lens and it is accurate, or it does appear on the file as the 11th of March. CHAIRMAN: 11th of the 3rd - - 99? MR CHANEY: Yes. It's a telephone call from Mr Harvey to Mr Lens reporting on the outcome of - - of the inquiry on the 10th of March. CHAIRMAN: Thank you. MR CHANEY: Thank you. CHAIRMAN: Anything further Mr Allanson? MR ALLANSON: No, thank you.

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CHAIRMAN: Now what's the program? MR CHANEY: That completes proceedings for today, Mr Chairman. 10.30 tomorrow we'll resume. CHAIRMAN: Who do we have tomorrow? MR CHANEY: We have the ASIC, two witnesses from there, and in the afternoon, Mr Murray Allen. CHAIRMAN: The Ombudsman? MR CHANEY: I think I have to discuss matters with Mr Allen, there's some prospect that that may be in-camera. CHAIRMAN: Well, we'll worry about that later. Thank you very much, we'll adjourn, 10.30 tomorrow. HEARING ADJOURNED UNTIL 10.30AM THURSDAY, 25TH OF MAY 2000

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25.5.00 J.G.M. OGILVIE XN 437

CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Thank you. Mr Taylor from the ASIC is here, Mr Chairman. Be appropriate if he announces his appearance. CHAIRMAN: Yes, Mr Taylor, sorry. MR TAYLOR: Mr Chairman, my name is Andrew Taylor and I appear this morning for the Australian Securities and Investments Commission. CHAIRMAN: Thank you very much Mr Taylor. MR CHANEY: Mr Chairman, I call James - - Jamie George Michael Ogilvie. JAMIE GEORGE MICHAEL OGILVIE sworn:JAMIE GEORGE MICHAEL OGILVIE sworn: EXAMINED BY MR CHANEY: MR CHANEY: Mr Ogilvie, you are the Regional Commissioner of the ASIC in Western Australia?---Yes, I am. And the ASIC office is at 66 St Georges Terrace Perth?---That's right. I think in order to assist the committee with its inquiry, the ASIC under your supervision has prepared a submission dated the 19th of May, 2000?---Yes. As to issues concerning the role of the ASIC in respect of the Managed Investments Act, and its enforcement actions over recent years in relation to finance brokers in particular?---Yes. Do you have a copy of that submission with you at the moment?---Yes, I do. Mr Chairman, members of the committee, the - - before I ask Mr Ogilvie any questions, the submission, I'd like to make some comments about the submission. It is a very full clearly written document, and essentially was prepared in consultation with me, at least prior to consultation with me as to the areas of interest to this inquiry, which - - on which the ASIC may be able to give evidence. It is in its terms really a rather complete statement of what we need to know and I've decided that the most appropriate way to deal with the submission is for Mr Ogilvie and a subsequent witness to take you through the report and elaborate on it as they speak to it, and answer questions which you may have, or I may have as we work through it, so that's the basis upon which I propose to proceed. Mr Ogilvie, against that introductory

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mark, remark, can I invite you to - - well, perhaps before I do that, it's proposed that you should speak to what in essence is part 2 of the report I think, concerning the enforcement and compliance activities of the ASIC in relation to finance brokers under the Managed Investments Act, and Ms Vamos will deal with part 3. Can I invite you to - - if we can pass over the introductory paragraph and go to page 3 of the submission, unless there's anything you wish to say about the introductory portion?---No. MR CHANEY: And speak to the committee in relation to part 2.1 and following?---Okay. I suppose as for introductory purposes I'm going to be talking about pooled mortgages, which has been a particular issue with regard to finance brokers obviously. From a regulatory perspective, until the middle - - until July the 1st 1998, certain forms of pooled mortgages were referred to as prescribed interests, and as such were regulated under the Corporations Law. From the 1st of July 1998 they've been referred to managed investments schemes, but for the purposes of today I'll be just making reference to them as pooled mortgages. I propose to start at the start from ASIC's perspective, and that really starts in 1991, or 1992, when it became apparent to the ASC as it was that there was a significant business in what was known as solicitors mortgages schemes, principally Victoria, New South Wales and Queensland, and as a consequence, some public hearings were held to enable the ASC to inform itself of the characteristics of these schemes and make some decisions as to whether or not first of all they should be regulated under the Corporations Law or if so, whether or not some type of relief should be afforded to those schemes because of the particular nature of them. As a consequence of those hearings, class order relief was provided to schemes in New South Wales, Victoria and Tasmania in 1992 - - CHAIRMAN: Excuse me, Mr Ogilvie, the schemes come to your attention, or your organisation's attention, as a result of any problems as we have - -such as we're investigating here?---Not that I'm aware of, no. There was just a recognition, as - - the ASC was formed at the beginning of 1991, and as part of its regulatory activity in the early years, it was informing itself as to the - -that the nature and incidence of different types of investment schemes, and obviously solicitors mortgage investment companies were particular schemes that the ASC became aware of. Thank you?---But - - MR CHANEY: Mr Ogilvie, in - -just in relation to that background, the introduction of the Corporations Law in Corporations Law in 1991 which set up the ASC involved a shift in the funding and resourcing of corporations enforcement, did it not?---Yes, it did.

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From the state based regime to a nationally based regime?---Yes. MR CHANEY: And is it fair to say that that resulted in significant additional resources being made available for corporation regulation in Australia?---Yes. And the result was that there was more capacity, or at least more activity in relation to the examination, amongst other things, of all sorts of prescribed interests as is covered by the Corporations Law?---Yes. Their method, and various investment schemes, cost effective - - tax effective schemes and so on, that a fair summary of the early 90's and what happened?---Yes, it is, although I must say that the early 90's was perhaps characterised for ASC by the investigation of a number of major collapses and corporate frauds, but it certainly is part of our work. The identification of particular types of investment schemes and some analysis and judgments made about a particular risks that they posed, was a significant part of our regulatory work. Thank you?---Okay. In WA, as part of that process, the office here made some inquiries as to the incidence of pooled mortgages in WA. And our first port of call was the Law Society and we were advised that unlike the other states, solicitors did not offer or arrange pooled mortgages in WA. We also made inquiries with the Finance Brokers' Supervisory Board and the Ministry of Consumer Affairs as it was at the time, and the advice at that time was basically that the offering of pooled mortgages was not a feature of the industry in WA, so it's probably fair to say that the local office of the ASC at the time had almost no focus on the offering of pooled mortgages. I suppose - - I'll perhaps refer you to page 5, which makes reference to the position as we saw it in 1993, and it's based on information collected from a variety of sources as I've indicated, and that is that by far the greater amount of loans arranged by finance brokers were from large institutions, generally banks and so on, but a few of the brokers did arrange loans sourcing the funds from private lenders. There were only a very small number of brokers who advertised regularly for private lenders, who managed the collection and payment of interest through their trust account and held client funds, which clearly was an area where - - which became a significant risk area. The pooling of investors funds was very rare and not of a type that concerned the ASC and my understanding of the analysis at the time in particular was the security arrangements in particular were such that even if these schemes might technically have been prescribed interests, and there was doubt as to that, the security arrangements effectively protected investors.

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MR CHANEY: The security arrangements being that - - ?---Being that the mortgage is over real property. And that individual mortgagees would actually feature on the title as holding a portion of the security?---That's right. Yes. We certainly had no indication at that time that there may have been any particular disclosure problems. And the conclusion was that there were no problem indicators in the industry to justify further action. And I suppose I should point out that as a regulatory agency we have a range of responsibilities and we've got to make decisions as to those areas to which we devote our resources. At the time the question of pooled mortgages and potential problems was just not an issue for the ASC we didn't put any significant resources into making inquiries as to whether or not these were particular products that we needed to be particularly concerned about. In 1994 we were referred to two advertisements which were placed in the West Australian by certain brokers. They offered first mortgages but made no reference to pooling of funds or management of the loans. Our inquiries indicated that one of the brokers in fact did pool lenders' funds although each lender did have their own registered interest. The view at the time, and it's I suspect, based on incomplete knowledge, was that these particular arrangements were not prescribed interests and therefore the offering of them didn't breach the provisions of the Corporations Law. In 1995, class order relief was provided to the - - the regulatory - -sorry, the industry body of South Australia governing finance brokers, I can't recall exactly their name, I think it might have been the Institute of Finance Brokers, or something like that, in South Australia, and as a consequence of that we wrote to the local industry body - - Can I just stop you there and - - those members of the committee who may not be familiar with the regime relating to class order relief, can you just briefly explain what that means?---Class order relief is provided where in this case where a particular product or practice is considered to be regulated under the Corporations Law, but for a variety of reasons the ASC exempts the bodies or the entities or the industry from complete - -from full compliance. Class order relief in these cases meant that because of the nature of the arrangements, and because of the supervisory arrangements, the full compliance with the Corporations Law in the form of the registration of trust deeds, the registration of prospectuses and so on, were not required, so solicitors in the eastern states and finance brokers in South Australia were not required to register trust deeds for these prescribed interests or issue prospectuses and so on.

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Thank you. I think I interrupted you talking about 1995 and the events that occurred?---Yes, we wrote to the local industry body, the Institute of Finance Brokers and suggested that if in fact pooled mortgages were being offered then the institute might apply for class order relief on behalf of its members. Later that year, we became aware that one broker was pooling clients' cash into some form of deposit or cash management account and we made inquiries about that and satisfied ourselves that that was probably operating a prescribed interest and we required the broker to discontinue that activity and they advised us the following year that they had done so. MR CHANEY: Can I stop you there and ask you two things? One, the - - in the submission there's reference to the fact that inquiries made by the regional office as a consequence of the ASC's annual return review program showed that one pool - - one broker was pooling clients' cash. Can you explain what the annual return review program is, and how that brought this to light?---Well, it's a - - it was coincidental really. The annual return review program was an activity which came about to test the value, I suppose, of annual returns lodged by companies, and through a targeting process we identified a range of companies and I think in this particular case, they were a range of associated companies whereby the information provided in the most recent annual return was exactly the same as the information provided in the previous year's annual return, and that had subsequently been rectified by a return amending the latest annual return, and it was by virtue of an investigation into those companies that we became aware that the source of their funding, or part of the source of their funding was through a finance broker, and the inquiries were generated by way of that process. MR CHANEY: I see - - it was accidentally really?---It was nothing to do - - very much - - it was nothing to do with a formal inspection process of finance brokers. Thank you. Just the second point before we leave that segment, you haven't in that portion of the submission named the broker concerned and in other parts of the submission brokers will be named. On what basis has that distinction been made in the preparation of the submission?---Okay, the approach taken is that where it has become public knowledge that we have taken action or investigated particular brokers, or individuals, then we've named them in submission. But where that information remains confidential, we have not named them. We are happy to, subject to our confidentiality provisions, we are happy to provide the inquiry with that information, with that confidential information if requested, but we would wish to do so a confidential basis.

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Yes, thank you. Would you now move on to 1996, thanks, Mr Ogilvie?---Okay. As I'd indicated earlier: "In 1994 we'd taken a view in a particular matter

that the particular pooled mortgages being offered were probably not prescribed interests. That as a consequence of a reconsideration of that view in 1996, we wrote to the Institute of Finance Brokers suggesting that they might wish to apply for class order exemption and in so doing relieve their members of the needs to comply." And in fact - -

CHAIRMAN: Excuse me, are we talking about WA now?---We're talking about WA. I should point out that the Institute of Finance Brokers is essentially a forerunner of the Mortgage Investment Association of Australia: "And in fact that same month, finance broker MFA

Finance applied to the WA office for relief in respect of its mortgage broking activities, and in July the Institute of Finance Brokers applied as well for exemption. Before those applications could be determined, the ASC commissioned an inquiry for report into the national mortgage investment industry as a result of the problems that had arisen in other states. In particular, there was a major collapse in South Australia, the mortgage brokers called Growdens, and a firm of solicitors in Albury, Titians, both those firms have been operating under class order relief, and there were significant losses being crystallised for investors. On the basis of the existence of the inquiry and the proposed report, the question of providing relief to either Clifton Partners - - sorry, MFA Finance or the Institute, it was basically determined that it wasn't appropriate to grant that relief until such time as the inquiry had come to its findings. In October 97 we had some correspondence from the Ministry of Fair Trading advising us that they were proposing to review the management of finance brokers industry and the Finance Brokers Control Act and that they sought our advice about certain aspects of finance brokers' activity. We replied to the ministry, outlining the prescribed interest provisions and the nature of the relief that had been given in other states, and we pointed out that in our view, that the protections under the Finance Brokers Control Act were less than those that existed under the South Australian regime, or the South Australian arrangements, and that the application from the Institute of Finance Brokers was proposing greater protection in the event of default than currently existed under the Finance Brokers Control Act. In October - - "

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MR CHANEY: Sorry, perhaps can I - - can stop you there? Is the upshot of that that in terms of whether or not class order relief might have been granted, had the other changes which were in train not been occurring, the regulation provided under the Finance Brokers Control Act would not have been sufficient safeguard to support of itself class order exemption?---No, it wouldn't have. The particular inadequacies in our view, or the particular requirements that we were intending to impose as part of the class order relief related to indemnity provisions, in guarantee fund provisions, whereby the supervisory body would provide a process which would provide significantly additional protection to investors in the event of default. MR CHANEY: Thank you?---As I mentioned earlier, the introduction of the Managed Investments Act placed a - - shall I describe it - - certainly made it very clear that these types of products ought to be regulated under the Corporations Law, and as a consequence of that, a policy proposal paper was released in October 1998. And that paper was about how the managed investment and fund raising provisions of the Corporations Law should apply to mortgage schemes and the policy proposal is in the papers. "In December 1998 the successor to the Institute of

Finance Brokers, the MIAA, made an application to ASIC for relief on behalf of its members who were licensed finance brokers. In January the following year, 1999, we advised the MIAA that its application was refused on the basis that ASIC's policy position was still being determined, and in February 99, we published a media release and an information release setting our preliminary position on the future regulation of mortgage investment schemes", pooled mortgages essentially. "In July 1999 we released policy statement 144, which outlined the new regulatory structure that mortgage investment schemes have to operate under, and Pauline Vamos will take you through policy statement 144 in some detail later today I understand. But essentially, it provides that except for small scale schemes where there is appropriate industry supervision, all pooled mortgages will be - -are to be regulated, fully regulated under the Corporations Law."

