In Sydney, New South Head Road is the path that leads to money. You follow it out through the clutter of Rushcutters Bay and Edgecliff, past the discreet entrance to Darling Point, down the sweeping hill to Double Bay and then ascend beyond it to where a dizzying sweep of harbour beckons. And there you are: to your left the trees of Point Piper; rising up to your right is Bellevue Hill; Rose Bay lies before you. But right here, where you are, are the gates of Cranbrook School. The eastern suburbs . . . you’re soaking in it.
Cranbrook’s founders in 1918, besides having a great eye for property values, had a dry sense of humour when they plonked the school down beside the more austere Scots College. Scots is GPS; it is landed wealth; it is rugger. Cranbrook is the eastern suburbs’ revenge. It is based upon, lives, breathes and propagates the network. In their choice of school motto the Cranbrook founders had also been pretty droll—esse quam videri: to ‘be’ rather than to seem to be—in other words, reality before appearance, substance rather than surface. It’s a very Sydney exercise in self-deception. The real motto of course is more like videri quam esse.
In the Sydney network, appearance comes before everything. Bellevue Hill is a financial ecosystem, a food chain like no other, where the links between the very wealthy, their advisors, their lawyers, their accountants and, most of all, their friends create tides of investment that wash back and forth across Australian capital markets. In the desperately small world that is the eastern suburbs, the Packer compound on Victoria Road, Bellevue Hill, manages to be both the centre of gravity and the top of the food chain. Even a tiny piece of a Packer deal—or the appearance of a piece—can shower wealth indiscriminately on those close enough to catch it. The key is proximity.
How do you get close enough? Kerry Packer’s uncertain health in the early 1990s meant that, at any moment, the young and inexperienced James Packer was a heartstop away from inheriting a multi-billion-dollar fortune. That made James potentially the single largest walking source of private capital in Australia. James Packer had become Sydney’s ultimate honey pot, a lure that would draw spivs, fast money men, merchant bankers, earnest entrepreneurs and fundraisers from all over the country. The fights and intrigues to control James Packer would become a struggle between the Sydney and Melbourne networks, Australia’s two centres of financial power. In the process, the Cranbrook alumni—ambitious networkers like Rodney Adler and Jodee Rich—would come into their own.
Kerry Packer’s close friend Robert Whyte had a particular scorn for those he saw as arrivistes and would-be players. When the Australian Financial Review in 1996 was preparing a feature nominating a list of power figures from Australia’s New Establishment (a concept borrowed from Vanity Fair), Whyte called the paper to, first, check discreetly that he was on the power list and then, once reassured, to share his views on some of the other names. Like Frank Lowy. By 2000, with their shopping-centre interests here and in the United States, the Lowy family would rival the Packers as Australia’s wealthiest family. As if mere money could atone in a town like Sydney. ‘Very Second Eleven,’ Whyte said dismissively of them, with a fine private-school disdain straight out of Tom Brown’s Schooldays—or perhaps a Cranbrook School local equivalent, something like Billy Bunter Does Double Bay. No doubt Whyte would have picked up useful phrases like that when he was at The Kings School, or during the year he spent at Oxford in the mid-1990s, studying religion. It’s a telling remark.
By 1991, the recession had wiped out almost all of the major and minor players of the 1980s. They were broke, or in jail, or in court. Besides Kerry Packer, only the technicians were left. They had spent the 1980s doing deals for other people. They had their little companies on the side, they knew the serpentine ways of fast money and modern commerce. They faced the same desperate struggle for survival that had decimated the real players of the boom, but they were sustained in their efforts by this one glimmer of hope: if they could wriggle past the grasping clutches of unsympathetic bankers and ungrateful shareholders, predatory tax officers and over-zealous regulators for long enough; if they could keep the show going and away from the bankruptcy court for another couple of years, then the crisis would pass and they would be saved. Not just saved, they would be disgracefully rich. In the bright new decade of the 1990s, they would face no real opposition. This was to be a lacklustre era that would turn out to be tailormade for the B Team. Which would explain the advent of Rocket Rodney.
