Some mornings it is a wonderful thing to be an attorney at law. The fraternity of the Bar, the simple courtesies that characterise relations between learned counsel and the Bench, the lighthearted banter between opposing barristers, all reflect that simple and dignified camaraderie which distinguishes those who serve in the courts of justice. At such times one knows the law is a noble profession, its practitioners right up there with merchant bankers as tireless workers for the public good. Thursday 22 April 2004 was not one of those mornings. On the sixth floor of St James Hall, next to the Supreme Court on Phillip Street, the fraternity of the law was taking a bit of a battering.
The essence of the complaint Charles Augustine Sweeney and his family company, Sweeney and Vandeleur Pty Ltd, later laid against his colleagues and the management of the barristers’ chambers on the sixth floor was that they were interfering with the quiet enjoyment any occupant is entitled to have when they rent property. Sweeney, being of Senior Counsel, actually said quite a bit more than this, Justice Haylen noted in his subsequent judgment in the NSW Industrial Relations Commission. The cause of the hubbub was a visit that officers of the management company, which is to say his fellow barristers on the sixth floor, made to Sweeney’s office. They got in by ‘falsely informing the Clerk to the floor that the respondents had made an arrangement with Mr Sweeney QC to enter his chambers and by obtaining keys and access for that false pretence,’ Haylen quoted from the statement of claim that Sweeney had filed. The entry was, as Sweeney put it, ‘unlawful, high handed, outrageous, abusive, oppressive, dismissive, contemptuous and an invasion of privacy’, it was ‘calculated to humiliate’ and amounted to unlawful breaking and entering. Onlookers regarded it as a miracle of self-control that Sweeney had not found a way to include the adjective ‘contumelious’.
The appalling indignities did not end there. Sweeney’s statement of claim alleged: ‘Prior to their entry, the respondents [that is, the management of the floor] had clandestinely engaged a private inquiry agent or investigator to conduct an investigation of the applicants and to examine the telecommunications facilities connected for the benefit of the applicants’ chambers to the telecommunications board in the premises.’ Not just that, the management of the chambers was threatening to change the locks and not to let him in.
The issue that had ignited the staid chambers was a dispute about fees. Haylen found that Sweeney, who had been in the rooms since 1990, apparently wanted to offer some suggestions about how the operation of the floor might be changed, which the management had declined to discuss. It was ‘a perhaps rash response’ by Sweeney and his family company to refuse to pay floor fees until he was listened to, and ‘the unwarranted response’ by the management company had been to try to kick him out. And then naturally they called in the private inquiry agent. The significance of the telecommunications gear Justice Haylen didn’t try to fathom. As Haylen noted, the relationship between the two sides was ‘so poisonous and so lacking in mutual trust’ that it wasn’t clear how the situation could be resolved, though Sweeney’s statement of claim went on to suggest that payment of $780 000 in damages might help to rebuild some bridges. Unfortunately the Appeals Court didn’t see it that way and ruled against Sweeney’s case.
Sweeney’s fellow barristers hadn’t seen much of him during the fourteen years he had been in these chambers. He maintained rooms in Melbourne, was reported in 1999 by a New Zealand paper to be based in Auckland, and also practised in the Pacific Islands. In July 1999, the Australian Securities and Investments Commission (ASIC) had tried to catch up with him when they launched a civil case against him, accusing him of $3.25 million of insider trading and share manipulation; but Justice Austin in the NSW Supreme Court at that time found that Sweeney no longer lived in Australia. He had in fact flown out on 26 July 1999, the day before ASIC lodged its case, and had not been back since.
The office in St James Hall sat Sweeney-less during those two and a half years, still with the shingle up and instructions arriving regularly from Sweeney to his lawyers from an unknown address. ASIC had made extensive efforts to track Sweeney, tracing him once to Colorado and even writing to him care of a post office box in Vanuatu. At one point ASIC lawyer Peter Riordan managed to speak to Sweeney on his mobile phone, Riordan later told the court, only for Sweeney to tell him it was three o’clock in the morning in Copenhagen. While this was no doubt true, telephone records showed that Sweeney was in New Zealand at the time, Riordan testified. (Sweeney later produced airline tickets to show he was in Denmark, and his New Zealand mobile phone was on global roaming.) When ASIC sought court approval for substituted service by serving the court documents on Sweeney’s lawyers, the lawyers said they could not accept ASIC’s writ because they didn’t know where their client was either.