This essentially means that the operators of pooled mortgages - - mortgage investment schemes need to be operated by responsible entity who's licensed by ASIC, people providing advice, recommendations to investors, need to be licensed by ASIC as investment advisers or securities dealers. Prospectuses need to be issued and lodged with ASIC and the - - in effect the bar is significantly raised in terms of compliance with the law

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and disclosure and protection for investors. Our policy statement 144 came into effect on the 17th of December, 1999. So that effectively means that since that date, other than the limited exceptions I've referred to, all pooled mortgages are fully regulated under the Corporations Law. MR CHANEY: Now there's a gap of some 18 months or there about between coming into force of the Managed Investments Act and the uptake of the regulation on 17 December 1999. Why - -what was the reason for that delay before Managed Investments Act in effect became operative so far as finance brokers were concerned in this state?---Well, at the time it came into force, ASIC was still in the process of settling its views as to whether mortgage investment schemes, or pooled mortgages came within the ambit of the law, and once we had determined our view, a consultative process commenced by way of a policy proposal paper which was first distributed for comment in October 1998. Interim policy statement 144 was produced in July 1999, which required schemes to comply by the 1st of November. The delay, or the period of time between the implementation of the Managed Investments Act and the application of those provisions to mortgage schemes was firstly a consequence of the consultative process. This was going to be a very - - you know, a very significant change of scenery for mortgage operators, and we needed to understand how their businesses worked, and they needed to understand where ASIC was coming from, what the Corporations Law meant, and what it meant for them. And the further time was required to enable mortgage operators to put their affairs in order, so that they could in fact comply. The changes to their business processes and systems and culture were very, very significant and were never going to happen overnight and ASIC took the view that it would take some time for the - -for those operators to be able to be in a position to comply, and in fact it had originally been proposed that the 1st of November be the relevant date for application of the policy, but as a consequence of our submissions from industry, that was extended to the middle of December. Yes. Other aspects of the Managed Investments Act did take effect immediately in July 1998 - -?---Yes. - - in respect to what were previously prescribed interests or caught by the - - clearly caught by the prescribed interest provisions?---They did take effect, but there is a transition period of - - and Pauline Vamos once again will be able to give you some detail about this, but operators of prescribed interests prior to the 1st of July 1998 had a 2 year transition period. That transition period finishes on 30th of June this year. That was built into the legislation, was it?---Yes.

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Yes. Thank you. I'd ask you to return to the submission?---I suppose that's really all I would want to say about the regulatory history in ASIC's approach to the regulation of pooled mortgages up until this time. Did you - - is it appropriate that I - - Yes?--- - -move to enforcement activity? MR CHANEY: Yes, if you'd like to move onto the next segment of the submission, thank you?---I now want to talk about our investigative enforcement activity with regard to finance brokers. Almost all of it is very recent but there are one or two matters of history which I'd want to draw your attention to: "In late 1991, a West Australian finance broker,

Jacka Nominees went into liquidation after the suicide of the sole proprietor of that business, and it came to light that he had misappropriated several million dollars from the broker's trust account. The ASC at the time investigated that matter and passed over its findings to relevant investors who'd subsequently sued the auditors, and we understand recovered most of their money, so there was no further action taken with regard to any other persons. On page 9 of the submission under 1991 to mid 1998, there's a statement there which says ASIC did not receive any investor complaints about finance brokers. That's in fact not correct. A recent - - recent checking of our records indicates that in fact we'd received two complaints."

MR CHANEY: I think that's the subject of a supplementary submission - - ?---It is. - - that's prepared to correct that?--- ...(indistinct)... supplementary submission. Thank you?--- "One of the complaints relatively trivial" Thank you?--- "And it involved somewhat ironically an investor who

complained about the fact that he didn't get put into a pooled mortgage. He had - - he had provided $100,000 to a finance broker for investment in a pooled mortgage and as a consequence of - - ",

well, we're not exactly sure of how it occurred, but in fact his funds were not invested in pooled mortgage, but remained in the trust account of the finance broker and the nub of his complaint was that he'd only been receiving

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the 4 per cent rate of return for - - in the trust account rather than the 10 per cent that he was expecting to get from him in the pooled mortgage. "The other complaint was quite serious. It related

to a number of issues, the complaint in fact came from a liquidator. And he provided us with information suggesting that finance broker was involved in a number of improper activities, including the overstatement of contract pricing for development loans, so that the excess amount of the loan could be diverted to transactions and not disclosed to the lenders. The unauthorised transfer of funds out of the borrower's trust funds for the benefit of other borrowers and some uncommercial transactions between borrowers and entities associated with a director of the broker."

MR CHANEY: And that was in - - ?---That was in July 1995. "As a consequence of that complaint we had some

discussions with the Finance Brokers' Supervisory Board about what action should be taken. After a series of conversations and letters and so on, it was agreed that the board would appoint a special auditor to investigate the conduct reported by the liquidator, and if the auditor was to find evidence of breaches of the Corporations Law, then those findings would be passed on to ASIC for further investigation. And it was left on that basis that the board would follow that through. In July 1996, we wrote to the board asking what the position was with the special audit and they advised us that the inquiries were continuing, and that they would let us know the outcomes of those inquiries in due course. And we didn't hear anything further."

So apart from those two complaints, ASIC- - CHAIRMAN: Excuse me, did you inquire again?---No, in fact what happened was the file by that stage was getting relatively old and as part of our administrative process it was closed pending receipt of the information from the auditor or from the board. Which never arrived?---Which never arrived. MEMBER NEWMAN: Mr Ogilvie, did the liquidator take any action at all against any of the directors in this particular company for any breaches where they had the capacity to seek repayment of funds for the benefit of creditors?---I'm not aware. I do know the liquidator examined some officers of the company, but I'm not aware of the outcome of his investigations.

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MR CHANEY: It might assist Mr Ogilvie, the liquidator who made this report to you, is the liquidator of a company associated - - which was a finance broking company or a liquidator of a company which had dealings with a finance broker?---Which had dealings with the finance broking company, I think the company in liquidation was a builder. Thank you. CHAIRMAN: Was the finance company which you were waiting on a report that never arrived, without - - I don't want to tread on any toes anywhere, is that - - did it eventuate that the finance broking company is one of those that have been come into prominence, and which we have heard about?---Yes. It was?---Yes, it was. Who?---I would prefer to provide that information to you on a confidential basis. Thank you. MR CHANEY: Thank you, Mr Ogilvie. Move on to 1998-99?---Okay. The second half of 1998 really I suppose marked the beginning of ASIC's involvement in these issues. "In August 1998 we received a complaint on behalf of

six investors involved in a pooled mortgage through Global Finance. And in October we commenced a formal investigation into Global's mortgage broking operations as a whole. In other words, not just in relation to the complaint we'd received. A formal investigation is a - - is an important step in our processes because it enables us to utilise all our compulsory powers. Between that time and February we investigated Global Finance, obtaining evidence and then - - and came to the view that Global Finance's activities were unacceptable and we needed to act to stop them."

Can I stop you for a moment? The submission indicates that between August 1998 and October - - 28th of October 98, ASIC officers interviewed investors, met with officers from the ministry to discuss possible regulatory overlap, and conducted surveillance visit to Global Finance's office. The officers of the ministry, was it the board or the ministry that you were dealing with?---I can't be certain about that. There - - I suppose certainly in the early days to some extent in our eyes they were interchangeable. Yes?---We didn't know much about how the board or the

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ministry operated in this area. I would have to take some advice on that. Yes. And were you able to identify the officers, that may assist us?---I - - I can't because I wasn't involved in those meetings, no. Weren't personally involved in that?---But certainly I can take some advice and provide you with that information later in the day. MR CHANEY: Yes, thank you. I think I interrupted you when you'd got to February?---Yes, well having come to a conclusion that we needed to shut them down, we advised them as such, that basically we would be making an application to the court to have them placed in liquidation unless they did something about it themselves. And as a consequence of that they did in fact appoint PPB Ashton Read as administrators of Global Finance and the administrators were subsequently appointed liquidators on the 20th of April that year, and of course were subsequently appointed supervisors of Global Finance: "The second major enforcement activity or

investigative activity which we instituted was into Rowena Nominees Pty Ltd, which was the corporate owner of Graeme Grubb Finance Broker. We first received a complaint about that business in August 1998. The nature of the complaint was it was an investor who had not been receiving interest payments. However, before we had a chance to do much about that complaint, in fact the funds were paid and as it was an isolated incident, we had no reason to believe that there was anything - - any systemic issues in Grubb at that time. We took no further action. However, in March - -" the submission talks about March 1999, but I'm sure that we had some intelligence prior to that that there might have been some problems with Graeme Grubb Finance Broker. "But in March 99 we received a formal complaint and we - - and later in March we received a further complaint, and on the basis of those complaints, we decided to review Grubb's operations. On the 9th of April, we eventually contacted Mr Grubb, and by that stage the number of complaints were growing quite significantly. Most of them relating to investors' funds not being returned. And the first visit - - surveillance visits to his office occurred on the 16th of April, with follow up visits on the 19th and the 21st of April, 1999. The initial inspection found that we - - that there was some significant problems in the books and records, and in particular the trust account showed a debit balance. On the basis of those inspections, we filed an application in the Supreme Court on the 23rd of April, 1999 for a

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provisional liquidator to be appointed to Rowena." MR CHANEY: Can I ask you, you say the existence of the debit balance in the trust account became evident on the 16th of April?---Yes. Are you aware of how readily apparent the deficit was?---I'm sorry, I should correct that. In fact the submission says between the 16th and the 23rd of April. It's during that time that we became aware that the trust account was in debit. MR CHANEY: Right. Can you indicate the nature or the number and qualifications of the people who went in to do these inspections?---It's some time ago. Certainly the - - there would have been - or there were, three or four people working in our investments group, there would have been a - - I do know that the staff member responsible for leading the inspection team is a very senior investigator in my office and she's a qualified accountant. The other members of the team I suspect also have accounting qualifications, but I would have to take some advice as to whether or not any of our lawyers were present as well at the inspection. Thank you?---As - - "Subsequent to the application, Rowena and Mr Grubb

gave an undertaking to the court that pending the hearing of the application they wouldn't raise any further funds, nor deal with any funds in the trust account. And on the 4th of May, they gave ASIC an enforceable undertaking and the enforceable undertaking was given."

What we agreed was we would discontinue the application for appointment of a provisional liquidator on the basis of these undertakings. They were that the trust account would be frozen and controlled by an independent accountant, Mark Conlan, who would investigate the affairs of Rowena and report to ASIC. Secondly that the directors would pay 500,000 to Conlan within 14 days, to cover possible deficiencies in the trust account, and thirdly that neither Rowena nor Mr Grubb would carry on any further finance broking activities. As I indicated the winding up proceedings were discontinued on receipt of those enforceable undertakings. I should perhaps point out that enforceable undertakings are a remedy that has recently come into ASIC's range of remedies and it provides for undertakings to be given, or accepted by us and where the person giving those undertakings fails to comply with those undertakings, then we can apply to the court to have the court enforce them. "Mr Conlan's initial investigations revealed that in

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fact the situation at Rowena and Grubb Finance was worse than we had initially suspected, and the basis of his recommendation we lodged - - filed a new application for the appointment of provisional liquidator and he was duly appointed on the 24th of May, and appointed as liquidator on the 21st of July, and he also was subsequently appointed supervisor. A number of the mortgages were in the name of Oakleigh Acquisitions, which was a company associated with Rowena, and that company also was placed in liquidation to ensure that Mr Conlan had control over the interests in the mortgages. The $500,000 payment was never made, and on that basis ASIC applied to the Supreme Court alleging a breach of that undertaking and seeking orders to enforce it, and that matter is still outstanding. And in March this year ASIC permanently banned Mr Grubb from acting as a representative of securities dealer or investment adviser."

MR CHANEY: The process involved in that procedure, can you outline what you need to go through to ban somebody from holding the securities dealer's licence?---It's a process whereby on the basis of information collected in the investigative process the investigative team makes a decision that banning the person from the industry is an appropriate remedy, that in terms of protecting investors it is in fact a protective remedy. It's not punitive remedy, it's designed to ensure that the individual does not have the opportunity to provide investment advice to investors, and a brief is compiled, including all the evidence of misconduct, or incompetence, or whatever the grounds might be for the banning, and that brief is provided to an ASIC delegate who makes a decision as to whether or not he - - the information in front of him might be sufficient to persuade him that a person ought to be banned and if he does come to that conclusion, then a notice is issued to the affected person to - - giving him the opportunity to attend a hearing. The hearing is the opportunity for the affected person to talk to the evidence that the delegate his being relied on - - is relying on, to bring any evidence that he may wish to bring, to put in front of the delegate, and in some circumstances to cross-examine witnesses that - - on whose evidence ASIC is relying. Following the hearing the delegate makes a decision, and notifies the affected person. MR CHANEY: That process which is undoubtedly designed to accord natural justice, procedural regularity, inevitably takes time, I assume?---Yes, it does. And in this case there was a period of close to 9 months between the time the liquidator was appointed and this occurred in respect of Mr Grubb. What facility is there

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under the legislation that governs your operations, if any, to deal with somebody in a more timely way, if somebody's out there in the market place continuing to do business, and you want to prevent that doing, is there an easy way under the regime, or is it a matter of an injunction?---Well, I don't suppose there's really any easy way, but of course in a particularly egregious case we would devote the resources to it, make it happen as quickly as reasonably possible. In this case, Mr Grubb had already provided us with an enforceable undertaking that we wouldn't be involved in the industry. Yes?---And we were, although we continued to get reports that in fact he was attempting to continue in the finance broking industry, and I think that the application to enforce the undertaking may well have made reference to that as well. In any event, we were satisfied - - the banning of Graeme Grubb wasn't a priority matter for us. If he - - if it had been the case that he was continuing to operate a finance broking business we could have acted a lot more quickly than 9 months, but given the undertaking was in place, there was no urgency. In fact the banning procedure was really just a mopping up process. MR CHANEY: Yes. And how quickly, in fact - - I mean if you did throw your resources into it, consistent with having to observe procedural fairness, how quickly can it happen?---Well, perhaps not within days, but certainly within weeks. CHAIRMAN: With respect to Grubb, was there actually a hearing, eventually or was it he just didn't appear?---He didn't appear. He was offered the opportunity to appear, he was notified, and I think in fact negotiated on several occasions - - perhaps that's my evidence, I can't be certain of that. But certainly he was given the opportunity to appear - - Didn't appear and you just struck him off?---Yes. MR CHANEY: Well, in fact was he ever?---He was never licensed by ASIC. What - - the effect of the order is that he is prohibited from giving investment advice or acting as a securities dealer, so he can't ever be on as far as - - you know, he can never get an ASIC licence and without an ASIC licence he is prohibited from giving investment advice. CHAIRMAN: Well, I suppose it goes without saying that that applies in Western Australia?---Yes. And it applies with regard to all finance brokers. Finance brokers can't give advice with regard to securities, if we're talking about pooled mortgages here, they can't give advice with - - investment advice with regard to pooled mortgages

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without having an ASIC licence. That is currently the regime. MR CHANEY: And that's an issue I may take the committee to in - - further on in the report. Blackburne and Dixon I think we're up to?---Okay. "In January 1999, we received some complaints from

investors about Blackburne and Dixon and conducted an inspection and took possession of some of their files and examined certain Blackburne and Dixon officers about their business practices. After considering that evidence, we decided that Blackburne and Dixon should be stopped from raising funds from the public and began preparing court documents for an injunction against Blackburne and Dixon to the effect. Having advised Blackburne and Dixon that we were proposing to take that action as a consequence of no - - negotiations that occurred in October 1999, Blackburne and Dixon gave ASIC an undertaking not to write any new business or solicit any new loan funds."

MR CHANEY: Can you say what happened in the interim between January 1999, when complaints were received and it's not clear whether it was that month that surveillance visits were conducted, or whether it was later, but what happened in the 9 months?---Well, a variety of things were going on. We were - - at the same time as we were looking into the activities of Blackburne and Dixon, we were also continuing to investigate Grubb Finance, Global Finance, certain other brokers to whom it had been drawn to our attention that they may not be acting within the law, and we - - Blackburne and Dixon, it was just - - it was really a matter of kind of resources and priorities. It just took that time to put the case together. It's as simple as that. CHAIRMAN: Excuse me, Mr Ogilvie. During this time, were you or any of your officers, to your knowledge, in contact with the West Australian finance industry supervisory board?---Yes. Yes - - While all this was going on?---Well, with the board and with the ministry. As I indicated earlier, initially, you know, it didn't kind of really make much difference to us who we were talking to, whether they were ministry officers or board officers, but as I understand it the permanent officers working for the board are in fact ministry employees. Yes?---We didn't have any contact with members of the board that I'm aware of. All our contact was with functionaries of the board.

