When the GFC hit and interest rates plunged, Glare wondered why his interest rates were soaring to the point where his loan repayments were becoming unaffordable. When he realised he’d signed a TBL, he tried to break the contract but was told by Clydesdale staff that doing so would cost him £783,383. ‘I was stunned,’ Glare said, noting that the break fee represented 20 per cent of the principal of the original £3.95 million loan. Glare was evicted from his Dorset manor house in June 2010 and became homeless. He lodged a complaint with the UK’s Financial Ombudsman Service to get a copy of his file. In 2012 he received a box of documents, possibly from the ombudsman’s office, which included bombshell internal emails between Clydesdale Bank and NAB that put everything into perspective. ‘The emails made me realise that it was the bank’s wrongdoing that caused my ruin, not the economic downturn,’ Glare said. ‘When I think back to the year before my eviction, it was a daily battlefield. One month I had to explain to staff that their pay would be paid a week late, the next month it was two weeks late. Some staff left, others failed to turn up to work saying they couldn’t afford to pay for the petrol. I had to explain to couples that their receptions were cancelled. I had to explain to churches and Christian groups that their conferences were cancelled.’
In 2014 – four years after Glare started battling with Clydesdale – the bank finally admitted it had mis-sold Glare the loan and agreed to settle all the damages he could prove. However, it offered no compensation for the business he had lost. Glare fought the bank and lost, but is now planning further legal action.
In March 2015, the Treasury Committee of the UK Parliament released a damning report into mis-selling by nine banks, including NAB’s Clydesdale Bank. It found that NAB had behaved badly by mis-selling the TBLs tailored to small-business owners and that this had ‘led to considerable consumer detriment’. It said that customers were kept in the dark about the risks and that the bank structured the products to deliberately avoid regulation. That ensured less paperwork, and little or no recourse for the customer when things went pear-shaped. As a result, the authorities were left ‘powerless to enforce compensation for customers to whom products were mis-sold’. The Clydesdale Bank alone had sold 11,271 TBLs in the decade up to mid-2012, of which 8372 were unregulated, meaning borrowers had no protection. The loans on average ranged between hundreds of thousands of pounds and £3 million.
After years of investor pressure following poor performance and reputational damage, NAB finally decided to get out of the UK in 2016 and hived off its local banks to a holding company, CYBG. In allowing this, the UK Prudential Regulation Authority requested that NAB enter a conduct indemnity agreement with CYBG to cover potential losses related to legacy conduct costs not covered by existing provisions it had made. Those legacy costs included the TBLs as well as payment protection insurance (PPI) – insurance that enables customers to keep repaying debts if they get sick or lose their job, which was sold as add-on insurance when customers took out a car loan, credit card or mortgage. NAB’s agreement with CYBG included a capped indemnity of more than £1 billion, but that has been exhausted – so far PPIs have cost the British banking industry, including Clydesdale and Yorkshire banks, £40 billion in remediation.
For those who missed out and believe they are entitled to compensation for NAB’s TBLs, the fight is far from over. UK claims management group RGL, led by Australian expatriate banker James Hayward, launched a class action in May 2019 that alleges Clydesdale and NAB mis-sold these complex loans between 2001 and 2012. It is funded by the UK’s biggest litigation funder, Augusta Venture, and it alleges deceit, misrepresentation, negligent misstatement, breach of contract and unjust enrichment. So far 140 claimants have signed up and the cases of another two thousand potential claimants, estimated to be owed hundreds of millions of pounds, are being evaluated. If consequential damages are included, the overall costs could exceed £1 billion.
A separate legal action is also being prepared by the CYBG Remediation Support Group for a probable launch in June 2019, on behalf of hundreds of claimants. NAB and CYBG plan to fight the action in the courts, but are inviting some complainants to discuss their concerns directly. NAB also reportedly backs a proposal for a business ombudsman to examine certain cases. One relates to John Guidi, a sixty-three-year-old small-business operator who was bankrupted by mis-sold loans and faced the loss of his home of thirty years. He attracted publicity when he started a hunger strike in March and slept in a tent outside the Glasgow head office of CYBG. When I rang him in early May, he had just suspended his protest after CYBG had invited him to discuss a resolution. ‘I need to get a solution for me and my family, failing which I will resume my hunger strike,’ he said. ‘What does a drowning man do? Grabs on to anything he can.’ As of June 2019, he was still waiting and said, ‘This is troubling as the prospect of resuming my hunger strike is not one that I face without grave trepidation.’
Chapter 11
Shooting the messenger
IOOF’s smear campaign
BY LATE FEBRUARY 2015, a crisis of confidence was building in the community about the financial services sector and the safety of retirement savings. The NAB scandal, which had erupted on 20 February, had reinforced the need for reform and tougher regulation. After failing to wind back FoFA, the government had installed a new financial services minister, Josh Frydenberg, to restore trust in the industry He promised by March there would be a public financial adviser register so that customers could look up the name of their adviser to check their education standards, work history and any previous sanctions or banning orders. He also promised to look at a code of ethics for the sector and give ASIC powers to intervene and ban products.