The ASIC case was full of interesting philosophical questions: where exactly does a Senior Counsel live? Are chambers without a barrister half empty or half full? The Sydney Morning Herald reported that Sweeney’s lawyers had taken to referring to their client as ‘The Phantom’. It’s surely a compliment. Not every man can look elusive in a pair of striped underpants, a mask and a special ring. In this scenario, the later unauthorised entry into his room at St James Hall by the management company would be akin to breaking into the office of the ‘Commander of the Jungle Patrol’, and riffling through the safe to work out how the ‘Ghost Who Talks’ left his orders. You can see why he would be upset.
In January 2002, ASIC threw in the towel and reached a settlement with Sweeney. They dropped their case in return for Sweeney agreeing not to manage a company for the foreseeable future. ‘ASIC was well aware that since I had not managed a corporation for many years and had no intention of doing so now, their offer was one which I could not refuse,’ Sweeney said in a statement. ‘The substance of the settlement is that ASIC’s case has been abandoned with no order for the costs of the action or of the investigation . . . The settlement reflects the fact that there was no evidence to support any of ASIC’s allegations. They should not have been made.’
Having emerged from the affair with his reputation unsullied and above reproach, Sweeney was free to write a new Commerce Act for the Cook Islands, where he also practises. The Cook Island News described the fruits of his labour as ‘the saviour of the Cook Islands economy . . . based on theories of fair trading and perfect competition, theories many believe to be found wanting in the capital, Rarotonga.’
Sweeney’s adventures with ASIC were a legacy of the network wars of the early 1990s, when Sydney and Melbourne networks were jostling over who would win the honorary title of ‘James Packer’s Best Mate’. The unhappy lesson of 1993 was to be that being a mate of the Packers’ was a risky business. As with any network, there would be winners and losers. When deals go wrong at the big end of town, the show still goes on. But someone is left behind in the water.
House Packer had begun 1993 badly. Unfortunately, even in a crisis, you can only push the Establishment so far. One false step and it will turn on you. On 14 January 1993, with Westpac apparently at his mercy, Kerry Packer made that misstep. In December, Packer and Al Dunlap, having forced the resignation of Westpac’s chief executive Frank Conroy, bagged the bank’s management all across town. At the January board meeting, even before they had been officially appointed as directors, Packer and Dunlap had been pushing their own suggestion for an American as Conroy’s replacement but, when he proved unavailable, they pressed for an immediate sweeping overhaul of the bank. The embattled Westpac board, under new chairman John Uhrig, was being pushed into a corner but, instead of capitulating, the directors voted to elect their own American candidate, Bob Joss, and opted for slower change. Packer stormed out of the meeting in a rage, which turned into a spirited exchange in the lift with Dunlap, who had no doubt whose fault it was. ‘I couldn’t believe the excessive display of stupidity,’ exclaimed Dunlap, who had any trace of tact surgically removed from his personality at birth. Their row escalated and a month later Dunlap was no longer on the Packer payroll.
After walking out in such dramatic fashion, it would have been difficult for Packer to return to the Westpac board—and in any case Packer didn’t believe the current board could turn the bank around. In May, Packer sold his Westpac stake to Lend Lease for $600 million. His six-month foray into banking had yielded a $100 million profit, but to sell at this time proved a dreadful decision—he had bought in for less than $3 a share and a decade later Westpac stock was selling at $19.75. While it wasn’t apparent at the time, Packer had walked away from a $2.5 billion profit. The huge returns and influence that would flow from this block of Westpac shares would go instead to the suits at Lend Lease. The institutions were edging back into the driver’s seat.