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You weren't formally advising the board what you were doing? Did they know what you were doing?---They certainly knew what we were doing. We were keeping them informed about what we doing, and they were keeping us informed as to you know, as to what they were doing. Thank you. MR CHANEY: They being the people you were dealing with at the ministry, the functionaries of the board?---Yes. Yes. Right, I think you - - think you really got up to the events of 21 October?---Okay. That's when they gave us an undertaking: "That undertaking was backed up by an enforceable

undertaking on the 15th of November 1999, with Blackburne and Dixon undertaking to cease offering new pooled mortgage investments to appoint an independent compliance auditor to provide information to investors and to ASIC and to take enforcement action on behalf of investors in relation to defaulting loans."

WITNESS: The particular issue there I think, the important issue was of course the appointment of the independent compliance auditor who was empowered under the undertaking to review all loans in default and provide investors with information about those loans in default. MR CHANEY: Right. And are you able to summarise the general outcome of that report? I'm sure others ...(indistinct)...?---The general outcome of that report was that there were a significant number of loans in default, totalling many, many millions of dollars: "On the 20th of March this year, ASIC permanently

banned Blackburne and Dixon manager Ken O'Brien, and on the 7th of April this year Kay Blackburne, a director of Blackburne and Dixon gave us an enforceable undertaking not to carry on or be involved in any future securities business, including any business dealing or advising in mortgage schemes."

MEMBER NEWMAN: Has anyone appointed a liquidator or an administrator in respect of Blackburne and Dixon, either the company directors itself or alternatively an action by yourselves to achieve the same result?---No, we certainly haven't. It was considered at some - - at some stages the appointment of some type of administrator was considered, but we really didn't have the grounds to make that application. I'm not aware that to date any administrator has been appointed.

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So there's been no move by the directors to your knowledge, and no move by any of the creditors to your knowledge?---That's correct. Although the creditors - - the - - we don't categorise the investors as creditors of Blackburne and Dixon. MEMBER BLIGHT: Can I just ask if you have you know - - if Ken O'Brien's been permanently banned, and Kay Blackburne's given an enforceable undertaking not to carry on, did you say that you had no grounds to make an application to appoint a liquidator? What would have - - ?---Well, the type of grounds that we would require to satisfy the court that a receiver or administrator of some type should be appointed weren't apparent with regard to Blackburne and Dixon. The misconduct of the individuals was in our view insufficient to warrant or enable us to convince a court that the company itself ought to be wound up, that we had no evidence as far as I'm aware that the company was insolvent, and the removal of these people from the industry, which was our principal purpose, removed the need for the company itself to be wound up. CHAIRMAN: We now know of course that Blackburne and Dixon just said well, we're closing the doors?---Well they did - - although the enforceable undertaking Kay Blackburne gave us required her to - - whilst it required her to not carry on any business with regard to finance broking, it - - that was save for what she required to do to bring about an orderly conclusion to the existing business of Blackburne and Dixon. And whilst she did write to - - or Blackburne and Dixon wrote to all the investors with loans in default saying that they were closing their doors and there was nothing that Blackburne and Dixon could do for them in future, that in fact was inconsistent with the undertaking that they'd given, given ASIC, and we advised Blackburne and Dixon that they were - - continued to be bound by that undertaking and we advise the investors that Blackburne and Dixon continued to be bound by that undertaking, and Blackburne and Dixon in fact accepted that and accepted that they did continue to be bound and accepted that they were required to continue to support the work of the compliance auditor and advise investors about the details of their loans in default. Yes, well my question is somebody who is not an accountant. So Blackburne and Dixon have closed their doors. There's no liquidator appointed or supervisor and it's really just left to the investors to sue?---Yes. Thank you. MR CHANEY: Mr Chairman, I note the time. I think we should take a morning break. CHAIRMAN: Very well, we shall have a brief adjournment.

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SHORT ADJOURNMENT

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UPON RESUMPTION: CHAIRMAN: Yes, Mr Chaney. MR CHANEY: Mr Chairman. Mr Ogilvie, you'd I think reached 2.4 in submission?---Thank you. "As a consequence of the early investigative work,

clearly we became aware that there were significant problems in the industry, and we didn't believe that they were likely to be isolated to the two or three brokers about which we'd either received complaints or conducted investigations, so in May 99 we conducted inspection of a further five finance brokers. These inspections revealed some undesirable practices with most of the brokers, but they weren't serious enough to warrant immediate action. In particular there was no obvious misappropriation of funds from the trust account. It was decided the time to make follow up inspections after completion of other mortgage broker investigations that were currently taking place, who were obviously taking up significant resources. Just prior to the implementation of the policy statement, we wrote to all those organisations in Western Australia that we believed might possibly be offering pooled mortgages, and received responses from them with regards to whether or not they believed they were going to be covered by the policy statement, whether or not they offered pooled mortgages or not, and so on, and on the basis of those responses and in some cases lack of responses, we identified a list of about 20 brokers which commenced in February this year inspections of those 20 brokers, and the results of that surveillance project is covered elsewhere in this submission. But I suppose in a nutshell, it is the case that we haven't seen as a consequence of those inspections anything like the serious problems that we've seen in the major problem areas, problem brokers."

You say in other parts of the submission, and indeed at - - in this portion as well, that it seems like about 20 brokers may be involved in pooled mortgages, sort of area you may be interested in, and I think that some parts of the submission you put that as based on anecdotal evidence, and this part, it's based on your replies or lack of replies. Are you able, having now completed that surveillance, to give an indication of how many you actually found to be involved in pooled mortgage schemes?---Well, I can certainly talk about what the situation is now. Is that what you'd like me to do? Yes, yes perhaps that might be a useful time, yes?---The current situation in fact I can explain in terms of what

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those 20 brokers - - MR CHANEY: Yes?---Prior to the implementation of the policy statement we thought that there were about 20 brokers, and I think we've satisfied ourselves that that was the case. They're - - currently they can be categorised in the following way as to what their current activities are. I think it's four have registered as managed investment scheme, of the balance some have transferred their business to another responsible entity, and are now acting as approved representatives of that entity, in other words they have proper authorities from that licensee. Some have opted to run out their existing mortgage business, schemes being run out, those that continue to have outstanding loans, but are no longer offering products, they're no longer creating new loans or rolling over existing loans. And there is a process in place for ASIC to monitor their run out process. And some have in fact sold the mortgage segment of their business to another responsible entity. Just while you're on that subject, I'd ask you to outline the situation in relation to licensed representatives. So where you have a mortgage broker currently, or previously carrying on a practice of receiving pooled funds who ceases to do so, and becomes a representative of a - -?---Licensed - - a responsible entity. The responsible entity?---Yes. The expression that keeps departing my mind. What are the requirements for licensed representatives? How does that system work?---Well, if the regulatory approach is that the law and the obligations are imposed on the responsible entity, and it is the responsible entity and its officers who are the subject of direct regulation under the Corporations Law, and the Corporations Law and the managed investments regime provides for that entity and its officers to be subject to both the provisions of the law, the responsible entity's constitution and compliance plan. The authorised representatives, those people holding proper authorities, are the responsibility of the responsible entity, in other words, they are responsible for monitoring their activity, they're responsible for training them and supervising them, and ensuring that they have the appropriate qualifications and skills to carry out their work, but ASIC has no direct role in setting standards for authorised representatives. Right. So you can have somebody who is a proper authority holder is the expression I think, an authorised representative, is that the same thing?---Yes. Yes. And they effectively represent the responsible entity. You then have licensed security dealers. They're

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a different category of person?---A licensed dealer - - some responsible entities also have securities dealers licences. MR CHANEY: Right?---In fact perhaps all of them have securities dealers licences. Right?---You'd need to have a dealers licence to deal in securities. Yes. So are there licensed security dealers who deal in mortgage investments which are the product of a - - some other external responsible entity?---You talking about - - Or am I getting confused?--- - - a non-responsible entity - - Dealer?--- - -licensed dealer - - Yes?--- - - offering mortgage products of another responsible entity. Yes?---Theoretically, there's no reason why not, but I'm not aware of industry practice in that regard, but you might wish to talk to Ms Vamos about that, if she - - Yes. Well, perhaps I'm jousting at shadows, but in coming back to what this inquiry is concerned with, for those brokers who have moved out of the field of themselves offering pooled mortgage investments, but still continue to wish to do it on behalf of a responsible entity - - ?---Yes. - - the regime is that they would obtain authority?---They obtain - - From that responsible entity?---That's right. They don't obtain a licence from ASIC. No. And the responsible entity takes on the responsibility of supervising their conduct and ensuring it complies with the responsible entity's obligations?---That's - - exactly. Yes. Right, thank you. Go back to the submission?---I suppose I should say something about our enforcement strategy. Most of our investigations to date have been in response to specific complaints from investors. However our usual approach in these investigations is not to limit our inquiries specifically to those complaints, but to look at the operations of the broker to determine whether or not there are some systemic problems within the broker's business. And of course if there are, you expect that there would be similar misconduct with regard to other investors.

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Is that an analysis which happens as a matter of course in respect of every complaint? The wider question is posed to whoever deals with it?---No, it depends on the nature of the complaint and in particular the nature of the entity complained about. In this area of investment activity, and the provision of investment advice and so on, our experience tells us that complaints - - complaints often indicate wider problems, and to take action with regard to a particular complaint is unlikely to be a satisfactory response, and is in fact likely - - you are likely to get further complaints anyway, because it usually points to some kind of systemic problems within the entity's operations. MR CHANEY: Yes?---But there are other types of complaints we get of course, which we focus particularly on. I mean, if we get a complaint about insider trading for example, we would look at the particular conduct. Yes, thank you?---It's perhaps also worth making the point that generally speaking our regulatory approach has changed in recent years, from one of being reactive to be complaints to one of identifying and attempting to change behaviour, you know, across - - you know, a range of industry participants, where we identify that there are widespread problems in a particular part of the financial sector. We will use a range of strategies to try and deal with those issues, and they might be education strategies, inspections, and almost invariably enforcement activity as well, but that enforcement activity is designed to reinforce the messages that we're trying to get through to the broader group of market participants. Right. So you'll use a particular enforcement action as something you can publicise to other industry players?---Yes. Yes. Just going back to our particular approach though with regard to finance brokers, our enforcement action, particularly civil or administrative action, is usually aimed at stopping or changing unacceptable conduct in business practices, rather than obtaining redress for individual complaints. ASIC's position is that except in cases of particular public interest, ASIC will not pursue civil recovery action for individual investors. So for example we are more likely to seek to wind a company up to stop it from any further business, or to ban a person from involvement in the industry, or require a promoter, an investment promoter to provide adequate information. We're more likely to do that than to a sue a person for damages of behalf of investors. Would you like me to move now to the summary -- Yes, please?--- - - of behaviours of concern?

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Yes, please?---Okay. I intend to read quite a proportion of that, is that satisfactory? Yes. CHAIRMAN: Quite?--- "From ASIC's investigations and surveillance

activity, it appears that many finance brokers engage in types of conduct which are objectionable, or at least undesirable. Some of this conduct is clearly illegal and most brokers would agree that it is illegal. Some conduct might not be criminal, but might attract civil liability. Other conduct, even if not attracting civil or criminal liability, is conduct that ASIC would regard as unacceptable for finance industry professionals traditionally regulated by ASIC, for example, licensed investment advisers and securities dealers and their representatives, but which appear to be accepted practice by at least some finance brokers. From ASIC's surveillance and investigative work over the last 18 months, it appears that generally the finance broking industry in WA does not have a strong ethos or culture of openness in dealing with prospective lenders or objectivity in assessing and presenting loan proposals to prospective lenders. Some brokers appear to have great difficulty understanding concepts like fiduciary duty, conflict of interest or fundamental principles of maintaining trust accounts. There is also a complete misunderstanding on the part of some brokers that their conduct is unethical or immoral. This general view is supported by specific conduct. With regard to relationship and independence issues, we see failures to disclose the nature of the relationships between broker and borrower and broker and lender. Brokers do not disclose clearly to lenders the capacity in which the broker is acting, and on whose behalf, or in whose interest the broker is acting. Lenders need to know whether the broker is acting for them or for the borrower, or for both. And the broker should disclose to lenders in writing whether the broker acts for the borrower or the lender or for both parties in the proposed transaction. This should be disclosed at the time of the first conduct - -contact between the broker and a lender in relation to a proposed transaction. We see failures to disclose payments, commissions, or other benefits that the broker will receive from the borrower, directly or indirectly, if the loan is made, and in most cases, brokers make more commissions and fees from the borrowers than they do from the lenders, and hence brokers may be influenced to favour the interests of the borrower to those of the lender. However, it is

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the norm that finance brokers do not disclose to lenders the amount and nature of the financial benefit they are to receive from the borrower. With regard to pre-investment risk disclosure, we see failures to disclose to lenders the material risks of the investment. For example, if a broker - -"

WITNESS: I mean, there are a number of examples which we could point to. One here is a broker has advised the lender that their investment is for 1 year, but in fact the term of the mortgage deed itself is for a longer term. Then the broker should advise the lender that the promised date for repayment is subject to either another investor being procured to take the first investor's place or to early repayment by the borrower. "We see failures to represent property valuations to

lenders accurately and in a way that is not misleading. Many brokers don't even give a copy of any relevant property valuation to prospective lenders. Instead the broker gives a lender a proposal written by the broker which purports to summarise the valuation. If a valuation is subject to certain assumptions as to present matters or future events, then this should be told to lenders, and this is the particular problem that seems to have arisen in many cases whereby lenders are advised on valuations and either are directly told or assume that valuation is based on the current value of the asset, whereas in fact the valuation has been calculated on the basis of some future events that are proposed to occur with regard to the development activity, so a lender might be led to believe that the current value of the property is the basis on which - - that he's lending on the basis of the current value of the property, whereas in fact he's lending on the basis of a valuation that includes the improved value of the property. As a consequence lenders may be under-secured until such time as the assumptions inherent in the valuation or the conditions in the valuation are met. Furthermore, valuers are often instructed by borrowers and this fact is often not disclosed to lenders and no due diligence on the process is performed by the broker. We see a failure to disclose significant differences between the valuation figure and the purchase price, or between the loan amount and the purchase price. We see failure to make adequate inquiries about the credit history and financial position of borrowers and their guarantors. It is common practice that brokers rely on the information provided by borrowers about their credit history and financial position and make no further inquiries. We see failure to accurately represent the credit history - - " I'm sorry, I've already covered that. "We see failure to