The measures were welcome, but given the mounting scandals – first CBA, then Macquarie, ANZ and Timbercorp, and now NAB – many saw them as Band-Aid solutions. And another big revelation of financial misconduct was about to be made. This time the scoundrel was financial services giant, IOOF, the once venerable friendly society that had been founded in 1846 as the Independent Order of Odd Fellows and, through numerous acquisitions, had transformed itself into a financial behemoth with $150 billion of Australians’ retirement savings under its watch. I received an email on 10 February 2015 from an insider wanting to expose wrongdoing. I had met him previously when he worked for another financial institution. He said he had followed the various scandals I had exposed, had been inspired by CBA whistleblower Jeff Harris and felt it was his duty to let the country know what was going on inside IOOF.
He told me he had proof of insider trading, the deliberate misrepresentation of performance figures on funds, rampant cheating in exams by staff, and other serious breaches of the law. He also had evidence that the head of the research department had been investigated by the company for frontrunning, but this had been covered up. Frontrunning is when someone buys a stock knowing a research report is coming that will send the share price up and thus benefit the buyer of the stock. It is illegal.
My contact’s only request was that I keep his name out of my reports. IOOF knew he was the whistleblower, but he didn’t want his photo or identity splashed across the media because he was still young and didn’t want to rule himself out of getting another job in the financial services industry. He suggested the pseudonym Guy Fawkes.
Guy said he had initially told IOOF’s compliance officer what he had uncovered. He was then advised by human resources (HR) that the compliance officer and his boss had beat him to it and lodged an ‘unofficial’ complaint about Guy to HR. From that point on, he was bullied and ostracised in the office. He went on stress leave and on the second day he was notified by HR that his email had been switched off. A couple of weeks later, on Christmas Eve 2014, IOOF’s company secretary looked at the allegations Guy had lodged and decided ‘no further action was warranted’ and the ‘matter will be considered closed’. In early January 2015, Guy went to the Fair Work Commission and lodged a bullying and harassment claim, which outlined some of the misconduc
t he had uncovered. During the Fair Work process, IOOF terminated his employment, claiming Guy’s allegations were ‘vexatious’ and that he had used confidential information, in breach of his workplace obligations. His termination letter cited a report by PricewaterhouseCoopers, which had carried out an independent investigation, paid for by IOOF, into his allegations and found them to be unsubstantiated.
This looked like another red-hot scandal. I asked a colleague, Sarah Danckert, who’d recently moved to The Age from The Australian, to work on the investigation with me, and she agreed. I then flew to Sydney to meet up with Guy and collect a USB containing thousands of IOOF documents. Some of them showed that one senior officer had been investigated internally on suspicion of insider trading. The company didn’t report it to ASIC. Instead, internal emails showed the staff member had been given a warning and told to donate the profits made on the illegal activity to a charity of IOOF’s choice.
Other documents revealed that Guy’s boss had been investigated for frontrunning on a relative’s account, which had resulted in a final warning. Yet other documents showed that the same executive had been given a further final warning in 2014 and stripped of his responsible manager status for getting staff to cheat on his behalf in exams. Emails discussed breaches and errors in the unit pricing of some of IOOF’s cash management trusts. One exchange between two compliance officers tasked with compiling a list of breaches in a handful of IOOF’s cash management trusts contained the bombshell comment: ‘There seems to be just as many unit pricing incidents as there were breaches.’
When our story was published in The Age and the Sydney Morning Herald on 20 June 2015, it provoked a huge reaction.1 IOOF’s share price fell more than 20 per cent, ASIC launched an investigation into the company, and Greens senator Peter Whish-Wilson introduced a motion for a royal commission into the finance sector.2 Wacka crossed the floor to support the motion. It was defeated 39 to 14 after Labor sided with the government. But the drums were getting louder.
Nine days after our article appeared, I received a curious email from one of the most senior IOOF officials in the company, saying: ‘[The source of your articles about IOOF] is not a “whistleblower”, Adele. He is a blackmailer who has done this before to another major financial institution. They paid up. We refused (as we should) . . . and have paid the consequences via your sensationalist articles.’ The email said IOOF had reported the blackmail to NSW Police at the time, along with other related matters, and said of the whistleblower, ‘He sent intimidatory emails to several staff members implying via innuendo that their children could be under threat of kidnapping or worse at the schools they attended.’ He had also demanded the job of his boss, the email said. ‘You have been sucked in by a person who has known mental problems and in doing so you and the newspaper have grossly abused the privileges given to journalists to report fairly.’
He continued: ‘For you to conclude that IOOF is “dodgy” based on the information you have been given (which neither myself nor the board has seen) is beyond belief . . . I am also concerned at the gross abuse of parliamentary privilege that occurred during the week . . . If you were in receipt of stolen information or files relating to a company, you should have handed them and/or the information over to IOOF and not simply pass [sic] them on to Senator Williams so you could use Parliament to extend your ill-founded and sensationalist campaign . . . Parliament should not be used as some sort of kangaroo court . . . and certainly not to suit the revenge objectives of a blackmailer who didn’t get his way.’