Elsewhere, Packer was focused on the looming threat from pay-television. His friends in Canberra had already blocked Steve Cosser’s maverick plans to build a pay-television operation. Cosser had been buying up licences for a local broadcast system called MDS to pre-empt government plans for a satellite pay-television service. Startled out of their complacency by Cosser’s move, Packer and Rupert Murdoch and Telstra announced they had joined forces as the Dream Team for pay-television. The soap opera this became would prove every bit as entertaining as it promised. The PMT combo would be unbeatable—except the service took so long to materialise that Packer lost interest and hooked up with Optus, which had its own plans for a cable pay-television service. The government’s auction of satellite licences became a farce, with the bidding dominated by $2 companies. At the end of the day the satellite licences ended up with . . . Steve Cosser in Monaco, in what became Australis Media. Telstra and News Limited looked positively lead-footed as they pressed on with plans for a cable service called Foxtel.
In Canberra, Keating had beaten John Hewson against the odds in the March 1993 federal election. Keating offered the post of US ambassador to Trevor Kennedy but he turned it down. Keating then offered the post to Graham Richardson but, instead, Richo opted to return quietly to Cabinet as health minister.
Meanwhile, James Packer had a new pair of best mates. The first was Theo Onisforou, a barrister turned property consultant who had rooms in St James Hall across the hall from Sweeney. Onisforou had been on the Consolidated Press payroll as an investment strategist until Dunlap torched him in 1992. By this time Onisforou was so tight with James, who was eleven years his junior, that the two went into business together in a company called Dorigad to do some modest property developments the following year, with Rodney Adler never far from the deals. Theo wasn’t a favourite with Kerry—one story, perhaps apocryphal, has James once smuggling Onisforou into the Packer compound in Bellevue Hill in a car boot. Eventually, Onisforou muscled his way back into the Cons Press circle, only in early 1998 to fall out badly with Packer senior, who flung him back into uttermost darkness. Or at least out of the Packer companies.
James Packer was determined to prove himself by making money on his own account; the endearing thing about his new friends was that they were equally determined to help him. When Packer and Onisforou began marketing their property developments, the Friends of James formed an instant queue. They loved Packer’s Medina executive apartments near Randwick Town Hall, which went on sale in November 1994. Rodney Adler was naturally there with his cheque book, buying twelve apartments for $2.8 million for a family company. Packer advisor David Gonski and his friend and fellow lawyer Jillian Segal outlaid $4.7 million on apartments. Kim Oxenham, County NatWest’s operative in Monaco, shelled out $1.84 million, as did Melbourne entrepreneur Andrew Kroger, working through his lawyer, Guy Jalland. James’s childhood friend (and Kerry Packer’s godson) David Gyngell paid $868 000. A rising Consolidated Press executive with his eye on the main chance, Michael Karagiannis, also plonked down $860 000 for four apartments.
Karagiannis was playing out of his division. He was on the fast track at Consolidated Press, where he handled accounting and administration for ‘various houses, a couple of aeroplanes, some helicopters, various farming interests and things of that order’, but his pay packet was only $130 000. To buy the apartments he had mortgaged his house and ‘my entire life’, he told the Administrative Appeals Tribunal (AAT) in 1998. That was the cost of upward mobility.
James Packer’s other best new buddy was Andrew Kroger, the 1980s whiz-kid of stockbroker Macintosh Hamson Hoare Govett who was living in semi-retirement in a spacious country mansion on the Mornington Peninsula near Melbourne. Andrew Kroger is a personable man, as amusing and engaging as his younger brother Michael, the Liberal Party bovver boy, is not. Like all the 1980s entrepreneurs, Andrew Kroger had ended the decade deep in debt but he had stayed out of the newspapers—at least he had until the New Zealand Opposition Leader, Winston Peters, tabled in the Kiwi parliament a vast jumble of documents that had been discovered in a winebox. The papers were internal memos from Euro Pacific Banking Group, an investment bank set up in the Cook Islands, apparently with the noble intention of ensuring nobody ever paid any tax ever again. Not that there was anything wrong with that. Euro Pacific were a particularly shy lot. Their standard borrowing contract contained a clause that the client would be charged a $150 000 fee by Euro Pacific if either the media or tax authorities ever heard about the loan and investigated. Andrew Kroger was one of the few Australians who appeared in the winebox documents.