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tell lenders of all the purposes or the true purposes for which funds are to be borrowed, in some cases funds are borrowed not only to acquire and develop a property, but also to repay another outstanding loan. However, the broker fails to advise the lenders of this. We see failure to disclose that principal is often used to pay interest to the lender. In many case, the purported principal amount of the loan includes an amount to cover interest payments, but the broker does not tell the lender this. Often the interest is paid up front as a sweetener for the lender. The problem with this practice is it disguises the fact that the borrower does not have the means to service their interest obligations, and this is clearly material for the lender. With regard to mishandling and misappropriation of lender funds, we see disbursement of funds at settlement contrary to lender's agreement. A number of cases loan funds at settlement have been disbursed in a manner different to that which the broker told the lender. In many cases, the difference may be material. For example a lender might be happy for the loan funds to be used to increase the value of the security property, but concerned if they were used to pay other outstanding debts. We see disbursement of funds in the broker's trust account contrary to lender agreement. One example is the broker disbursing trust account funds to pay due or outstanding interest or repay principal to investors when the borrower has not yet paid any funds to the broker, that is, where there are not yet any funds in the bank account to cover this disbursement. This means that the funds being used to repay a lender are in fact the funds of other lenders. We say payment of progress payment and development loans without verifying that the work has actually been done. It's common for lenders to be told that the loan funds will be held by the broker and paid out in increments subject to certain stages of the development being reached. However, we see cases where the broker has authorised payments but the stage of development has not been reached. This happens either where the broker accepts the word of the borrower that the stage has been reached, without making independent inquiries, and in some occasions, it happens where the broker in fact knows that the relevant stage has not been reached but he's paid the money over anyway. We see interest earned on funds held on trust not being paid to depositors, in other words, in a cash management account where interest is paid some brokers skim a proportion of interest off the top without telling the lenders. With regard to records and systems, we see use of nominee, trustee or stand-ins to hold mortgage interests. Some brokers have registered a mortgage or a part share in a mortgage

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in the name of a nominee or trustee company controlled by the broker. This has often been for administrative convenience when investors wish to switch or leave particular investments. However, this practice means that the lender only has equitable, not a legal interest in the mortgage. It also creates potential problems if there has been a mixing of trust moneys. Also stand-ins are sometimes used where not all of the loan funds have been raised at the time of settlement. In this case the mortgage may still be registered for the full amount, but the broker will arrange for a stand-in to be registered as co-mortgagee for the unfunded amount. We see a failure to have accounting records and computer systems which are adequate to record and track the receipt and application of lender funds. There was particular problems in some cases and in particular Graeme Grubb Finance Broker, the records were just hopelessly inadequate. We see poor drafting of security documentation, and instances where we found security documentation does not reflect the amount an investor has advanced, or has failed to give the appropriate priority to the mortgagee. We see failure to obtain written instructions and we've seen cases where mortgages have been discharged without investors' authorisation."

MR CHANEY: Okay, I think that completes the portion of the submission that you're going to speak to?---Yes. Can I just ask you some general questions? The - -obviously matters in relation to finance brokers as you've indicated came to a head throughout the latter part of 1998 and 1999, when certain steps were taken by ASIC. To what extent was there cooperation in the efforts of ASIC and the board/ministry in terms of trying to deal with the problems that were becoming evident, and what impediments are there, if any, which you see to effective cooperation so as to solve problems?---Well, the extent of cooperation, certainly when it became apparent to ASIC that there were significant problems in the industry, we had regular and extensive consultation with the board and the ministry. Their view was that ASIC - -they would be happy to see what ever ASIC could do, because they felt that their powers were limited, certainly in comparison with the powers that ASIC had, and as a consequence we certainly took the view that we - - any outcomes that were going to occur in the industry were likely to be driven by us. CHAIRMAN: Mr Ogilvie, did they tell you in what way they thought their powers were limited?---I can't recall exactly the conversation, although I was - - have been made aware and was aware at the time, and it may well have been by virtue of the conversation that I had with

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officers of the ministry, that their powers were limited to such things as the appointment of a special auditor, or the revocation of a finance broker's licence and so on, subsequent to an investigation in the hearing, but whether or not I was advised by the ministry, or whether I was advised by my own staff I don't recall. Thank you?---But certainly I concurred with the advice from wherever it came, that the board did not have the kind of powers or resources necessary to deal with these problems. MR CHANEY: It's an interesting distinction as well, the question of powers on the one hand and resources on the other, I take it that the resources available to you for enforcement are substantial compared to what you understand the ministry's resources to be?---Yes. What - - can you outline the extent, or the nature of the resources which are available to you for enforcement purposes?---In this state, the - - we have 80 people working in the - - in ASIC's office. About 60 of those people could be considered to be operational staff. Obviously we have a very wide range of responsibilities. We have an investments group currently staffed with between 15 and 20 people, perhaps closer to 15. And for the last 18 months or so their responsibility has been partly the implementation of the managed investments regime, and partly investigation and enforcement activity with regard to finance brokers. So at any particular time in the last I suppose it's more than 18 months now, it would probably be fair to say that we would have had up to 10 people working on finance broker matters. What range of skills of those people?---They have a range of skills and experience. We have significant and high level legal skills, we have experienced investigators, and we have analytical skills generally backed up by accounting and finance qualifications. Most of the people working at ASIC have formal qualifications in law, or accounting and finance. All right. And what about industry understanding? Is there - - how does that play a part in - - ?---Well, I think it's fair to say that we didn't have much understanding of the finance broking industry, and because of the - - our belief from the early 90's that the offering of pooled mortgages was, if not non-existent, insignificant in WA. We hadn't done any significant work in understanding what those products were all about either. We of course have got significant experience in investments activity generally, and the way in which securities are constructed, promoted and offered. Just - - you did make reference to impediments to the way - -

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Yes?--- - - us working together. I suppose one particular impediment is the conditionality provisions that both organisations work under, and in particular whilst ASIC does have significant confidentiality obligations, and we're subject to - - we can release information subject to the provisions of procedural fairness and so, in particular to relevant state government agencies, but I do understand that the Finance Brokers Board has secrecy provisions which effectively makes it very difficult for the release - - to release information outside their own agency. MR CHANEY: Yes, and there is a special provision, is there, in the ASIC Act which enables you to make disclosure to other government organisations?---Yes, there is. Right. Mr Chairman, I've nothing further from Mr Ogilvie. The balance of the report will be dealt with by the next witness. CHAIRMAN: Thank you very much indeed Mr Ogilvie. MR CHANEY: I think some of my friends may have some questions, Mr Chairman. MR ALLANSON: Nothing from me. CHAIRMAN: Mr Hooker? MR HOOKER: May it please you, Mr Chairman. CROSS-EXAMINED BY MR HOOKER: MR HOOKER: Mr Ogilvie, the entity that is ASIC itself is a body corporate, as I understand it?---Yes. And it's - -it contains eight or so members, is that right?---No, three members of the commission. Three members of the commission itself?---Yes. And they are full time doing their ASIC work so to speak, is that right?---Yes, they are. They are senior persons from walks of corporate regulation, corporate activity, is that fair to say?---At the moment, all three of them are lawyers, all - - I think all three of them are formerly partners of national law firms. One of them has significant investment banking experience and also regulatory experience. And those ASIC members have a remuneration that is fixed by the remuneration tribunal of the Commonwealth, is that right?---Yes.

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25.5.00 J.G.M. OGILVIE XXN 466

Is that a remuneration which in broad terms is commensurate with what you would expect of a senior public servant?---Yes, they're very - - they're - - in fact they're statutory appointments, but their remuneration and terms and conditions are on a level with very senior Commonwealth public servants. MR HOOKER: So whilst it is on the level, they're not employees as such, they're commission holders, or office holders?---That's right. Is there also provision for those commission members to be reimbursed expenses and disbursements?---Pretty sure that the chairman - - I - -actually I can't give evidence on that, I'm not - - Sure?--- - - aware of the details. I think the chairman has some kind of arrangements in place, but I can't give you any detail on that. If it does exist, it may be dealt with in relevant legislation or gazettals one might expect?---I'm really not sure. All right. In terms of investigative resources, just to take a short step further what Mr Chaney raised with you towards the end, there are numerous investigator, are there, who are employed by ASIC?---Yes. And each is allocated to a particular regional office, is that the case?---Yes. You as regional commissioner have responsibility for the Western Australian regional office, is that so?---Yes. So I'm not sure if you actually said it in your earlier evidence, how many people whom you might call investigators are actually at your direct disposal within Western Australia?---It's - - we tend to talk in terms of enforcement activity. Sure?---And enforcement - - our enforcement activity requires a mix of skills, and in some cases an overlap of skills, so for example some of our lawyers have investigative skills, and some of our accountants have investigative skills, and so on, and so if you were to kind of lump our lawyers, accountants, investigators, analysts all in together, in this office, there's probably about - - well, as I said, I think I indicated 60 operational staff. Some of those people in fact never get involved in enforcement activity. They're technical people. But your operational staff are people, are they, who have

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one or more of those types of skills that might be put towards enforcement/investigation, is that a fair comment?---Yes. Yes. All right. And as I understood your evidence, if the circumstances require with respect to a particular investigation or an enforcement activity, you see yourself as able to marshall a team at relatively short notice for that to happen?---Depending on the priority, of course. MR HOOKER: Yes?---Yes. And you in theory at least, have some sort of call over operational personnel who aren't necessarily engaged at the WA regional office?---In theory I do, but my fellow regional commissioners generally consider that their responsibilities are far more important than mine. Yes. Is there a capacity to engage people at short notice if circumstances require?---If circumstances require it, although it's a very unusual event. On a slightly different issue, Mr Ogilvie, you spoke of, in a couple of contexts, the writing of letters seeking voluntary compliance with certain standards or norms?---Certainly we indicated to - - we have - - do indicate to people that there are options available. The - - I think you're probably making reference to people offering us enforceable undertakings. That, and I also had in mind the circumstance you spoke of in 1995 where I think there was a broker who was offering a deposit facility that was potentially a prescribed interest and thereby attracted obligations under the Corporations Law?---Yes. Is that something you would only do if you had a brief or a body of evidence ready to go, is it were?---We would never ask somebody to do something voluntary if we didn't believe we had the capacity to enforce in absence of their voluntary - - or their acquiescence. And by capacity, do you mean having assembled enough information or evidence such that if it were necessary to be more formal or proactive, that could occur at very short notice?---At short notice, yes. Is there seen to be a desirability that that would be the best wording, seeking voluntary compliance for the reason that there's no real value in instituting proceedings just for sake of proceedings, if the ultimate end can be achieved?---There are a number of considerations there. Certainly efficient use of resources is one consideration. Regulatory impact is an important consideration for us. If we were to go about doing everything we do by way of

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people voluntarily complying, and us not being in a position to highlight our activity to the market generally then we would lose the wider regulatory impact. And it is generally the case that where any - - I mean in fact it is always the case that where any formal action occurs, it gets publicised. Yes, so the - - it would depend on the conduct as well. Thank you?---If it's relatively minor conduct, and it's unlikely to achieve any regulatory effect, then that may well be the end of the matter. MR HOOKER: And perhaps somewhat pertinent to that you spoke also about a relatively recent change in policy such that ASIC is not merely reactive to complaints, but seeks a broader preventative purpose, have I summarised that accurately?---I think our enforcement activities these days tend to be more strategic in nature. And is it fair to say that to have that broader role, rather than simply being reactive to complaints, of itself requires substantial resourcing?---Yes. You spoke also, Mr Ogilvie, about the process that is necessarily required if a person is going to be disbarred or banned from acting as a security dealer or investment adviser, and I think in response to one of Mr Chaney's questions, you acknowledged that it is a process that necessarily takes some time?---Yes. And if the need arose you would deal with urgency by simply marshalling more resources to meet the urgency?---Yes, we would, and I'd just like to elaborate a little bit on that. Sure?---In the - -in that situation whereby you want to take somebody out of the market, there are other opportunities - - other options rather than a banning process, for example - - I mean the misconduct is serious and demonstrable, and we have the evidence, then some kind of injunctive relief would - -you know, would often be warranted, and with regard to that, I should clarify a matter - - issue which came up earlier, with regard to Mr Grubb, and that was when we were talking about the length of time between the - - I think the obtaining of the enforceable undertaking from Mr Grubb and the banning process, of about 9 months. In fact the application to enforce the undertaking with regard to the $500,000 also as a consequence of that application, an interim injunction was obtained, prohibiting Mr Grubb from acting in the industry. So he was effectively by court order, prohibited from being involved. MEMBER NEWMAN: Mr Ogilvie, if he breaches that, what are the penalties?---Well, that's a matter for the court.

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But what does the - -is there an act or - - ?---Well, he's in contempt of court. Court, right?---Yes. MR HOOKER: If ASIC is desirous of preventing one of these persons from operating, whatever exact process be chosen, it's always going to require assembling a body of evidence?---Yes. MR HOOKER: And it's always going to require ensuring that that body of evidence meets certain standards or norms, it doesn't just sit in a vacuum?---Yes. And ASIC will always have to be prepared for some kind of potential hearing process regardless of which forum it might be in?---Yes. And that's inevitably because the principles of natural justice just can't be ignored if you're directly affecting a person's rights or obligations?---Exactly. So by reason of all those necessary steps, it follows that if there is a particular urgency to a matter you deal with by way of marshalling as many resources towards it as is practicable?---Yes. Thanks Mr Ogilvie, I've nothing further. CHAIRMAN: Mr Chaney? MR CHANEY: No, I've nothing further, thank you, Mr Chairman. NO RE-EXAMINATION MR CHANEY: Thank you, next witness, Mr Chairman, I don't know whether you want to break now and resume at 2 - - CHAIRMAN: I want to give my committee member on the left a bit of a break. We'll adjourn 2.15. MR CHANEY: I wonder whether we might adjourn till 2. CHAIRMAN: Yes, very well. 2 o'clock. And thank you, Mr Ogilvie. WITNESS WITHDREW LUNCHEON ADJOURNMENT

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25.5.00 P.B. VAMOS XN 470

UPON RESUMPTION CHAIRMAN: Mr Chaney? MR CHANEY: Mr Chairman, I call Pauline Bernadette Vamos. PAULINE BERNADETTE VAMOS affirmed:PAULINE BERNADETTE VAMOS affirmed: CHAIRMAN: Thank you. Yes, Mr Chaney? EXAMINED BY MR CHANEY: MR CHANEY: Ms Vamos, you're the national compliance adviser in relation to managed investments, I think it's your title?---Correct. What - -and you're employed by the Australian Securities and Investments Commission?---Yes. You operate from the Sydney office of the commission?---Yes. What is your responsibility as the national compliance adviser managed investments?---Mr role is to implement the Managed Investments Act and ASIC's policy nationally in relation to managed investments. I run a national team, that is regional delivered, and we do both the managerial work, the licensing and registration of schemes, as well as compliance surveillance as well. I think you are familiar with - - and have had part in the preparation of the submission by ASIC to this committee and I invite you to take the committee through part 3 of the submission?---Thank you. Part 3 of the submission gives you a broad outline of the managed investments provisions as well as ASIC policy in particular policy statement 144. What I'll first go through is the actual legislation which underpins the policy. The first part talks about mortgage operators, and how they are caught and why they are caught under the managed investments provisions, and fundamentally a Managed Investments Act is defined in three parts. One, there's got to be some money contributed by members, there's got to be a common enterprise or some pooling, and the investors or members have lost day to day control. If those elements are met, then we have a managed investments act, sorry a managed investment scheme. Mortgage operators with the pooled mortgagors that operate nationally and in WA, we believe those elements are met, and as such we register them as managed investment schemes. One of the particular if you like differences with mortgage operators is that on one legal view, each mortgage is a different scheme, and one of the focuses of our policy statement is to say well rather register each mortgage as a different scheme, you

