Greedy empire's rise and fall

By GREG ANSLEY

This week the story of the rampaging of an unlikely band of corporate cowboys was handed to Australian Governor-General Peter Hollingworth, who passed it on to Prime Minister John Howard.

It was not welcome reading for Howard; not only because he was otherwise engaged with the war in Iraq, but also because the report of his royal commission into the collapse of insurance giant HIH would inevitably spell out why his Government and the industry watchdog it created are now being sued, possibly for billions of dollars.

The report into Australia's biggest corporate collapse by West Australian Supreme Court Justice Neville Owen has yet to see the light of day publicly, but its substance has been bared over 16 excruciating months of evidence.

It is a tale of extraordinary greed and consumption, of huge egos, and the lies, deception and fraud used to polish them, of backstabbing and power plays, of Mafia connections and even mysterious death and, ultimately, of policyholders, investors and creditors stripped of A$5.3 billion.

Even the appointment of Justice Owen as royal commissioner had a touch of theatre. As well as his impressive qualifications in commercial litigation and corporate insolvency, Justice Owen wound up Alan Bond's failed business and settled the A$20 million catfight between late mining magnate Lang Hancock's daughter Gina Rinehart and outrageous wife Rose Porteous.

The three amigos at the heart of the HIH saga are a disparate bunch - Ray Williams, a high-school dropout who founded and built the empire, Rodney Adler, the Sydney society silvertail who lost the fortune he inherited, and Bradley Cooper, a fast-talking burglar alarm super-salesman.

There were many other smaller players. Randolph Wein, for example, the German-born, Hong Kong resident HIH director who took over from Williams as chief executive for the final, brief, flameout before returning to his adopted city and dying on his BMW motorcycle in a hit-and-run accident that still has police wondering.

Or Dominic Fodera, the group's financial director who was voted an ex gratia payout of A$1.6 million by the board just hours before HIH plunged into provisional liquidation, and who was later fined A$5000 for a scam that forever ended the careers of his former bosses and cohorts.

Group auditors Andersen, humiliated over the Enron scandal in the United States, suffered further bad press. The industry watchdog, the Australian Prudential Regulatory Authority, twiddled its thumbs and is being sued for negligence.

And there were the glittering excesses - the first-class airline seats booked for Williams' briefcase, or the A$63,000 HIH paid for William's secretary, Rita Young, to commute by air between her Gold Coast home and Sydney's Hotel Intercontinental.

At the time it all fell apart, HIH was Australia's second-largest insurer, with fingers in every important pie.

Its collapse in March 2001 precipitated the far wider insurance crisis that is still reverberating throughout Australia.

For a time it hurled the building industry into turmoil, stripped the health and medical system of its indemnity cover, and shut down entire chunks of Australian life, from Christmas carnivals to Scout camps.

As is the scale of the disaster, so is Ray Williams the stuff of legends.

He left school in 1951 after what is now Year 10 - the equivalent of New Zealand's fifth form - to join the Sydney Water Board.

By 1968 he had established C.E. Health International with Michael Payne, who was to become a lifelong friend and play an unfortunate, if relatively minor, part in HIH's downfall.

By 1999 the group, of which Williams was then chief executive and a 10 per cent shareholder with other senior managers, was worth A$1.6 billion following its acquisition of FAI Insurance, the group founded by Larry Adler, a Hungarian-born Jewish migrant and father of Rodney.

Williams was not a conventional tycoon. His passion for fitness bordered on the obsessive: in one famously reported demonstration, Williams strapped himself to the front of his Rolls Royce and pulled it around Sydney's Centennial Park.

His generosity to the loyal was legendary, reportedly handing out 10,000 gold watches to staff serving HIH for just 15 years, rewarding secretary Young with a six-figure salary, and providing long-time director George Sturesteps and his wife with a platinum American Express Card, first-class round-the-world travel, and two apartments in San Francisco.

Nor did Williams deny himself. The HIH chief's extravagant parties were famous, his salary of more than A$1 million a year allowed him mansions in Sydney's blue-riband Mosman and at Lake Macquarie to the north, and to run up restaurant bills of A$9000 in a two-week splurge - including A$2000 in tips.

Lucky staff at Auckland's Five City Road restaurant were handed a A$200 tip; at Sydney's Pier Restaurant the tip ran to A$700.

Executive bathrooms were fitted out with marble spas.

Williams paid almost A$2000 for 100 jelly bean plates and gift boxes, and another A$2800 for two life-size bronze platypuses.

To secure a more enduring reward Williams, a Christadelphian who believes in a literal judgment on Earth by Christ, built a chapel on his Lake Macquarie estate.

In another plush corner of the big end of town, Rodney Adler had grown up with his two sisters in a life of great privilege and expectation, groomed through private school and university to become heir to his father's enterprise.