In July 1988, Kroger had taken control of an investment company called Strand Holdings, with the help of Larry Adler at FAI. Within two weeks Strand was working with Euro Pacific in a deal to take over a New Zealand farming company called Agland Holdings. Strand needed the New Zealand government’s Overseas Investments Commission approval for the deal but the Euro Pacific documents showed that the bank had not waited on the formalities. On 16 August, a bank memo stated: ‘EP has warehoused Agland shares; between EP and [Strand] we already have control [51 per cent] of Agland. EP . . . will put the parcel to a Strand nominee when OIC consent is obtained.’
Despite the references to warehousing, New Zealand authorities never suggested there was anything improper with the deal. Kroger was involved in another exchange of communications eight months later, when Guy Jalland, a former lawyer who worked for Rene Rivkin before joining Euro Pacific, wrote to his brother-in-law, James MacKenzie, who ran Euro Pacific’s trustee business in Hong Kong. Today, Jalland is a senior executive at Consolidated Press while MacKenzie, who was a Strand director, went on to run Victoria’s Transport Accident Commission and later Norwich Life. On Monday 17 April 1989, Jalland wrote to his superiors that Kroger had approached him the previous Friday with an urgent need for a $3 million loan by Monday. ‘Documentation is being signed today, with money running overnight in Singapore,’ Jalland reported. ‘Publicity risk while present is acceptable.’ The deal was a $3 million back-to-back loan from a Singapore company controlled by MacKenzie to Euro Pacific, which then on-loaned the money to Kroger. There seemed little commercial logic in the deal. MacKenzie’s company was making an unsecured loan at less than market rates of interest, with no hope of seeing its money back if Kroger’s finances dipped. Kroger owed substantial debt on his Strand shares and Rodney Adler, who was running FAI after his father’s death, was charging him 29 per cent interest.
In 1995, I spent more than nine hours talking to MacKenzie, Jalland and Kroger, trying to convince them to explain the two Euro Pacific deals on the record. I told them they needed to be more proactive in handling publicity—like Rodney Adler, for example. They never did go on the record; the explanations they offered off-the-record seemed to me to be wholly unconvincing (though the fact they didn’t give me a credible explanation doesn’t mean there wasn’t one). But they did introduce me to the way the network handles its little problems.
It was my last attempt to get a comment from Kroger. He was in Sydney for the day and arranged to meet me in the FAI offices, where he said he would borrow a room. Instead I was shown into Rodney Adler’s office, where I discussed for hours with Kroger, Jalland and Adler how we could clarify this situation. Rodney’s role as mediator was to say at regular intervals in his inimitable manner, ‘I hear what you are saying, my very good friend Neil. But I think what my very good friend Andrew is trying to say is that . . .’ No one wanted to know about Euro Pacific. ‘That’s old news, Neil, old news. No one wants to hear about stuff in the past,’ Rodney would say, searching for some neutral ground. ‘But let me interest you in this other story. Now this is a current story.’
It was hard to keep a straight face. Simply to make small talk, as I left I mentioned to Rodney that ASIC had forwarded a brief to the Director of Public Prosecutions that alleged FAI Life had manipulated the share price of more than fifty public companies on the last day of one financial year in the mid-1990s. But he wasn’t to worry, because I didn’t think there was anything to the story (and no charges were ever laid over this investigation). It didn’t seem to lift the gloom that had descended upon the meeting. After another three-hour session we gave it away.
Meanwhile, the networks’ obsession with the Packers continued. Sticking Close to James was now recognised as a pursuit sport. Going into 1993 Onisforou held the yellow jersey through his property deals with James. But Andrew Kroger now emerged as a challenger, introducing James to what proved a mining play in the purest Australian sense, which is to say that at no point in the proceedings did it involve any actual mining.