How to describe a character like Rodney Adler AM? In the hard times that have befallen him lately, it is hard to remember the air of success he cultivated so assiduously in the 1990s, when he was at full mega-wattage. Back then, everyone knew that everyone loved Rodney. He and his wife Lyndi appeared more than 400 times each year in the nation’s press, where Rodney was described variously as a leading businessman, outstanding philanthropist, savvy investor, friend of the Packers, co-founder of One.Tel, society prince and national treasure. For journalists, Rodney’s door was always open. He was that creature most cherished and loved by the media, a really great gossip. He understood the media contract: that in order to get a little, you have to give a little. The currency of exchange is information. In the 1990s whenever his name appeared in a social column, it was always fascinating to guess for which if any of the accompanying gossip items he was the source.
The practical consequence for journalists was that everything to do with Adler became personal. Everyone had a Rodney moment. The first time I called him, in June 1989, he could not have been kinder. His father Larry had died six months earlier, leaving Rodney at age twenty-nine in charge of a $3 billion insurance and investment operation teetering on the verge of insolvency. Up to that point, Rodney’s life had been unremarkable and any business skills invisible. But he could certainly network. In addition to his father’s links in the Sydney and Melbourne Jewish community, Rodney had attended Cranbrook, where his classmates included One.Tel’s Jodee Rich, journalist Adam Shand, and Paul Brown, who became Richard Weisener’s understudy as corporate fixer in Monaco. James Packer was several years behind Rodney, whose nickname was ‘The Snake’.
Adler family life was shaped by Rodney’s father, Larry, who founded Fire and All-risk Insurances after migrating to Australia from Hungary in 1949. ‘We grew up with it,’ Rodney’s younger sister, Roxanne, said of the family business in 1994. ‘We remember its whole life, and everything that went wrong . . . Dad wasn’t a big chitchat man [but] in the last few years it was all we talked about.’
Larry didn’t know too much about the niceties of insurance but he came into his own in the takeover frenzy of the 1980s. He was a bagman who did favours and held assets with no questions asked on deals arranged directly between principals with no messy paperwork. There was, after all, honour among financiers. The payoff would typically come in a large money transfer that didn’t quite make commercial sense, but which could disguise the real exchange. In one instance, Christopher Skase’s Qintex group paid $5 million to FAI for an insurance policy on Skase’s life over a fivemonth period. To outsiders, the decision for the policy to run just for that period was hard to understand. It appeared as if the effect of the deal was to transfer money from Qintex to FAI.
Deals that weren’t really deals were the trademark sign of the network. They signalled the real business had been done behind closed doors. The ‘honest brokers’ who organised the deals, warehoused the shares and held or loaned the money were called ‘bishops’, and Larry Adler was one of them. Larry was respected, but he wasn’t loved. The 1987 Crash—which interrupted Rodney’s honeymoon with Lyndi—wiped out two thirds of FAI’s value. Larry Adler’s empire, like its founder, was living on borrowed time. When he died in December 1988, Australian Financial Review journalist Ian Thomas spent an entire afternoon trying to find someone to say something nice about him for his obituary, but failed.
After the shock of Larry’s death, Ray Williams at HIH Insurance quietly suggested a takeover that would have left the Adler family with about $240 million. A year before, the Adlers’ shares had been worth $1 billion. The family wasn’t ready to sell.
Rodney was soon faced with the uncomfortable discovery that his legacy was threadbare. Larry held markers from all over town in messy deals that Rodney had to untangle. Rodney himself had little experience and few prospects. It was fortunate then that Rodney could turn to his father’s investment banker, Bruce Corlett, who quietly became deputy chairman of FAI in December 1988. ‘Bruce is extraordinarily good at sorting out difficult situations,’ an associate of both men said. It was Corlett who worked out the strategy and negotiated most of the trickier deals. FAI would never see the $562 million it had loaned to Alan Bond. Corlett grabbed what he could instead—a Queensland coal mine and the St Moritz Hotel in New York—while Rodney talked the talk.