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register all the mortgages collectively as one scheme, and I'll go into that in a little bit of detail later. MR CHANEY: When you talk about each mortgage being a scheme you're talking about a pooled mortgage arrangement, rather than a single mortgage, where you have one lender and one borrower?---Single arrangements can be caught, and they are caught, and it's altogether they are as one scheme. Thank you. Can you - - ?---Okay. The next couple of pages go through the indicators of them - - as a managed investment scheme, and that's because in the mortgage industry you have an enormous variety of mortgage arrangements, and some are not caught, some are caught. And what we've done in those next couple of pages is go through some different scenarios and indicators, but in WA, as we talk mainly about pooled mortgage providers, I won't go through that specific detail, if that's okay. Yes?---If you have a managed investment scheme, the law required that scheme be registered. The only entities that can register managed investment scheme is a licensed responsible entity, and in the submission we go through well, what does it mean to be a licensed responsible entity? And basically what is issued is a licensed securities dealer licence which also allows the operator to manage a managed investment scheme so it's, if you like, your basic dealer's licence with a lot more conditions added to it. To get a licence you have to satisfy ASIC as to certain things. The first is that you have the experience and the qualifications to operate the type of schemes you want to operate. Then next is that the people that are involved in operating the scheme have certain qualifications, they are of certain standard, and they have certain capacity. We also look at capacity in relation to accounting systems, computer systems, compliance structures, role of custodian, where moneys are going to be held, how they're going to be held. Other important elements are financial requirements, there are minimum financial requirements required under the Act, the minimum capital is $50,000. There's also a requirement under ASIC policy that the responsible entity has at all times 3 months cashflow to be able to run the scheme for 3 months, just in case there's no money coming into the scheme, and there are also insurance requirements. All right. Well, I think you deal in sufficient - - deal with some of those elements in some detail?---Yes. Can we look at page 21, which deals with when a managed investment scheme is required to be registered. You've got a situation where there is a requirement to be registered where you have more than 20 investors. Can you perhaps speak to the portion of the report?---Yes. Under

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the law, we have a requirement to register a managed investment scheme, but there is exemptions, and there's two main exemptions. One is that the contribution is more than 500,000, and this is the traditional exemption that was under the prescribed interest regime. There's also an exemption if you have less than 20 investors, then you don't have to register the scheme. Now the important aspect of this is what does 20 investors mean? With mortgage practices, we say well, we look at the whole practice. If you've got more than 20 investors and all those investors may be in one mortgage, you may have 50 investors in one mortgage, you have to register a managed investment scheme. But if you look across the whole practice, and you have less than 20 investors, then you don't have to register a managed investment scheme as required by the law. MR CHANEY: And that's regardless of how much money those 20 investors may have put into the scheme?---That's correct. So in terms of regulation, in Western Australia, ASIC has nothing to do with those operations, is that position?---That's correct, yes. It falls to Finance Brokers' Supervisory Board?---Yes. CHAIRMAN: Is there any specific reason for the 20?---It was a parliamentary decision. Decision?---And it was - - it all gets down to where regulation should start. I should say that with a lot of these entities, there are still provisions like the Trade Practices Act and other legislation, there are requirements of not being misleading and deceptive, that - - so it's not as if there's no regulation as such. MR CHANEY: No, but in terms of identifying who the policeman is, were - - ?---Yes. - - it's not ASIC - - ?---Not in this case, no. - - and it may be the board, or I suppose the Trade Practices Commission in theory, or is it the ACCC now is. MEMBER NEWMAN: Ms Vamos, how do you deal with associated entities? I mean, if someone wanted to get round these particular regulations, you could have three or four different companies, all of whom had 20 investors, all of whom were lending, but obviously - - ?---Yes. - - common directors or common shareholders. How do you deal with that problem?---The law allows us to look at a number of schemes and join them together, so if there are entities that are trying to get around the law in that

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way, we can view them as one enterprise, and get them to register. Right. CHAIRMAN: When you say get them to register - - ?---Well, ask them - - - - if they don't, they can't operate?---Exactly. Yes. MR CHANEY: Are you able to say within Western Australia how many mortgage brokers there may be who fall into that category of receiving investors funds and pooling them, but dealing with less than 20 investors, is that - - so that they're not - -?---No - - - - required to be - -you don't know?---No. Moving through the submissions, the small industry supervised schemes and runout schemes?---Yes. Can you explain briefly how they operate and then in particular the position in Western Australia which I think's set out at page 22?---Yes, it is. Under policy statement 144 what we say is that there are certain circumstances where an operator of a mortgage practice may not need to register a scheme, and that is if they meet certain requirements as set out in that policy statement, and those requirements really look at those operators that are the smaller end of the mortgage industry, and are involved in practices that aren't as - - I don't want to say high risk, but have a different type of practice, if you like, and we basically, if you've got under $7.5 million under management, you don't deal in development loans, you are - -aren't cross-border, you have one on one mortgages, a whole list of requirements, I can go through that segment if you want, then provided you are supervised by an industry supervisory body approved by ASIC, you don't need to register as a scheme, so in that case what we do is supervise the supervisory body if you like, that supervises the smaller operators. CHAIRMAN: And the supervisory body in Western Australia is?---There isn't one. So we - -that means that ASIC regulates all mortgage operators except those that have under 20 investors. The only supervisory bodies at the moment that are likely to regulate smaller operators are the Law Institute of Victoria, and the New South Wales Law Society. However, I do stress they have indicated neither have been approved, and I looked at that, there may be slight error in the submission on page 22. We are talking to them - -

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CHAIRMAN: Now just a minute, before you go further than that?---Sorry, yes. What about the - - our local finance industry supervisory board?---They have not indicated that they want to be an industry supervisory body. CHAIRMAN: Thank you. MR CHANEY: Just so that we're clear, the requirement, or the exemption in respect of a small industry supervised scheme would be an exemption in respect of schemes which would otherwise attract the operation of the law, so in other words, only schemes involving more than 20 investors?---Correct, yes. But perhaps involving small sums of money, or whatever, and therefore being supervised, so the need for a - - an industry supervisory body has nothing to with the - - sorry, the need for exemption as an industry supervisory body has nothing to do with the supervision of these less than 20 investor operations. Sorry, you answer, is that correct, so that we get it on the transcript?---Yes, correct. Yes. Right. And I think you were just talking about the situation - - the assertion on page 22 I think, in the second paragraph?---Yes. Okay. About New South Wales, and being approved?---I should clarify. There were two parts to the industry supervisory body regulation. One is regulating those smaller operators, and the other is looking after those operators that have gone into run-out mode, or those that don't want to register or continue in their business. Both the Law Institute of Victoria and the New South Wales Law Society, and the Queensland Law Society have said we will look after those operators that have decided to go into run out mode. The Law Institute of Victoria, the New South Wales Law Society have also said we also would like to look after those smaller operators, and the process at the moment is that we are discussing with both those institutions the rules and the regulatory regime they're going to be - - they're going to put in place to regulate those smaller operators. With the Law Institute of Victoria, we've got a copy of their rules, and we are working with them to develop them into a more robust regime, if you like. CHAIRMAN: And in WA, as you had no request from the board, you're not interfering?---Exactly. We supervise the lot so in Western Australia, we look after all operators, as well as those operators that are in run out mode.

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Okay. MR CHANEY: And just on the point, if an application were to be made from somebody in Western Australia, would you expect it to be from a body like the Finance Brokers' Supervisory Board which is a statutory supervisor, or some industry body like the Mortgage - - MIAA?---The Mortgage Industry Australia Association, yes. MR CHANEY: Yes. I mean is that the type of organisation that rather than the statutory board - - ?---Yes. It could be, if I may, that would again the policy sets out some of the requirements. They have to be - - they had to have substance, they had to have the personnel to be able to carry out surveillances and they must be able to recognise when there are issues and provide a minimum standard when it comes to regulation. So in essence, it's really substituting somebody else for doing what the ASIC would otherwise do?---Exactly. Yes. Moving on in the submission to the registration procedures for managed investments?---Okay. Once an entity has a licence they then need to register the scheme. And there are two important documents that are part of registration. One is the constitution, and the other is a compliance plan. The constitution is, if you like, the rules of the scheme. This is the sort of practice that we're going to operate, and it has to meet certain requirements of the law, and I can go through those for you? Yes, well, I think they're set out aren't they?---They are. At pages 22 and 23, so it probably won't be necessary- - ?---Yes. Okay. - - to reiterate them?---All right. The other important document is the compliance plan, and the compliance plan is the document that sets out the procedures and how those procedures are going to be monitored in relation to the operation of the scheme, for example one of the usual procedures that mortgage operators carries out is they obtain a valuation, so the compliance plan sets out, well this is the process we go through in obtaining a valuation, this how we monitor that those procedures actually take place. Part of the managed investment regime is that a compliance committee which has a majority of external independent members oversees the monitoring of that compliance plan, and that's how the three elements fit together. So the compliance plan of its nature is an auditable document, or something that you actually audit - - ?---It

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is audited each year, yes. - - the compliance?---Yes. It's specific enough to - -?---That's right. - - check?---And that is a requirement. It is audited, and the responsible entity is audited, and the auditor of the compliance plan must be a different auditor to the auditor of the responsible entity. MR CHANEY: Now the submission then goes on to talk about the attributes required of a responsible entity?---Yes. Perhaps you might explain those?---Okay. As I said earlier, ASIC must be satisfied that the responsible entity applicant can operate the scheme, and can operate the scheme efficiently, honestly and fairly. The first thing we look at is who is actually involved in the scheme? We look at their education requirements, and we look at their qualifications and experience. If they've never operated a mortgage scheme before, they're unlikely to get a licence to operate a mortgage scheme. They don't have certain qualifications, some degrees in relation to finance or diploma of mortgage lending, then they're unlikely to get a licence. If they had any bankruptcies, if they've had criminal convictions, they're unlikely to get a licence, so that's the first thing we look at. And on page 24 it mentions policy statement 130, and it mentions policy statement 138. Policy statement 130 is about the qualifications to operate a scheme. Policy statement 138 is about the qualifications and experience you need to provide advice in relation to the scheme, and that's an important element. There were two elements, there's the operation, and then there's the advice and the distribution of the interest in that scheme. Can I stop you there? Mr Ogilvie in response I think to a question from me talked a little bit about the proper authority holders. In other words, the regulation of those people who actually go out and face the consumer and - - well, alternatively in this case, the investor, who might be putting money into this scheme, how are they regulated under the ASIC regime?---Okay. The people that are actually arranging the mortgages, the face to face with the clients, usually have a proper authority from the responsible entity, and that allows them to provide advice and make recommendations in relation to the mortgage. They're regulated under chapter 7 of the Corporations Law, in that the responsible entity is responsible for their conduct in relation to advice, but is also responsible for ensuring that they are trained and that they make the proper disclosures. ASIC has issued policy called Good Advice, which talks about the standards of providing advice, getting to know the client, getting to know the

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risks they can tolerate, and making appropriate recommendations, and it's also issue interim policy statement 146, which talks about the general competencies and training of those people that are providing advice. And that recognises that in some circumstances there may be limited advice where you're only advising on mortgages, but if you do that, certain disclaimers need to be made, such as I'm only providing advice in relation to mortgages, if you want financial advice about other investments, you need to go and see a financial planner. MR CHANEY: And if there's some transgression by one of these people, an authorised officer, then - -sorry, a proper authority holder?---Yes. What's the consequence?---Okay. ASIC in the past has banned people from providing advice. Of course the licensee if you like is responsible, but ASIC has taken action against many proper authority holders that have been acting under a dealer. So you - - ?---We have banned them from the industry, we have gaoled them as well. I think - - yes, and in terms of translating that into what this inquiry is looking at, if we have people who are currently in the industry who may be engaging in undesirable practices, the concern may be that they simply notionally transfer their business or start working for a - - the licensed entity, but carry on the same undesirable practices?---Yes. How much scope is there for that?---Okay. How much risk is it?---There was some responsible entities, in fact most responsible entities outsource at least one part of their business, whether they're in mortgage practice or any type of financial assets or agricultural, whatever type of managed investment scheme you have. So it's not unusual to outsource part of your operation. When that happens, that outsourced operator or service provider becomes an agent of the responsible entity. Under the law the responsible entity is fully responsible for the acts of that agent. So no matter what the agent does, if they do have some poor practices, ASIC can revoke the responsible entity's licence, which it has done in the past, and it takes action that way. But its regulation is very much through how the responsible entity is monitoring its service providers. And that was to be reflected in their compliance plan in particular. Now going back to the submission, you've I think dealt with education and experience of responsible officers. The next category of requirement is efficiency, honesty and fair performance in their duties?---Yes.

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Now how does that work, that requirement work in practice, in respect of responsible entities?---As part of the licence application, the responsible entity must provide us with police checks, in relation to directors and all responsible officers, and at least two references, where those references certify that those people are of good fame and character. We also carry out our own internal checks. You set out at page 25 the provision of Corporations Law, section 784, subsection (4), and that has a number of disqualifying factors listed, one is insolvency, second is conviction during the previous 10 years of a serious fraud, the third is any reason the commission has to believe the officer's not of good fame and character, and the fourth any reason the commission to has to believe that the officer will not perform efficiently, honestly and fairly the duties the officer would have performed in connection with the holding of the licence. It seems that (c) and (d) are far wider than (b), in other words, if you've been convicted of fraud you'll probably fall foul of (c) and (d) as well, but how in practice, how is that - - are those tests applied?---When we receive an application, we carry out what's called an internal intelligence check. and we look at a number of things, not only their criminal history, or otherwise, and their insolvency history, we also look at complaints and in some instances we may look at if they've been involved in companies, indications of behaviour in relation to those companies, so there's an extensive investigation that we do carry out in relation to each responsible officer, and it's very much embedded as part of the process that we carry in licence assessment. Thank you. The next category then is financial requirements?---Yes. And can you explain the operation of the capital adequacy provisions?---A fundamental part of legislation is that anybody that is operating a managed investment scheme actually has sufficient capital. The minimum capital is $50,000, the maximum required is $5 million. There is sliding scale, once the assets under the scheme which $100 million, and that sliding scale goes up to a maximum of $5 million. And that applies to each and every responsible entity. Now $50,000 is not a great deal if you've got up to, is it 100 million that you can have?---Yes. What other safeguards are there in terms of defalcation or negligence?---To supplement the NTA requirements ASIC has issued policy in relation to assets that are held custodially, and what that means is this. With certain

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types of assets, if you don't have a minimum of $5 million, then you can't hold those assets. In other circumstances, if you don't have $500,000 you can't hold those assets, and so in many circumstance responsible entities, whilst they have the capital and licensed, actually use a custodian. In the submission we talk about the position in relation to mortgage providers. There will be circumstances where they need 5 million. If they meet other tests, they may only need 500,000, if they meet another test, they may only meet - - they may only need 50,000. MEMBER NEWMAN: Ms Vamos, is there, or is there intended to be any sort of fidelity fund set up?---At this stage, for managed investment schemes, there's no fidelity fund. There is a requirement under ASIC policy that each responsible entity obtain insurance. The insurance is a requirement of $5 million or lesser amount provided that it is at least what the scheme property is. Attached to that insurance, there must be fraud cover to the full amount of the insurance, so if you've got $5 million, special indemnity insurance, you must have $5 million fraud cover as well. Which would cover a defalcation by a director of a company or an individual?---That's correct. Exactly. MR CHANEY: And that is commercially available and practical, is it?---Yes. Defalcation insurance?---Yes. It's not cheap, but yes. Right. The - - just working through the submission, you've spoken about custodial requirements?---Yes. Do I take it that the essence of those requirements is that if the amounts involved are such as to require use of a custodian, then the role of the custodian is to hold the property and to ensure that it is only utilised in accordance with the compliance plan - -?---The constitution and the compliance plan, yes. What we have -- ASIC has issued a policy statement, 133 and that sets out the standards by which money must be custodially held. Now that policy statement applies to the responsible entity where they hold the money, as well as any external custodian. So with an external - - say you have a mortgage provider where they have the required capital they don't need an external custodian, they still must meet that policy statement in relation to holding of moneys. And working through the next segment of the submission, deals with the constitution of the registered scheme?---Yes.