In 1993, Bendigo Mining was a company that had the nice idea of reopening the old goldfield underneath the modern town of Bendigo. Kroger’s run began on 19 February when he paid $200 000 to take a placement of four million Bendigo shares. Almost immediately, Bendigo Mining’s share price began to rise. It had reached 15 cents by 7 April, when Kroger took a further twenty million shares at 5 cents, while James Packer’s company Dorigad took another fourteen million shares. The Bendigo share price kept moving up as other investors piled in. James Packer began selling immediately. By 30 June, he had sold out completely for a $4 million profit. Kerry Packer was impressed, and that’s where things came unstuck. Packer senior wanted a piece of Bendigo Mining too. He was so keen that he invited his friend Sir James Goldsmith along as well. At three minutes past noon on 1 October, Bendigo announced that Goldsmith and Packer were investing $7.5 million together in a placement of fifteen million shares at 50 cents. All the ingredients were there for a market killing. Several institutions were also taking shares, pushing the total placement to twenty million.
The news was leaked with the usual nods and winks to the financial press: here was another Packer masterstroke—just watch the price soar as everyone gets on board. Unfortunately that didn’t happen. What no one had foreseen was that the placement coincided with the Australian share market taking off on its biggest rise since the 1987 Crash. Stocks were moving up sharply everywhere and fund managers, who normally would have followed the Packer lead and bought into Bendigo Mining, were faced with a feast of other investment opportunities, including several mining companies that actually had mining operations. While other stocks roared up, Bendigo went sideways, slipped a little and eventually dived. Andrew Kroger quietly sold down. He walked away with an $8 million profit on a net outlay of $580 000. The Packers were not so fortunate. Even allowing for James’s earlier profit, the net position for House Packer was $600 000 down. Goldsmith lost nearly $4 million—but Packer senior lost face. And a far greater problem was emerging.
Kerry Packer is one of the world’s great gamblers. On one occasion he won twenty blackjack games in a row in a Las Vegas casino at $300 000 a game. He has regularly chalked up wins and losses of more than $20 million in a session. When bored and far from the great casinos of the world, he had taken to dropping into the Consolidated Press foreign exchange desk at Park Street. At times he treated the foreign exchange markets as his personal casino, good for a few hours of play. A decade before, Packer had said, ‘Betting is like a disease which is not understood by those who do not have it.’ Early in 1993, he made a big gamble. He and another billionaire friend both made bets of some $1 billion on a basket of currencies against the US dollar. Instead of rising, though, the greenback dropped. Kerry Packer held his nerve for months, but, according to one account, by October James Packer was growing concerned that his father was betting the family fortune and spoke to him directly about it. In the days after the Bendigo Mining failure, Kerry Packer blinked. On 15 October, Packer closed out his currency position, closed down his foreign exchange dealing room, and wrote off $450 million. Packer’s only comment when a journalist asked him about the loss months later was, ‘Fuck off!’
It had been a disastrous year. First Westpac, then Bendigo Mining, and now this. It didn’t help that the US dollar subsequently turned around and started firming. Packer’s friend, who made a similar-sized punt though with a slightly different mix of currencies, reportedly emerged close to even in the end. These were waves big enough to bother even a major-league tycoon; for the smaller players in the networks that revolved around House Packer, the effect was catastrophic.
In mid-September 1993, a fateful little meeting unfolded in the Woollahra Hotel on Queen Street, a leafy avenue in the heart of the eastern suburbs awash with money. Michael Karagiannis was there with his close friend, solicitor John Barbouttis. They were having a quiet drink with Gerard Farley, their stockbroker. Farley, who started out in real estate, had been running State Bank’s broking operation, First State Securities, since April 1992. It’s said that when Farley joined State Bank in 1992, his first move was to get a bank loan for $10 000, which he used to buy for himself BHP options at one cent each. BHP shares rose strongly and Farley made a lot of money. There was nothing suspicious about the trade. ‘There was no way he could have known the whole market was going to rise,’ a senior market observer commented.