Adler inherited FAI in 1988, ran it for a decade, then sold it to HIH in 1998 for A$300 million that netted a personal fortune of A$80 million, a golden handshake from FAI of A$3.7 million, a seat on the HIH board, and a consultancy worth A$40,000 a month.

HIH believed Adler had passed on a gem. In fact, FAI was teetering: evidence to the HIH royal commission revealed the group had concealed a huge loss the year before the takeover and had massaged the accounts to produce an apparent profit.

Senior group actuary Peter McCarthy told Justice Owen that FAI was at that stage insolvent, that it had knowingly published false accounts, and that if HIH had not bought it, the group would have collapsed.

McCarthy also said that despite knowing FAI was insolvent with an undisclosed deficit of A$250 million, before the HIH takeover Adler had set out to extract further capital from unsuspecting investors.

His own board had no idea that Adler was secretly planning to privatise FAI, that he had passed confidential financial data to merchant banker Goldman Sachs Australia to bring it about or, finally, that the deal had fallen through after Goldman Sachs concluded that far from a book value of A$220 million, FAI was worth just A$20 million.

According to evidence given to the commission, Adler - by then living in a A$12 million mansion renamed Rodlyn, a contraction of his and wife Lyndi's names - was treading even murkier waters.

He was a friend and business partner of Phuong Ngo, now in jail for the assassination of anti-drug campaigning Sydney MP John Newman, and a mate of Tom Domican, convicted but later cleared on appeal of killing hitman Christopher Flannery, and unsuccessfully charged for a number of other murders.

But for the commission, Adler's most notorious associate was Jeffrey Pokross, a New York Mafia money man who ran the Mob-controlled investment bank DMN Capital and who later turned FBI informer to help to jail former colleagues for racketeering, bribery and fraud.

A statement from Pokross alleged that after meeting Adler in Sydney, the Mafia banker had been recruited to pump up the share price of FAI ahead of its sale to HIH.

"He rang me to manipulate the price in Australia and, using my assistance here in the States, try to drive it up so that two or three other insurance companies could come in as potential buyers higher than he was getting," the statement said.

Trading records showed Pokross and an uncle bought FAI stock over six months in 1998 and began selling a day after the HIH takeover.

Adler denies the allegation, as he does the claim that FAI had been insolvent. But HIH did buy the ailing FAI at a healthy price and, apparently at Williams' instruction, paid Adler a special bonus: his shares were bought for 75c, well above the going rate of 45c to 65c.

On the board of HIH, Adler directed rivers of group money to his own ventures - including the failed Hooters restaurant, which recruited waitresses for the size of their breasts - and to friends and associates.

Key among these was Bradley Cooper, a two-fisted entrepreneur who was later to have a serious falling out with his mate, accusing Adler of insider trading in HIH shares and of offering a A$500,000 bribe to change his evidence on the alleged deal.

In the final six months of HIH's existence, the commission was told, deals with companies associated with Cooper cost more than A$100 million.

HIH had picked up Cooper through Adler, when FAI absorbed Cooper's burglar-alarm business Home Security International, and quickly installed him on the gravy train.

Williams authorised cheques for several hundreds of thousands of dollars to Cooper's quirky and by-then lapsed charity National Kindness Week, paid him A$1.2 million for HIH seminars which were never held, and pumped millions into HIH which was at that stage paying Cooper A$1.5 million a year.

At the time Cooper agreed to pay A$5.6 million for Williams' Mosman home, FAI Home Security paid Cooper A$1.12 million for a reason Cooper could not recall; the same day, the exact amount was paid into Cooper's private company, Speak Easy.

And all the time, HIH was sliding downhill at an accelerating rate.

Evidence to the commission showed that warnings had been sounded to Williams as early as 1996 and grew as the costs increased of heavy undercutting, disastrous expansion in Britain and the United States, overvalued assets, and vastly insufficient reserves.

While some HIH companies had not filed tax returns for years, others had recorded losses of A$450 million, using the prospect of future tax benefits to prop up the group's balance sheet.

In 1999 HIH was valued at A$1.6 billion; by the end of 2000 market capitalisation had plunged to just A$100 million, trading in its shares was suspended in February 2000, and a month later HIH was gone.

Both Adler and Williams were gone: Williams with a promised A$5 million package approved two weeks after accountants Ernst and Young warned of insolvency, Adler three weeks before the collapse.

But before they left they tried once more to chisel the market, funnelling A$10 million to a private Adler company which then bought HIH shares to nudge up share values.

Both Adler and Williams have been fined heavily and ordered to pay combined compensation of more than A$8 million in a civil case, and - with other smaller fry - now face serious criminal charges that could put them behind bars.

HIH liquidator Tony McGrath, meanwhile, last November filed claims against the federal Government and the Australian Prudential Regulation Authority - the industry regulator - that alleged negligence and sought damages.