The email shocked me. I had experienced companies trying to smear whistleblowers to diminish their credibility and divert attention from the main game, but this was in another league. Here was a senior official alleging blackmail, theft and mental health issues. Over the next few days I received a number of anonymous calls from industry insiders warning me to be careful because the whistleblower was a known shyster. I tried not to feel rattled but believed it was my duty to let Guy know what was being said about him. He too was shaken and began to worry for his safety.
I agreed to meet the IOOF official and requested he bring along proof of his allegations, including the blackmailing emails. We agreed to meet at the Grand Hyatt on Collins Street in Melbourne’s CBD on the morning of 30 June. Sarah Danckert came with me. When we arrived I was surprised by the behaviour of the bald, bespectacled middle-aged man, who had brought along an external public relations (PR) person for support. The PR person became visibly uncomfortable as we sat and listened to what was simply a character assassination of the whistleblower. There was nothing to back up the allegations: no ‘blackmail’ emails, no police report, no evidence that the whistleblower had mental health issues or had blackmailed his previous employer.
It was disturbing to think that a Top 100 company in Australia could operate in such a manner. Instead of trying to get to the bottom of the allegations about IOOF, the company was attempting to smear the messenger.
*
Meanwhile our story had prompted Senator Sam Dastyari to use the senate to try and get to the bottom of the scandal. On 8 July 2015, IOOF boss, Chris Kelaher, was called before a senate hearing in Sydney. Kelaher repeatedly claimed a company had no obligation to report a suspicion of frontrunning or insider trading, in contradiction of ASIC regulatory guide RG 238, which stated that a company that is a market participant, such as IOOF’s Bridges Financial, where the manager worked, had to report any suspicion of either frontrunning or insider trading.
On 8 July 2016, Chris Kelaher was grinning from ear to ear when ASIC completed its investigation into IOOF and issued a one-page media release.3 It found issues with IOOF’s compliance arrangements, breach reporting, management of conflicts of interest, the staff trading policy, disclosure, whistleblower management and protection, and cybersecurity. Yet ASIC failed to fine, sanction or ban IOOF, instigate legal action against the company, amend its licence conditions or even enter an enforceable undertaking with it.
Kelaher gave an interview to The Australian where he crowed that he had always maintained that there was ‘no truth’ in the allegations, and that the closing of the probe cleared the way for IOOF to build its business. ‘You can say it a hundred times, but now the regulator has come out and said it and it’s very pleasing,’ he said. ‘The company is on the cusp of a fairly bright future.’4
In disgust, I wrote a column highlighting the fact that the core function of any financial services company is to ensure proper compliance and disclosure. According to ASIC’s findings, IOOF had fallen well short of this. Yet the best ASIC could say was it had ‘reached an agreement’ that IOOF would appoint an external compliance consultant to ‘conduct an expanded, broader and more comprehensive review of compliance arrangements within all IOOF business units’.5 ASIC preferred to outsource its job to an ‘independent expert’ who would be paid for by IOOF, with IOOF setting the terms of reference – with ASIC’s oversight.
ASIC had taken twelve months to conclude its investigation, and although the whistleblower had contacted the regulator on numerous occasions and handed over 52,000 documents, he had received little response. Apart from a few emails and a thirty-five-minute meeting organised after he complained about inaction to ASIC’s chairman, Greg Medcraft, there was silence from the regulator.
ASIC’s do-nothing approach after its investigation sent a signal to IOOF that it was business as usual – for now.
Chapter 12
Claims denied
Commlnsure’s unscrupulous tactics
FOR WEEKS, DR BEN Koh, Commonwealth Bank’s chief medical officer had been trying to find the courage to call me. Koh had become a whistleblower at CBA’s life insurance arm, CommInsure, and things had turned nasty. He knew he had weeks, if not days, before he would be dismissed by CommInsure and marched off the premises. Finally, desperate to speak to someone who understood the machinations of the bank, he reached out to me by email on 8 July 2015, on the very day Chris Kelaher appeared in front of the Senate hearing i
n Sydney. ‘Is there a tel no. I can call to speak to you in confidence?’ he wrote. He also called Jeff Morris and asked if they could meet urgently.
When I spoke to Koh on the phone, he sounded desperate. He told me he had joined the insurer in 2013 to run a team of medical professionals tasked with assessing insurance claims – CommInsure had even issued a press release touting his arrival. But a year later he had turned whistleblower and taken allegations to its highest executives and the CommInsure board. They included claims that the life insurer regularly ‘lost’ files; spied on customers for the purpose of knocking back claims; used outdated medical definitions to avoid payouts; leaned on doctors to knock back claims; and asked Koh to overrule colleagues’ medical opinions without sound evidence for doing so.
Koh pointed out to me that life insurance is a contract of faith. Most Australians have life insurance policies, either directly or through their super fund. They are purchased on trust. CBA was breaching that trust.
I compared notes with Jeff Morris and realised that what Koh was saying, if it stacked up, had the potential to undermine confidence in the $44 billion life insurance industry. The public was getting used to financial advice scandals and breaches of lending laws that led to customers having to sell farms, houses and businesses even when payments hadn’t been missed. But knocking back legitimate insurance claims of sick and dying people showed how far the tentacles of malpractice had spread in CBA’s financial services departments.
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