Farley was just a lucky punter. He was also the son-in-law of former NSW Chief Justice Sir Laurence Street—whose father and grandfather had been Chief Justice before him. Farley lived in Wolseley Road, Point Piper; he played polo, was a convivial regular in the Packer crowd and got a lot of business from the network. He would later testify that James Packer and Onisforou were two of his biggest clients (a Consolidated Press spokesman denied this), and press reports linked him to Gretel Packer’s then husband, Nick Barham. Farley had also got to know Karagiannis, who was a co-director with Onisforou of Dorigad. Karagiannis was also Dorigad’s company secretary and he handled the paperwork on its share transactions.
By August 1993, Farley was buying Dominion Mining and American Boulder stock for Karagiannis. There was a good relationship between the two men, albeit with a little niggle. ‘He knew my financial predicament, he used to joke about my living in Blakehurst, in the southern suburbs,’ Karagiannis later said of Farley. ‘You might see me trade a fair bit, but that was because I was trying to emulate others that were making money.’ The two men referred to their favourite stock, Bendigo Mining, as the Bendy Dogs, or just ‘the Doggies’.
Farley’s saga with the Bendy Dogs unfolded five years later in a hearing before the Administrative Appeals Tribunal. Farley had appealed to the AAT after ASIC imposed a four-year order banning him from working as a stockbroker. The deputy president of the AAT, Bruce McMahon, subsequently confirmed the banning order. The details of the story which follows are drawn from McMahon’s judgment.
Farley claimed that at the Woollahra Hotel meeting in midSeptember, he was introduced to a new client, Theo Onisforou’s friend Charles Sweeney QC. Sweeney was a commercial barrister whose clients included the Trade Practices Commission, the Australian Broadcasting Authority and Westpac. In 1990, he had been lead counsel in a private fraud prosecution that Westpac brought against two of its former currency traders, the Halabi brothers.
The Halabis had obtained copies of some damning legal advice a law firm had sent to Westpac in the mid-1980s, which suggested the bank had ripped off clients with foreign currency loans. The Halabis tried to use the documents, which became known as theWestpac Letters, as a lever to force the bank to drop the fraud case against them. When that failed, the letters were released to the press. Westpac’s lawyers obtained court orders banning publication of the documents by a string of media. But the documents got out anyway. Sweeney’s legal advice had been sound, but the affair was a public relations disaster. He had been a little luckier on the homefront. His wife had bought a house in Wentworth Avenue, Point Piper, in April 1986 for $1.55 million. Less than three years later, Monaco resident Richard Weisener bought the house for $6.075 million and knocked it down for a tennis court.
Farley would later testify to the Administrative Appeals Tribunal that, when he was introduced to Sweeney, he understood that here was a person of wealth, influence and repute. Indeed, he believed he was ‘dealing with some of the most creditworthy people in Sydney’. They needed to be, because Farley’s employment contract at State Bank stated that if his clients didn’t pay, his own company had to make up the shortfall. ‘It’s an honour business and you have to believe people will behave honourably,’ he told the Tribunal. A casual conversation in the pub with the right people was all it took to secure someone’s bona fides. Karagiannis said he had no recollection of the Woollahra Hotel meeting.
On Thursday 30 September, Farley received instructions from Sweeney to buy Bendigo Mining. By midday Friday, when Bendigo announced it was issuing twenty million shares to Packer, Goldsmith and some institutions, Farley had bought more than one million Bendy Dogs for a Sweeney company. Sweeney was also using a second broker, Hambros Equities, to buy another four million Bendigo shares in the last days of September. Farley testified that he didn’t know Sweeney was using two brokers, ‘which is quite bizarre . . . which means you are competing against yourself . . . It’s clear to me that he’s gone out and bought some five million shares . . . on the day before a major announcement.’