With the media, Rodney was affability itself. When I telephoned him in mid-1989 about a recent share deal in which Skase’s Qintex group seemed to have given FAI a $15 million straight-out gift, Rodney was only too pleased to talk. It was a very interesting matter and well worth querying, he said. Unfortunately he had only a perfunctory memory of the affair. After a few general remarks he said he really thought he ought to look at the file before saying anything else. Could he call me back? No one could be more helpful. Rodney was a giant among men . . . though he did seem to be taking a while to get back to me. After several days of silence I called his secretary, who broke the bad news. She told me quite kindly that Mr Adler had indeed looked at the file but he didn’t think there was anything he could add. That was when I realised I was dealing with a pro.
Blatant insincerity of this order is a rare gift. It’s why I’ve always admired Rodney, though his own feelings for me have been more ambivalent. In 1998, he wrote to say he was cutting all links—he would not answer my calls or speak to me, and any letter from me would be dumped unopened in the waste bin. A year later he did reply to a letter, out of ‘corporate politeness’, to tell me:
In essence, every time you write a story that refers to me or is about me, you cause significant damage either between my family, with the companies I am associated with, or with the Tax Department . . . Your figures are totally inaccurate—this is why I say you are a dangerous journalist. Neil, the principle of public accountability and freedom of the press is important but you take that to such an extreme that you actually take away the joy of being an executive or non-executive director. You actually stifle entrepreneurship.
That was pretty gentle for a Rodney letter. Back in January 1991, he was detonating tactical nuclear devices in his correspondence with Coles Myer chairman Solomon Lew, who, besides being ‘impertinent and dishonourable’, owed FAI $50 million. ‘Don’t write to me in sarcastic tones about our daily cashflow,’ he wrote. And again, ‘What in God’s name are you people playing at? Does honour and one’s word mean nothing in your state? Whatever happened to morals and ethics in business?’
In February 1990, FAI had been stuck with a load of overpriced shares it didn’t want in Lew’s company, Premier Investments, from a share underwriting deal that went wrong. Lew had been stalling on his promise to take $60 million of the shortfall, basically because he didn’t have the money. FAI was struggling as well and the mood between Adler and Lew wasn’t pretty. Happily the stand-off was resolved on 21 January 1991, when FAI announced that it had received $39.4 million from Lew’s private company to settle the matter. What the announcement didn’t say was that most of the money came from a deal that Lew’s people had arranged the previous year for FAI to sell the shares to a $2 company called Yannon. The money to cover Yannon’s losses in the trade came from the Coles Myer super fund, and ultimately from Coles Myer itself.
This miraculous resolution of their dispute should have been great news for Solly Lew, if only he had known about it. The Yannon deal would be highly controversial when it came to light four years later, but Lew was able to assure the Australian Securities Commission that the executives who arranged the deal never told him any of the details. I suppose the clue for Lew should have been that Rodney was no longer threatening to amputate his arms and legs, or words to that effect.
But that wasn’t the only significant consequence of the Yannon deal. Its successful completion meant that, on Tuesday 1 February, Rodney Adler and FAI had a little spare money when an old friend dropped by.
It’s difficult, even for those who lived through it, to remember how harrowing those days in the early 1990s were. Corporate Australia seemed to be falling apart. For every major corporate crash like Bond Corporation or Adelaide Steamship, dozens of minor ventures were foundering. Public companies, large and small, would see their share price slip a little, dip further, and then plummet, down and down, until their bankers lost their nerve, froze their funding and finally called in their loans. Most entrepreneurs’ wealth was tied up in their companies. They faced personal as well as corporate shipwreck. This was not a matter of facing a little bad news. The prospect here was financial annihilation. In order to survive, they had to find a way to maintain public confidence, to keep that share price up. The question was, what were they prepared to do to achieve this?