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That's at the foot of page 29?---Yes. That's one of the elements of a scheme. Can you explain the role of the constitution in the overall managed investment scheme?---I think the best way to describe the constitution is the document that outlines the basic rules of the scheme and outlines the basic rights of the members, so it contains such things as, well this is how you calculate a price, a purchase or a sell price of a unit in that scheme. This is a complaints mechanism. This is what we do in relation to the fees and the maximum fees that we can obtain, and on page it goes through a lot of the rules. We have the winding up of the scheme. This is what happens if we're going to wind up the scheme. Details as to how you withdraw from the scheme. So those basic operational rules if you like, which are given to the investors. MR CHANEY: Just trying to translate that into the everyday operations of a finance broker, who's drawing - -raising money for pooled mortgage use, there'll be a constitution not of the broker's entity, but rather of the scheme that the broker is operating?---Yes. And is it conceivable that you could say well, we want to operate some of our mortgages in a particular way, and others in a different way and therefore register different schemes and - -?---Yes. - - different constitutions, different prospectuses?---Yes, you could do that. But in practice, how does it work. Do they - - does a single responsible entity generally operate under a single scheme in the mortgage area?---With most mortgage providers, they do. There are a couple that have outsourced to more than one operator, and the way - - because a lot of the operation - - the day to day operation of the scheme still rests with that operator, then they usually register two schemes, because they are separate moneys, if you like. But there are others that if you like get referrals from a number of operators, but they actually handle all the money so that's all one scheme. On average, throughout the industry, and this is talking generally, we would have about three schemes per responsible entity, but in the mortgage industry, it's about one. So again translating that into what's been happening in the industry, if some brokers decided to not seek registration themselves - - ?---Yes. - - or licensing themselves, but to utilise a responsible entity that's already existing and licensed, they might operate under one scheme and another broker who chooses to

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do the same thing goes to the same responsible entity will have this, a separate scheme?---That's right. Yes. But in the end of the day, the responsible entity holds the responsibility for the - -?---Correct, yes. - - compliance requirements of those schemes?---That's right. And must closely monitor those operators. The compliance plan, in another element of the scheme, you may have said a little bit about compliance plans, but perhaps you might explain how that works?---The important part of the compliance plan is that if you breach the compliance plan, it is a breach of the law, and breaching the law has its consequences and one of those consequences may be that you lose your licence as a responsible entity. So it's an important document, if you like, in the success of the whole managed investments regime. And the purpose of the plan is to set out for investors, the detailed procedures and monitoring system the entity will have in place to ensure it complies with what it says it's going to do in the constitution, and what it says it's going to do in the prospectus, and that includes its valuation practices, its looking at borrowers, its timing of notifying investors of defaults, all of those type of practical operational issues that are important for that transparency to the investor. MR CHANEY: I think you've told us that that plan is overseen by a compliance committee?---Correct. Containing a majority of external members?---Members. Yes. And audited by - - ?---And audited by - - - - an independent auditor?---Correct. Page 32, you talk about the fund raising - -?---Yes. - - provisions and the use of a two stage prospectus. Can you explain that to the committee?---Yes. Any registered managed investment scheme must issue a prospectus, and that prospectus must be lodged with ASIC. With mortgage operators and mortgages generally, the nature of mortgages means there's a lot of private information that one could argue shouldn't be on the public record, particularly creditworthiness details of borrowers and their liability and assets and things of that nature. So in order to facilitate that in its policy statement and class orders, ASIC has said you can issue what is called the two part prospectus. You have a first part of a general prospectus which talks about the nature of the scheme, what types of loans it looks at, how - - what sort of practices it uses. The second part has the specific details about the actual

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mortgage, the length of the loan, the amount of the loan, the valuation, who the borrower is, what their creditworthiness is, items of that nature. That does not have to be lodged with ASIC, but it must - - the copy must be held by the responsible entity and held by the investor as well, and we inspect those when we conduct surveillances. That regime immediately raises the question, if there is no need to register part 2 of the prospectus, of the danger which we've seen many examples of in this inquiry, where details, type of items you've referred to at page 33 and just referred to that go into part 2, such as the identity of the borrower, their creditworthiness, the actual valuation, etcetera, which - -?---Yes. MR CHANEY: - - appear to have been extremely misleading, how does one cater for the danger that the second part of the prospectus that doesn't go to ASIC contains all of this misleading material, just as has happened in the past?---I should clarify that as of March 13th this year, with the change in the law, no prospectuses are registered by ASIC. They're all lodged, and they're lodged on - -with ASIC and there is an exposure period of 7 days, which ASIC may extend to 14 days, but ASIC has no legal obligation to review those prospectuses. With the second part prospectus, yes, that risk is acknowledged, but ASIC can obtain copies of those second part prospectuses at any time, and indeed has already started to look at that in Western Australia, where it has asked for copies of the second part prospectus. But the important part of the managed investment regime is that the quality of the prospectuses is also regulated by the compliance plan and the compliance committees, and it is part of their role to ensure that it's correct. Yes. And I think my question in fact was inherently misleading, because it was suggested there was some checking of all prospectuses, and that's simply not the case any more?---Correct. Yes. Living in the past?---Correct. That was done away with by the way because of the workload of checking all prospectuses, or was it simply questions of not feeling appropriate?---There was a change in the law reflect what I believe the parliament viewed as a development in the market within Australia where the review of prospectuses is now left to the market itself, and this was certainly driven by the industry, and is now effected in law. Yes. MEMBER NEWMAN: Ms Vamos, in view of those changes and the

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fairly important information that's contained in the prospectuses, what criteria does the ASIC have in relation to the experience and qualifications of the people who will be the auditor, both for the specific areas and in relation to the operation?---The law requires that the auditors be fully qualified auditors, so we don't go any further - - But there's no criteria they must have had - -?---No. - - a certain number of hours involved in auditing say in the last 3 years, or alternatively that they've done a certain number of major audits in a given period?---No. So it could simply be someone who's only ever done very small audits?---That's right. MEMBER NEWMAN: Gets an auditor's certificate and put the auditor on one of these major operations?---Yes. That's correct, but we do say in a recent media release that we issued about audit of compliance plans that we will rely on those audits and if we feel that the auditor has not fully discharged their responsibilities, then we can take action against the auditor, but we also say in that media release that the responsibility of ensuring that the auditor is appropriate for the job is with the responsible entity, and if they don't ensure that the auditor is appropriate, then we make take action against the responsible entity as well. Do you have the capacity to put in an independent auditor if you have a concern about the audit reports that are issuing in respect of the compliance plan?---Yes, I believe we do. Okay?---I believe we do, yes. Thank you. MR CHANEY: That is an area which has arisen in the context of this inquiry that to be a registered company auditor, or to maintain one's registration is not particularly difficult, regardless of the fact you may not in fact be doing any auditing for a very long period of time?---Yes. Are there any - - is that a matter to your knowledge which is under review at all, at the ASIC level, or is it felt that safeguards you've outlined cater for the potential problems?---I can't really comment on that. It's certainly something that ASIC looks at, and it's also part of the compliance committee's role as well, to ensure that that process is carried out properly, even though it's not set out in the law but again it's one of the obligations of the responsible entity that it must monitor it actually

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does happen. Yes. Right. I think page 34 you just outline the situation in Western Australia in relation to people in run out mode?---Yes. Perhaps just speak to that if you would?---Yes. Run out mode means that the operator has ceased operating in that no new loans will be take on board and existing loans will not be extended or increased. We do allow under ASIC policy and class order that an interest may be replaced if a borrower wants to move themselves from a contributory mortgage they can replace that, but they cannot change it in any other way. And they have until October 2001, I hope I'm right here, to run out all of their loans. Yes. The part 3.3 of the submission deals with the profile of the mortgage investment industry in Western Australia?---Yes. MR CHANEY: Some of this is covered by Mr Ogilvie this morning, but is there anything in that section to which you would like to draw the committee's attention?---No, I believe Mr Ogilvie did that this morning. There is one portion that I would like to ask you about. Just above the heading 3.4 on page 35, there's a paragraph which reads: "It's possible there are still mortgage practices in

operation in Western Australia of which ASIC's unaware. It's clear from subsequent communications that industry representatives who've applied significant resources to regularising their practices are surveilling the market and informing ASIC of persons whose operations may be caught by chapter 5(C)"?---Mm.

Now maybe I don't know whether there is something which you've got personal knowledge but - - ?---Yes. - - is that in essence the existing licensed responsible entities who are protecting their turf as it were, by bringing things to the attention of the ASIC?---Yes. And I'm aware more of what's happened in Victoria and New South Wales because I personally have received faxes, and where you have a mortgage operator that is advertising we - - look, we want borrowers, we want investors, advertising interest rates, and they don't refer to the fact that they are registered or they don't refer to a prospectus, then it may be that they are operating what we call now an illegal managed investment scheme, and because some times these advertisements are in industry journals or papers that may not come to our attention readily, then we will get a fax from one of the regulated

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...(indistinct)... Yes. So that in a sense is a self-regulation mode using - -?---That's right. - - the ASIC were necessary?---Yes. Right, and then moving through to 3.4, the national surveillance strategy?---Yes. Would you - - is there anything you wish to elaborate on in relation to that portion of the submission?---Thank you. The important points there are that with a lot of the operators that we now look after they're unfamiliar with Corporations Law, and unfamiliar with ASIC as a regulator, so our focus has been to go out and visit as many operators as possible, and that has happened in WA, it is now happening in Queensland, and it will flow through nationally and the purpose - - the initial purpose of a lot of those surveillances are to raise awareness and check compliance with their compliance plans. Of course that's a different type of surveillance to a lot of the investigatory type surveillance that have been occurring in WA where the motivation has been investor complaints. And the other part of that section talks about some of the areas that we believe are high risk and so they're the areas that we focus on in our surveillance, including as we talked before about outsourcing and valuations and looking at borrowers. MR CHANEY: So those are areas where regardless of the receipt of complaints, there's - -?---We look at them. - - a level of constant monitoring?---Exactly. Against that background, can I ask you to go back to page 13, or page 14, which is the commencement of the specific conduct which has given rise to concern as a result of the surveillance activities in Western Australia. I don't want to go through each of the categories, but they are - - or each of the specific items of conduct, but I would like to just go through the categories and ask you where in the new regime these sorts of problems are addressed, or prospectively addressed, which is whether one finds it through the compliance regime or the lodging of the prospectus or surveillance activity or whatever it is, and if they're not addressed, to tell me that as well, or tell the committee that. With a request in relationship and independence issues, which seems to be issues of disclosure as to relationship between transacting parties?---Yes. Where does one find that regulated under the new regime?---You find that disclosure in both the first and the second part prospectus.

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Right. The pre-investment risk disclosure?---The first part, unless it's a risk that particularly relates to the property in question. Yes?---And then that would be second part prospectus. And in terms of the overview of either of those areas of the regime that comes through the compliance committee's - -?---Yes. - - obligations?---But if I can reiterate again what is disclosed in the prospectus the procedures that need to be followed or if you like the due diligence that needs to be followed to ensure that that disclosure is actually done in the prospectus is what is reflected in the compliance plan. CHAIRMAN: Is what, sorry?---Is reflected in the compliance plan. MR CHANEY: Mishandling and misappropriation of lender funds, page 16?---Okay. Again the compliance plan should set out the procedures that the responsible entity uses when dealing with clients and dealing with moneys, and how those procedures are monitored. Right. Records and systems?---It's covered in two areas. The first is the licence application, because in a licence application, they - - the applicant has to describe what their accounting procedures are and the type of systems they have. Now when we go in and do a surveillance, we check whether what they've said in the application is actually correct, and if they - - and if it is not correct, and it is materially different, then we have to question whether or not they are able to discharge their obligations under the licence, efficiently, honestly and fairly. Right?---And some of that would also be covered in the compliance plan. So in terms again of an ongoing regulatory regime, to take the Grubb example, we have heard their records were a shambles?---Yes. That would be discovered through the surveillance regime in place?---Yes. And that was dependent upon a random selection of that broker?---Correct, but it also should be reflected in the compliance plan and the monitoring of that plan by the auditor and the compliance committee. Yes. Thank you. You've had some considerable experience

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I gather, nationally in relation to finance broking, but in particular on the eastern seaboard. Are you able to talk about the question again which I asked Mr Ogilvie about, which is impediments, if there are any, to the free flow of information between regulatory bodies where there are overlaps or complementary obligations? You know, how it works in practice, what doesn't work and what might be done to make it work? CHAIRMAN: Excuse me, before you go any further. On that very point, would that - - would any free flow be in operation between your body and the Finance Industry Supervisory Board of Western Australia, if they haven't asked for your support, or intervention, however as you've told us they haven't, therefore in reply to Mr Chaney's question, is there any inter-flow there?---Are you asking whether ASIC at the moment has inter-flow with the WA board? CHAIRMAN: Yes?---Of information? I can't speak from experience. I believe Mr Ogilvie did talk about some - - some information we provided where we've actually served notices but I can't comment much further in WA. I can comment - - Well, Mr Ogilvie said that he was - -?---Yes. - - in close contact with the inspectors. But I wondered whether there's formally between the board and ASIC?---Not that I'm aware, no. Thank you?---Yes. Mr Taylor? MR TAYLOR: Mr Chairman, I think Ms Vamos really hasn't had much first hand involvement in the information flow between ASIC and the state authorities, and it's really Mr Ogilvie who is in a better position to discuss those issues, which is - - CHAIRMAN: I think he already has, but I - - in view of the evidence given by this witness I just wanted to be sure about it. Thank you. You may call him again, Mr Taylor. MR CHANEY: Now Ms Vamos, I was asking about in your experience I guess, I don't know - - it was a very long and involved question. But really I think what we're looking at is given this committee's task of trying to plot the way forward - - ?---Yes. - - what are you able to tell us about that issue?---Okay. I suppose there's two - -