Rene Rivkin had never really recovered from the 1987 Crash. He had survived since then with the odd trading coup while otherwise maintaining a precarious balancing act between his many creditors. Year by year it became harder. His broking business, Rivkin & Co, depended upon support from his public company, Oilmet, to keep its doors open. But Oilmet was struggling. It had 115 million shares on issue, and the only people who seemed remotely interested in owning them were friends of Rivkin. Larry Adler bought some shares in 1988, then sold out again. Robert Whyte believed Oilmet was a good investment and his public company Audant Investments bought ten million Oilmet shares in 1989. Rivkin had a similarly high view of both of Whyte’s public companies, Audant and Trafalgar Properties. Rivkin bought their stock via Oilmet, then bought even more shares through his Swiss accounts. Whyte said he knew nothing of this.
For the most part though, Rivkin resorted to buying his own stock. Rivkin bought huge lines of Oilmet shares, then parked them in nominee accounts managed by Rivkin & Co. He secretly owned or controlled nearly half of the company’s shares. This kept the Oilmet share price from collapsing completely, but it was a blatant breach of the Takeovers Code, which required Rivkin to make a full takeover bid when he kept buying over the 20 per cent limit. Rivkin’s approach to the Takeovers Code was to ignore it. He simply claimed the shares were being held for clients. And no one asked any questions. Yet behind the bravado, maintaining the charade was a delicate business. It began to unravel in early 1990 when Rivkin made his unhappy bet on the future of the Japanese market and ended up losing $10 million. As his credit lines dried up, Rivkin started selling assets. In March 1990, he pocketed $1.4 million when Oilmet bought Rivkin & Co. Later in the year there were cars and shares and apartments for sale.
In April 1990, the Australian Stock Exchange (ASX) noticed that something funny was happening with shares in Rene Rivkin’s company. Share trading in Australia is monitored by a tiny division of the stock exchange called ASX Surveillance. Jim Berry, who set up Surveillance and ran it from 1987 to February 2005, is a large square man with a lively sense of humour and a tendency to come at any subject from an angle. While Surveillance rarely rates a mention in the media, by dint of sheer determination, shrewdness and a little guile, Berry built the division into the sharp end of corporate law enforcement in Australia. In general, ASIC only investigates share trading after ASX Surveillance has done its own investigation and referred the matter on. Berry operated in a shadow world based partly on technology and the computer programs that monitored share trading, and partly on his private intelligence network of contacts.
While senior ASIC officers would spend much of the 1990s scoffing at the idea that insider traders or market riggers regularly operated in the Australian share market, Berry knew the truth was very different, because he saw it every day.
In March 1990, Berry began looking at a trail of suspicious trades in Oilmet stock. His inquiries showed that Bank Leumi le-Israel had recently bought 4.7 million shares. The way the sales went through made him suspect that Rivkin was behind the trading, using it to prop up his share price. While Berry referred the matter to the ASX listing committee, no direct action was taken. In the United States the Securities and Exchange Commission regularly prosecuted investors for market manipulation, but for Australian regulators in the early 1990s it was all new territory. It was easy to dismiss Berry as a conspiracy theorist.
Berry had caught a glimpse of a far wider operation. Rivkin had been selling Oilmet shares he held in nominee companies in Australia to Stilton, his Zurich account with Bank Leumi. Actually, Rivkin had been doing this for years. It was a way of bringing money into the country from Switzerland, in this case to cover the losses from his bet on the Japanese market. It also pushed up Oilmet’s share price. Unhappily, Rivkin appears to have also been using Stilton to buy Japanese futures, notching up $US3.3 million in losses. By mid-year, Rivkin was in trouble in Zurich as well. Stilton’s only assets were twenty-two million Oilmet shares. Against that, Rivkin owed Bank Leumi close to $6 million. Leumi’s new private client manager, Ernst Imfeld, wanted some fast money.
Rivkin never talked about the events that followed. When he was asked about it twelve years later by Zurich District Attorney Dr Nathan Landshut, Rivkin flatly denied any knowledge of what Landshut called the ‘Stilton disaster’. Landshut dragged it out of him line by line. Back in September 1990, when Rivkin was facing financial ruin both in Australia and Switzerland, he went back to the one place he had always got money—his father. ‘It never entered my head, I know nothing about it,’ Rivkin insisted when Landshut suggested that Walter had bailed him out. Walter didn’t have a name for his account, just a number, 8405. Rene went behind his father’s back and signed a guarantee agreement that froze $3.5 million of 8405’s funds to secure the money Rene had lost in Stilton. In his 2002 exchange with Landshut, Rene denied this up to the moment when Landshut produced the guarantee agreement Rivkin had signed in Zurich on 5 September 1990.
The stilted transcript of the 2002 interview, which has been translated from English to German and back to English, still rings with Landshut’s flat incredulity at what Rivkin had done:
So you were using the account of your father, with whom you hadn’t spoken for years, and who was desperate to hang on to his assets, as security for your speculative account. Is that right and did your father know that? Did he know that rather than having about A$4 million in his account, he really actually had only A$500 000?
Walter Rivkin didn’t know. Rene told Landshut that, as he was his father’s only living child, the money would come to him anyway: ‘I now remember that I did have the right to sign on behalf of my father’s account and Mr Imfeld had made it clear to me that he would exchange security between those two accounts—Stilton and 8405.’ Clearly it was Imfeld’s fault.
Rene wasn’t looking back. The day after Rivkin signed the guarantee document in Zurich, Oilmet announced a new start under a new name. It would henceforth call itself Stroika Limited. Rivkin would spend the rest of his life telling the world at large how awful his father was, but Zurich would not feature in this account. The sad thing was, even ripping Walter off for $3.5 million wasn’t enough to save Rene. Five months later Rivkin was forced to go to the lender of last resort.
On 1 February 1991, a peculiar meeting unfolded in Rodney Adler’s office in the FAI building in Macquarie Street—a meeting shrouded in so much mystery that even years later no one was prepared to talk about it. In the desperate days of the 1990–91 recession, the deal consummated that day seemed trivial. Yet it would be a milestone for the Sydney network. This was the survival moment that turned it all around. It was the occasion when two casualties of the recession, battered and bruised and still taking damage from those penurious times, stood up and said they weren’t going to take it anymore. In short, it was the day when Rene Rivkin, that moral pillar of the broking community, appealed to the noble character of his very good friend Rodney Adler and hit him for another little loan. Today, the only evidence of what followed is a fading paper trail and a strange whiff of aviation fuel.
It looks quite simple in the public filings. On that date, FAI Leasing Finance made a loan to several Rivkin companies, including Simdock Pty Ltd, a $2 company that owned a $3.5 million corporate jet. FAI took a mortgage on the jet as part of the security for the larger group loan. The mortgage document describes this as ‘the Falcon F20 Jet Aircraft (Registration No. VH-RRC) together with fixtures and appurtenances and equipment connected there together with all engines, spare engines, appliances, parts, instruments, replacements or other equipment . . . and all income arising from the aircraft . . .’ You can see the document today because it still sits on the public record. The mortgage was never discharged and in theory is still in force.
That’s where it gets a little unusual. If you look up aircraft records, there is indeed an aircraft currently registered as VH-RRC. There is one problem. It’s not a $3.5 million Falcon jet. VH-RRC is a kit aircraft, called an RV-6A. It comes in a couple of biggish boxes with an instruction manual that shows you how to build it yourself, if you are nifty with a few spanners and a machine lathe. The RV-6A is a nice little plane, worth perhaps $75 000, but it’s a little on the small side—it’s doubtful if Rivkin could even have fitted inside one without the use of surgical lubricant. The RV-6A currently registered as VH-RRC is privately owned and has nothing to do with Simdock, or Rene, or FAI. So what happened to the Falcon jet?