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CHAIRMAN: Just give us a simple answer and that's it?---There's two types of involvement. Involvement that relates to specific issues relating to particular brokers or in the eastern states, law firms. And the other - -the way we deal with some of the industry supervisory bodies is on general issues and areas of risk, and certainly ASIC has dealt with the Law Institute of Victoria, the NSW Law Society, and the Queensland Law Society, extensively in terms of talking about the development of policy statement 144, and the development of the ISB carveout?, or the industry supervisory body carveout. We work in closely also with the Law Institute of Victoria to issue a standard disclosure document for some of the smaller operators. As far as providing us with information about some of their recalcitrant operators that may or may not come under our operation, they have similar type of impediments to what the WA state body has, and there are privacy laws and they are all regulated by the Legal Practitioners Act and the other acts that regulate lawyers, and as you can imagine, privacy and privilege that relates to lawyers is quite strong, and I know for certain and in New South Wales, and I believe it's the case in Queensland and Victoria, that there has to be a change to the state-based legislation in order for the free flow of information to occur. ASIC, through it's regulatory policy area, has been talking to the attorney generals about changes in that legislation, and I speak to representatives of the Law Institute about how far they are with pushing those changes through. MR CHANEY: Another matter I asked Mr Ogilvie about was the type of resources which were available to him, and were desirable in context of effective enforcement and surveillance and supervision?---Yes. Do you have anything to add to - -I think you told us about the type of skills that he's got available to - -?---Yes. Anything to add in relation to the needs for an effective compliance regime?---You talking about resources or elements? Elements really?---Elements, okay. Of the compliance regime?---Okay. There are a certain - -one of the key aspects we've found with mortgage operators nationally is that there is a wide range of practices, and some of those practices are higher risk than others, for example, the use of general authorities, or the use of borrowers' valuations, and for an effective regime to work, it's important that minimum standards about the operation of operators be put in place, and that is certainly what is happening with the industry supervisory body regimes, with the Law Institute of Victoria and New

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South Wales. The rules that they're putting in place have the fundamentals of what applied before as in basic practice rules, but these are of a higher bench mark, and they're more specific in that some types of practices are just not allowed, and by having that transparency in what one can and cannot do in relation to the operation of the practice, I believe will make for easier regulation. Does that same principle apply in relation to the audit? Is there a - - are there benchmarks that can be developed for audit processes so that the bar is higher in terms of the obtaining of a clear audit certificate, is that something you've had experience with?---The audit of compliance plans is actually contained in an audit guidance statement, because there was a recognition that the audit of compliance and compliance plans is different to the audit of financial statements, and so the bar has been raised and that guidance statement applies to - - any registered mortgage practice. That has been supplemented by some detail that's provided by ASIC in relation to its expectation in relation to compliance plans, and there's no reason that that sort of approach can't be used elsewhere. MEMBER NEWMAN: Ms Vamos, in the evidence we've had to date, there has been fairly substantial information given to us that in the case of Graeme Grubb, he had had unqualified audits for 2, probably 3 years where in fact there were serious deficiencies and many of those serious deficiencies related to borrowings of an entity of which the partner of the auditor was heavily involved. Now what procedures do you have in place, what cross-structures do you have in place that would facilitate an earlier, and more active recovery of information that shows that there is a problem and therefore you should take some action to protect the interests of the investors?---We anticipate that the role of the compliance committee and their monitoring of the compliance plan will provide that ongoing monitoring. Audits are once a year and that I suppose is an indication of where the risks are with an annual audit. With the day to day reporting that needs to take place about compliance with requirements in the plan, there is that hopefully transparency that the compliance committee can pick up to date, and it hasn't happened with mortgage operators, we have had compliance committee members come into ASIC, and they indeed have an obligation to do so if they feel they're not getting assistance from the responsible entity, that there were issues, and certainly there are requirements in relation to conflict - - placing yourself in conflict of interest situations. One of the things that's causing a problem to the liquidator supervisor of Grubb is the fact that because there has been action which involves the auditor, and the auditor's partner, it's very likely that any claim against

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the auditor's professional indemnity insurance is going to fail. Is there any intention with your legislation that the auditors along with the entities themselves are going to be required to have fraud insurance as well as professional indemnity insurance?---The responsible entity must have fraud insurance. There is no specific legislative requirement regarding auditors, and it's the requirement that the auditor must meet with its own industry body. And are you having discussions with the industry body, with a view to perhaps strengthening the protection that would be invited through the current structure and the way it operates?---Not that I know of. Is it something you would consider?---That is not for me to answer. It is something more for the commission to answer. Right, thank you. MR CHANEY: Ms Vamos, you really touched on this a little in those answers, but it's still early days for this regime in overall terms, but are there signs that it's working? I mean you mentioned compliance committee members coming in, reporting things and what's the feeling?---I can give some - - how can I put this? There is certainly - - there has been response from a number of mortgage operators that the standard of operation has improved. Is that across the board? Unlikely, because it is early days, but certainly the greater transparency is having an impact. One - - one indication is that there have been a number of operators who have decided to close their doors, because they feel it would be too difficult to comply with the new regime. And that's really all I can say at this time. At this stage. Yes. Thank you. Mr Chairman, I've nothing further for Ms Vamos. CHAIRMAN: Yes. Thank you. Mr Taylor, any questions? MR TAYLOR: Mr Chairman, I just wonder if we might adjourn for just a few minutes so that I can consult with the other ASIC officers, and with Ms Vamos as well if that's possible, just to confirm whether there are any additional matters that we thought should be brought to your attention. CHAIRMAN: Certainly. We'll adjourn. SHORT ADJOURNMENT

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UPON RESUMPTION: MR TAYLOR: Mr Chairman, there was really only one issue that I wish to ask Ms Vamos some further questions on, it relates to work? issue that Dr Newman and you raised. CHAIRMAN: Thank you, Mr Taylor. CROSS-EXAMINED BY MR TAYLOR: MR TAYLOR: Ms Vamos, you were asked some questions about whether ASIC had an ability to put an auditor in or to direct that an auditor be put in. Are you able to tell the committee how in practical terms ASIC might be able to influence the choice of auditor, or have some sort of audit put into the responsible entity?---Thank you. There's no specific black law power for ASIC to place a compliance plan auditor. However, in practice, if we're not happy with the auditor, as I said earlier, we take that back to the responsible entity, and as part of enforcement approach, whether it's just a general undertaking, an enforceable undertaking, or we go to court, we can ask the responsible entity to obtain another audit as part of an enforcement approach. Ms Vamos, if the responsible entity refused to cooperate, and refused to appoint another auditor, or have another audit done, is there any action that ASIC could take?---Well, if we feel that the action and the lack of ownership if you like, of the responsible entity to ensure that a proper audit takes place, then we have a look whether it's a breach of the compliance plan and we also may look as to whether or not it's a breach of their licence conditions, because they have to be able to operate the scheme and meet the requirements sufficiently to be able to operate the scheme and meet the requirements of efficiently, honestly and fairly. And if - -?---And that could - - in - - the consequence of that is that we could remove their licence. And could ASIC take any court action in relation to that as well, as a result of breaches of the compliance plan?---Yes, certainly a breach of the compliance plan is a breach of the law, and we have a range of options, both - - mainly civil in relation to that. Thank you. MEMBER NEWMAN: Ms Vamos, in the event that you were to ask responsible entity to have another auditor do an independent audit, how would you work in conjunction, in this state, with the Finance Brokers' Supervisory Board, bearing in mind that they also have responsibilities in relation to the audit, and they may well still have people

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who are subject to their control, who are also subject to control under your legislation?---It's really a different type of audit. I don't know whether there's really any overlap. The audit that we'd be doing is of the compliance plan and the WA board wouldn't be looking at that, so - - MEMBER NEWMAN: But you did mention there would also be a financial audit as a separate issue - - ?---That's correct. - - with a separate auditor?---Yes. Now the WA board has an audit of the trust account and in normal circumstances, you would anticipate that whoever audited the trust account would be the financial auditor and in that area I could see that there would be a need, if you're going to be effective, to be able to work with the local board and to have a joint approach to responsible entity about the need for an independent audit, or alternatively one or both of you through the powers that are in your various acts, would appoint an independent auditor of your choice in order to get an overview, and I'm really looking how, in practical terms, this would be workable, would not end up with colossal costs with responsible entity but would most importantly ensure that the general public are fully protected?---I can point to what's happening in other regimes, where as part of our - - and even with the run out schemes at the moment in WA, a lot of the - - the audit that they have been required to obtain under the finance board is being utilised as part of ASIC's author requirements under its class order, and what we're saying is that as far as the finance part is concerned, we'll accept that audit, but it must be extended to cover the aspects of the class order relating to not offering any more loans and those sorts of things, so there is that cooperation that's already started, and that's also reflected in the run out in the other states as well. MEMBER NEWMAN: Right, thank you. CHAIRMAN: Yes, Mr Hooker? CROSS-EXAMINED BY MR HOOKER: MR HOOKER: Ms Vamos, regarding the industry supervisory bodies that have been approved by ASIC, as I understand it there are two - - ?---Can I correct you there? They haven't been approved. You did correct that, and I'm sorry?---They have put their hand up. The two for which the approval may be forthcoming as I

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understand it, they are the Law Society of New South Wales and the Law Institute of Victoria?---Correct. MR HOOKER: Now those entities obviously have interests that are broader than simply mortgage broking, are there specific committees or subentitites of those broader entities that are going to take the supervising role, if the approval is forthcoming?---Yes. With the - - the overall responsibility is with the society - - Yes?--- - - and the institute. With the New South Wales Law Society, they have developed a special review guide, if you like, and they use that as part of their audit process, because the audit of a operator of a mortgage scheme is very different to the usual trust account audit, because of the requirements of ASIC's class order, and so what they have done is specially trained with our assistance, some of the auditors so they have more of an awareness of the type of regulatory outcome ASIC is seeking. With the Law Institute of Victoria, there is a mortgage practice group which we have been dealing with extensively, particularly in relation to the development of the ISB rules, and the standard disclosure document. Aside from the supervisory rules, must there be some kind of infrastructure that these bodies have that allow them to physically monitor and supervise the day to day activities?---Yes. And is that part of the extensive criteria to which you make reference in the written submission?---Yes. And are those criteria in turn in the relevant class order, or is that a separate document again?---They are broadly covered in the class order. And is the class order some subsidiary legislation made under the ASIC act?---It's not legislation. An instrument made under the Act?---Exactly. I understand?---Correct. Thank you, Ms Vamos, I have nothing further sir. CHAIRMAN: That's because in those two states you mentioned, the solicitors are heavily involved in the mortgage industry?---That's correct. Yes, thank you. Mr Allanson? MR ALLANSON: No, thank you, sir. CHAIRMAN: Thank you. Mr Chaney?

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MR CHANEY: No, only to tender the submission, and the supplementary submission probably should go in. CHAIRMAN: Yes. Submission, supplementary is exhibit - - MR CHANEY: 87, I'm told, Mr Chairman. CHAIRMAN: 87? Thank you. EXHIBIT 87 Mr Chaney DATE (Unstated)EXHIBIT 87 Mr Chaney DATE (Unstated) Submission and supplementary submission from ASIC CHAIRMAN: Thank you. MR CHANEY: Thank you, Ms Vamos, you're free to leave, thank you very much. CHAIRMAN: Thank you very much indeed. MEMBER BLIGHT: Thank you. WITNESS WITHDREW CHAIRMAN: Mr Taylor? May we have Mr Ogilvie back for just a moment please? MR TAYLOR: Yes, Mr Chairman, he will attend. JAMIE GEORGE MICHAEL OGILVIE: CHAIRMAN: Thank you. You're still under oath, Mr Ogilvie. It's again back on to this cooperation between the Finance Brokers' Supervisory Board in this state and your organisation?---Yes. You've told me, I remember now, you went into some detail that you and your investigators do cooperate with the investigators of the finance industry supervisory board and or the ministry?---Yes. Is there any direct contact between your organisation and - -well, say the chairman of our board?---I certainly haven't had any direct contact with the chairman or a member of the board. I have seen some correspondence between ASIC officers and I think the secretary of the board. Or registrar, yes right, it doesn't matter?---It certainly wasn't the chairman or a member of the board, no. My personal interaction has in fact been with - - more with the ministry than with the board. I have had several meetings with the chief executive officer of the ministry,

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but I have had no direct contact either personally, and I don't think by correspondence with a member of the board. If any of you inspectors or operators or indeed your organisation here in Western Australia, learnt of any - -or became concerned about a broker, would that be passed on to the board?---Yes, I believe so. We have the power to release that information. CHAIRMAN: And that would be released to whom?---That would be released to one of the officials of the board. But it would be formally released to the board. Formally released to the board?---Yes. But the mechanics of it obviously would be with an official of the board. Yes, thank you?---I should actually clarify that, because in fact we have had some requests for information and certainly on at least one occasion, we had simultaneous or joint requests from both the ministry and the board, and there was a technical legal debate internal to ASIC as to whether or not we had power to release information to which of those, if not both, we were empowered to release information to, and I'm not certain that it was ever clarified. But we certainly came to the conclusion that we could release information to either the board or the ministry, one of the two. Mr Ogilvie, did you give that confidential information to Mr Chaney that I asked a question about which - - who was it and you said I'd rather - - MR CHANEY: The information I think it was proposed to come, there were a number of - - CHAIRMAN: Yes, there were. MR CHANEY: - - references in the submission which I think had only been? dealt with in subsequent correspondence. Mr Hooker, any further questions as a result of my questions? MR HOOKER: No, sir. CHAIRMAN: Mr Allanson? MR ALLANSON: No, thank you, sir. CHAIRMAN: Mr Taylor? MR TAYLOR: No. NO CROSS-EXAMINATION

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MR CHANEY: Sorry Mr Chairman, can I draw your attention, or Mr Ogilvie's attention to the supplementary submission which does mention that in July 1995, an ASIC investigator had discussions with Mr John Urquhart, the chairman of the Finance Brokers' Supervisory Board?---Yes. MR CHANEY: So at some point there does appear to have been some communication direct?---Yes. CHAIRMAN: Yes. Thank you. Thank you very much, Mr Ogilvie. And your organisation here?---Thank you. WITNESS WITHDREW MR CHANEY: Mr Chairman, I call Murray John Allen. MURRAY JOHN ALLEN affirmed:MURRAY JOHN ALLEN affirmed: CHAIRMAN: Thank you, Mr Allen. EXAMINED BY MR CHANEY: MR CHANEY: Mr Allen, you are presently the Ombudsman for the state of Western Australia?---My correctly title is Parliamentary Commissioner for Administrative Investigations. Right?---But known as the Ombudsman. I often use nicknames, Mr Allen. And for the record your business address?---Is 44 St Georges Terrace, Perth. You were formally the Regional Commissioner for the Australian Securities Commission?---I was. How long ago was that?---I commenced in January 1991 and finished in November 1996. And you moved to your present position?---In November 96. Yes. I think you have come to this inquiry because you have certain views about matters relating to industry supervisory boards generally, not necessarily confined to the Finance Brokers' Supervisory Board, is that right?---Specifically not limited, or not specifically about the finance industry at all, and not even only industry related, but the issue of tribunals and boards generally. Yes. I think it should be made clear that as I understand what you want to tell the committee, it's in your capacity, really not in any formal way as wearing your Ombudsman's hat, but really born of your experience in relation to regulation generally?---Yes, I think I guess technically I'm here as the Ombudsman, but the comments