Corporate jets are large objects, and generally they are quite difficult to misplace. The obvious explanation for the disappearing F20 is that someone slipped up with the paperwork. When the debt was paid out and Rivkin sold the Falcon, someone forgot to file the release form on the mortgage. So it just sat there. Yet that doesn’t explain the real puzzle, which is the way the paperwork was drawn up in the first place.
When you borrow $20 000 to buy a car, the finance company makes careful note of the make, the registration, the vehicle identification number, chassis number, modifications—anything that can identify the car—in the contract, along with the various nasty little clauses finance companies like to slip in, like selling your children into slavery if you miss the first payment. Aircraft financiers are no different. All aircraft have an identification plate with numbers that identify the frame and the engines. Spare parts and engines are valuable too so, in addition to quoting the identification plate data, standard loan documents for aircraft include an exhaustive list of parts. None of that happened with the Simdock loan. It looked an impressive document but, in reality, the moment the Falcon F20 flew out of Australia and was re-registered overseas, it had no connection with FAI or any missing money. It was a bit like borrowing money secured against something documented as ‘the red Mazda in my driveway’. The moment you drive down the road, it’s no longer the car in your driveway, so the security you’ve provided is worthless. Except in this case it’s as though your collateral switches over to the red bicycle you left behind. Whichever way you read it, this was not a conventional loan document. It had the hallmarks of one of those special deals where the real transaction takes place elsewhere. What was going on?
The air of mystery extended to the rest of the loan agreement. Rodney had agreed to replace Tricontinental Corporation as Rene’s personal banker. The Simdock mortgage was merely collateral to the main event, which was the loan FAI was making to Rivkin’s main private company, Timsa 69, which operated a family trust. In addition to the disappearing jet, the FAI loan was secured against Rivkin’s main asset—shares in his public company, Stroika. But they slipped up on the paperwork here as well. A decade later, long after FAI had been taken over by HIH Insurance, those Stroika shares were still on the public record as being under mortgage to FAI although, like the jet, they had long since been sold off. When questioned in 1995 about FAI’s loans to Rivkin, Rodney Adler said he was unable to comment other than to say that ‘any relationship we have with Mr Rivkin has always been at arm’s length, commercial and successful.’
One of the consequences of this new banking arrangement was that, in early 1991, Adler and Rivkin began buying shares in each other’s company. A year before, Jim Berry at ASX Surveillance had suspected Adler of artificially pumping up the FAI share price, at the same time that Rivkin was doing the same thing for Oilmet/Stroika. Berry now reported to ASX’s broking committee that Adler and Rivkin were manipulating each other’s share price. Between April and July 1991, Rivkin repeatedly bought tiny parcels of FAI stock in his own name just before the end of trading, which gave FAI a higher closing price. FAI operated similarly, buying Stroika shares.
The FAI funding that Rivkin had secured in February gave him breathing space and he was spending freely. He bought another eight million Stroika shares offshore for his EBC Zurich accounts, then bought 7.2 million more shares for EBC from Hobkin Nominees, a nominee company owned by horse breeder John Messara. Rivkin now secretly owned 60 per cent of Stroika.
It was such an expensive business being Rene Rivkin. Over time his debt to FAI would rise to close to $20 million, while Rodney Adler made personal loans to Rene on top of that. But what the documents Rivkin signed on 1 February showed was that if the Stroika share price ever turned around, the major beneficiary would not be Rivkin, it would be FAI. Rivkin would make a huge windfall on these shares, but much of the payout would go to paying off his debt to FAI. In the drama that followed, Rodney Adler would be the big winner.