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that I have to make are very much not derived from anything that I've done specifically as Ombudsman in relation to dealing with particular government agencies, but generally having observed government agencies, and how they work, over a bit of years, few years, they're those sorts of general comments rather than specifically to relate it to my experience as Ombudsman. MR CHANEY: Thank you. Can I now invite you to make those comments?---Well, I do emphasise that my comments are not based on dealings with complaints from individuals. They are based on general observations about public administration. They are mainly about how and by whom decisions should be made and importantly how they should be reviewed by some other organisations. I guess the key point that I'd like to make is that for every piece of legislation there has to be a clear understanding on at least the following points. What decisions have to be made about that legislation, or under that legislation, what's the nature of that decision, is it administrative, or regulatory, or is it adjudicative? Who should make the decision, and what should be the rights of appeal or review and who should that appeal or review be to?---It seems to me that too often the distinction between administrative and regulatory decisions on the one hand and adjudicative decisions on the other hand is not made clearly enough and in fact I'm not just talking about the state of Western Australia here, I'm talking generally, but it seems to me it's particularly applicable in Western Australia. An important question that always has to be addressed is whether it's appropriate to combine the two functions, the adjudicative on the one hand, and the administrative and regulatory on the other hand. And if it is to be combined, or if they are to be combined, then what attributes should the body have that those combined functions are given to? There's no clear model or picture about the rights and wrongs of this anywhere that I've seen, either at the state or federal level, or indeed overseas. And that shouldn't necessarily be surprising because one size will not fit all situations, there will be many different models, specifically designed to cater for the particular kind of legislation or situation that's being dealt with. It does seem to me though that quite often there is not much logic in the way that decisions are made or that structures are put in place to make decisions and to regulate things. An example that comes to mind from my previous existence, and one which I think Dr Newman might be familiar with is perhaps to compare in the corporations and securities area the regulation of the investment advisory industry on the one hand and the company auditors and liquidators industry on the other hand. For investment advisers, ASIC essentially performs all the functions. It performs the usual administrative and regulatory functions such as licensing of advisers, monitoring their compliance with the legislation, but it

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also performs the adjudicative functions such as the removal of licences if somebody misbehaves, or is not fit and proper, subject of course to a right of appeal to the Administrative Appeals Tribunal. For auditors and liquidators though the situation is somewhat defendant. ASIC still does some of the regulatory work, such as the registration of those people, and the monitoring of their performance but when it comes to the question of discipline, the adjudication on that must go to the disciplinary board that is established by legislation. Again subject to the Administrative Appeals Tribunal, but ASIC has no adjudicative power in relation to auditors and liquidators. Western Australia seems to have had a particular predilection for establishing what are called independent boards, but sometimes are not. They're often called all kinds of things, boards, or tribunals or committees or authorities, all kinds of different names. They frequently have a mixture of administrative and adjudicative functions. Commissioner Gotjamanos ? in his report a couple of years ago I think counted up in excess of 80 such boards, and I have no doubt that the number's over 100 today. The issue particularly arises in relation to the occupational and professional boards, which is the things you're interested in here particularly. Over the last 20 years in this state there have been a number of recommendations made to rationalise the tribunal law situation, the Law Reform Commission has had two goes at it, Commission on government, Gotjamanos, etcetera. These reviews have focussed, it seems to me, on the adjudicative and review functions of the tribunals. They haven't so much focused on the normal administrative and regulatory functions. Recommended all of them, that a new administrative appeal body be established, to take on the review adjudicative role that the tribunals presently perform. Most recently the Law Reform Commission just this year recommended that the adjudicative functions of all these bodies, both their original and review jurisdictions, be centralised in a new tribunal. It recommended that the investigation of complaints and other administrative, non-adjudicative functions should continue, but that those bodies should not make the determinations about those matters. When the board or tribunal or whatever it was called decided that there was a case that needed to be answered or determined, then the proposal from the Law Reform Commission was that the matter should be brought before that new tribunal, for a determination to be made. If that model were applied to the many tribunals that we have in Western Australia today, it seems to me that they would have a limited set of functions left in most cases, which raises the obvious question of whether there would - - whether there would be a need for them at all, if that kind of role was taken from them. Now at this point, I should confess a kind of a bias. My bias is that we should remove as many layers of administration as we possibly can, or layers of

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decision making as we possibly can, and secondly I'd like to avoid wherever it's possible putting decision making in the hands of bodies that are essentially not full time administrators, or decision makers. My preference would be to give all of the administrative and the non-adjudicative functions that these tribunals presently perform back to the main stream public service, who should have the resources and the skills to make proper decisions, subject of course to them having clear rules about process and clear rights of review on the merits to a tribunal of the type that was recommended by the Law Reform Commission. In other words, my position would be that we could probably do away with most of the tribunals that we presently have. A possible model that - - and a model that I think has worked very well, is that model that I mentioned earlier, the way ASIC regulates investment advisers, where they have the power of entry into the profession, they monitor them, they have the power to remove people from the industry if they have misbehaved, subject to a proper right of appeal on the merits to the Administrative Review Tribunal. Now I appreciate that there will be issues that need to be considered if one was looking at the idea of abandoning most of these tribunals. There are obviously questions about how do you get industry expertise brought to bear, on the decision making, and in that context I think it's worth mentioning something about how people are selected to serve on tribunals in the present - - at the present time, and I think it's interesting to compare the way in some situations we have a range, ranging right from in the case of the Finance Brokers' Board two industry representatives being elected by the members, and there are a couple of other examples in Western Australia where the industry participants elect the majority of people who are to be their regulator, and I must say I find that somewhat perverse, through to as indeed is the case in the Company Auditors and Liquidators Disciplinary Board that I mentioned earlier, where the minister makes the appointment from a list of five names submitted by each of the two major accounting bodies, and then of course at the other end of the spectrum are the situations where the minister simply chooses a person who has a certain type of experience. I must say that the idea of people being elected to perform regulatory functions doesn't sit very well with me, but I'm sure there are plenty of people who would argue to the contrary about that, so there is an issue about how do you get industry expertise involved. If my model of there being a main stream public service organisation making decisions, obviously one would hope that the public servants involved would themselves have industry knowledge as is indeed the case with ASIC in their regulation of their industries, but in addition to that, it's always possible to establish advisory boards or advisory panels or committees, or whatever you want to call them, that serve no - - that have no statutory

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functions to perform, but which can provide the kind of industry input that's needed so that the policies and practices that are developed by the public service are appropriate for that industry. There's another aspect which I don't think is peculiar to Western Australia, but seems to be a feature of some of our boards and tribunals actually being funded by the industry. It strikes me that that's a fairly undesirable practice, and that my preference would be to see it for what it is, that the regulation of an industry, if it's important enough to legislate for, it's important enough for the government to accept a responsibility to fund it, and to perform the regulatory function, and the introduction of funds from the industry itself, depending on how it's done, can introduce some significant issues about conflicts of interest and priorities and so on. That in a nutshell is really all I had to say. I'm not sure how helpful that is to the committee, but I was happy to come along and share it. CHAIRMAN: Any further - - MR CHANEY: Well, yes, I was going to seek to clarify one matter that - - the model which you've indicated you favour, which is along the lines of ASIC's regulation of investment advisers involves the process of at the end of the day banning people if there are problems - - ?---Yes. - - that have occurred, and that's as I understand - -?---I'm sorry, let me - - it involves a two stage process, I guess. One is taking away their licence. Yes?---And then secondly banning them for a period into the future. Yes. To get to that point, and then having some right of review to an AAT type organisation?---Yes. So that that's where the ultimate judicial process, or adjudicative process is carried out?---Well, a review of the original process. Yes, yes. Do you see any difficulty with getting to that point where you have the regulator investigating a complaint, reaching a decision presumably after extending all the requirements of procedural fairness, reaching a decision to remove a licence, or ban a person or do both, do you see that mesh of responsibilities having any problem, or in your experience - - ?---No, I don't believe so. Certainly the experience that - - I mean it's 3½ years since I worked for ASIC, but the very strong impression that I had was that ASIC, or the ASC as it was then called, had much more success and was much more - -there was a much easier process to follow in dealing with investment advisers than there was in dealing with

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auditors and liquidators, because of the need to go to an external body to make the decision. The - - obviously procedural fairness is important, and it's essential that whatever regime you have in place, the person who's built up the case against this investment adviser must be given every opportunity to argue about whether he or she should not be removed from the industry, but I don't see any - -excuse me - - particular problem with the same organisation making that decision. I mean it is essentially an administrative regulatory decision. MR CHANEY: Yes?---It can have an economic impact, of course, on the person who's suddenly out of the industry, but you know, somebody's got to make the decision and from the point of view of efficiency and getting it done, I believe the investment advisory model was a far preferable one to the auditors and liquidators model. Thank you. CHAIRMAN: Mr Allen, getting to your overall administrative tribunal, do you know if such a tribunal or something along the lines you envisage is operating in any other state of Australia?---Well, the obvious example is the Commonwealth Administrative Appeals Tribunal, which has jurisdiction from all kinds of organisations, review of all kinds of decisions. It's - - it's very much a review body, it reviews decisions made by other people. In other states, Victoria and New South Wales, there are now tribunals that exist which - - Yes, I heard that there were, I'm interested to know what you know about them?---Well, they perform both a review function and an original decision making function. I can't say I know all the details about how they operate and the New South Wales one is much younger than the Victorian one, which has been around for a couple of years now, but as I understand it, it's working very satisfactorily. And that's the sort of thing you're envisaging?---That's the sort of thing that I'm suggesting and which has been recommended on a number of occasions in this state, but - - Yes?--- - - we haven't got round to getting it yet. Yes. Thank you. MEMBER NEWMAN: Mr Allen - - MEMBER BLIGHT: Sorry - - lady first. MEMBER NEWMAN: You first, Digby.

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MEMBER BLIGHT: Okay. What generated, or what initiated your response to this particular tribunal? You've obviously been thinking about this for some time. Have you had experience as Ombudsman with matters that have been dealt with by boards and committees etcetera, or does this thought go back to your days with the securities people?---Yes. It pre-dates my appointment as Ombudsman. My experience as Ombudsman here I provided the details to the committee staff - - Yes?--- - - about the number of complaints that we'd had about the various bodies, and it's not that many. And to some extent that is explicable by the fact that there are rights of appeal from the decisions that the tribunals make, usually - - well, to a variety of courts, some to magistrates, some to the District Court, some to the Supreme Court. I can't say that what I'm saying today has been prompted by my experience as Ombudsman at all. MEMBER BLIGHT: No?---It hasn't been. As a general rule, I think the only comment I can really make is that what has struck me in the 3 years I've been doing this job, is that - - and perhaps I'll offend somebody by saying this, but it strikes me that in this state there hasn't been a huge amount of thought given to the working through the legislation that we have and working out just what is the best way to make certain types of decisions and what appeal rights there should be for those decisions. It seems to have grown up like Topsy, over many, many years, as I said there's probably a hundred or more of these bodies floating around, they cost a lot of money to run, I suspect. I thought the Auditor General said there are 600 odd of them?---600 various bodies. Boards and committees?---Yes. But many of that advisory nature - -?---Yes. - - not of the type that you're talking about?---As I say, Gotjamanos identified something in excess of 80 of varying types, but all of which had some kind of adjudicative regulatory function. And I'm sure the number's higher. MEMBER NEWMAN: Mr Allen, you've indicated the appointment of an independent board to deal with matters. Would those people be people who would apply and would be selected through a criteria on which a decision was made as the most appropriate people to be representative on the board, or would they be government appointees? How long would they serve? Would there be a fixed term for instance? And how would they be remunerated? What basis would you utilise to establish their remuneration?---Well, greater minds than mine have addressed all of those issues and

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you'll see quite lengthy discussions about that in the Gotjamanos report and in the latest Law Reform Commission document. But certainly I subscribe entirely to the idea that people who are appointed to these boards should go through a selection process. Whether it's totally transparent as some people say, or whether there's room for some things to happen behind closed doors, I'm not sure. My - - I say that because I think if it's too transparent, people won't apply, but putting that aside, certainly there should be clearly defined selection criteria for want of a better word, and election by your peers out of the industry should not be one of them. MEMBER NEWMAN: Right CHAIRMAN: Mr - - MEMBER NEWMAN: Sorry, how about the fixed term, would you see people being appointed for say a 3 year period and then they have to reapply?---Yes. Answer, yes they would need to reapply, to be reappointed. Whether the initial term is 3 years or something longer I'm not sure. I think 3 years would be the absolute minimum for that kind of appointment. If it was to be a full time appointment. Yes?---It doesn't follow that it has to be full time. The kind of body that the Law Reform Commission was proposing was one that was made up of various lists which allowed people to be appointed in accordance with their special knowledge or special interests, and so that means that they wouldn't necessarily be sitting every day, depending on which list they were located in, but I would think at least a 3 year appointment and possibly longer. But how would you determine their remuneration? Would that be done by a government salaries tribunal or would it be a negotiated figure or - - ?---I would have thought it should be a salaries and allowance tribunal matter. Right, thank you. CHAIRMAN: Mr Allen, this administrative tribunal, if it was headed by a judicial officer, would you see it advisable that that be the end of the line, no appeal therefrom?---Well, again that subject's been dealt with by others. It seems to me there's got to be a right of appeal of some kind, sorry, perhaps not a right of appeal, a possibility of appeal, I think - - I know some tribunals have point of law only - -Yes. - - and all this sort of thing?---Yes. I would see it as being something quite similar to the appeals from the Administrative Appeals Tribunal. You can go to the Federal Court, but as I understand it, it's only on a

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point of law. I think the recommendation that's been made here is that it can - - there can be an appeal to the Supreme Court on a point of law, or if you can get the leave of the court, having regard to the importance of the matter and the complexity and so on, of the matter. I haven't given a great deal of thought to that particular issue. Right. Yes. You don't want appeal on appeal on appeal, that's what I'm getting at?---Yes. Well, if you're talking about appeals about the merits. If there are points of law, then there's got to be a process to resolve those points, but if it's a real merits review process then there's got to be a limit to how far you can appeal on the merits. CHAIRMAN: Thank you. Yes, Mr Hooker? MR HOOKER: Thanks, Mr Chairman. CROSS-EXAMINED BY MR HOOKER: MR HOOKER: Mr Allen, on the model that you see merit in of administrative functions being dealt with wholly within the public service, subject to there being clear rules and rights of review and so on, am I right in thinking that is consistent either with a broad based administrative tribunal dealing with adjudicative matters, or retaining the existing number of tribunals themselves adopting strictly an adjudicative role?---No, I think I'm saying that - - I mean, it could be done that way. Yes?---But I think it would be unfortunate to do it that way. I would consolidate all those adjudicative functions into a central body of the type recommended by the Law Reform Commission. Yes. But would it be fair to say at the very least, if - - if there was a change only to go so far as to clearly put administrative functions within the realm of the public service, even if the range of regulatory tribunals were to remain, it's at least got the attraction of making clear this line of demarcation between administrative decision making and adjudicative decision making?---Yes. Yes, I agree with that. And that has advantages in terms of efficiency and the clarity to the public of the distinction between those roles?---Yes. Thank you very much?---Yes. MR CHANEY: I've nothing further, Mr Chairman. CHAIRMAN: Well, thank you very much indeed, Mr

Allen?---Good. We can assure you you've been very helpful?---Thank you. WITNESS WITHDREW CHAIRMAN: Yes, Mr - - MR CHANEY: 10.30 Monday is the next evidence. CHAIRMAN: Thank you. HEARING ADJOURNED UNTIL 10.30AM MONDAY, 29TH OF MAY 2000

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