When Farley made these comments at the Administrative Appeals Tribunal hearing in 1998, his evidence about Sweeney could not be tested because Sweeney was overseas (his barrister applied unsuccessfully for a court order banning any press mention of his name). ASIC questioned Sweeney about these trades in five separate Section 19 hearings (compulsory interrogations under oath, under Section 19 of the ASIC Act), asking if he had inside information about the Packer placement. He denied knowing anything about it.
In October 1993, however, Farley faced a far more pressing concern. According to McMahon’s judgment Sweeney hadn’t paid for his shares. Sweeney owed First State and Hambros $3.25 million and he was still buying. By 13 October, he had bought more than one million more Bendigo shares, taking the bill near $4 million. Sweeney paid $300 000 as a part payment to First State on 8 October, but that was all, McMahon found in his judgment.
Farley had already received a stern talking to from his boss the month before about the number of his unpaid accounts. Farley was a great believer in ‘quick turns’, buying shares and reselling them before settlement day five days later, when the client had to come up with the money (today the settlement period is three days). That was fine if the share price went up—very dangerous if it fell. Farley might be mixing with the top end of town, but State Bank had wanted the unpaid accounts fixed by 30 September. Instead, the Sweeney trading had blown out even further. How does one get members of the network—important and influential friends of friends—to pay up?
Helped by the strong buying by Sweeney and by others, the Bendigo share price had jumped 22 cents in the week before the announcement on 1 October. On that Friday it climbed another 11 cents to 76 cents, before dropping to 70 cents. In the following days it stalled, then fell back. There would be no quick turns on the Bendy Dogs. Farley’s clients, meanwhile, were saying they had not ordered the shares Farley had booked to them. But then they would say that, Farley’s lawyers later argued. ‘Parking [an American term for warehousing or holding shares in someone else’s name] was the only excuse they could come up with’ which would save them from having to pay for trading losses, Farley’s counsel, Paul Roberts, told the AAT hearing in 1998. Farley did admit to some unauthorised trading—for example, with the account of writer and former rugby international Peter FitzSimons—but otherwise he insisted the trading was authorised, and that clients were aware of the trades almost immediately because contract notes were issued automatically. Farley had also booked Bendigo shares for his sister, his bankrupt brother, and a one-time roommate in Melbourne who was also bankrupt, as well as various entities around the world.
The circle was closing. Farley’s protest to his boss, First State managing director Graham Hand, that most of the unpaid shares belonged to an unidentified ‘senior person’ failed to sway him. Hand ordered Farley to cease acting for certain clients. Hand testified at the AAT that much of First State’s business came from clients close to Consolidated Press, and Farley feared that tough action to extract debt from one client might alienate others close to him. Farley told Hand he was ‘unable to push the client or sell the shares given the status of the client in the business community’. But the debt situation was getting out of hand.
Sweeney went to see Hand in mid-November. He promised early repayment, then took a month to confirm that he would pay the debt in January. ‘It was clear from the terms of this letter that Mr Sweeney had no intention of paying until such time as it suited him,’ AAT Deputy President Bruce McMahon found in his judgment. Sweeney had, as McMahon put it, ‘an unorthodox attitude to credit’ and had spoken frankly to investigators about his manoeuvres to extend unauthorised credit, taking care not to buy assets in his own name. ‘It was clear from his evidence [to ASIC] that he was not particularly concerned as to the ostensible owner of shares, so long as Mr Sweeney was not to be responsible,’ McMahon said in his judgment.
Farley was stuck in the middle, his vulnerability exposed. He was a creature of the network. He later testified that his livelihood depended upon retaining access to the circles around the Packers. A knock-down brawl with Sweeney could threaten this. Instead of following Hand’s direction, Farley continued to trade for Sweeney, buying even more shares and flicking share parcels back and forth between a series of companies that McMahon found were controlled indirectly by Sweeney, though Sweeney denies this. In return, Sweeney did favours for Farley—he loaned Farley $40 000 for two days, and later $50 000. Perhaps Farley believed in late 1993 that his situation was now so dire it could not grow any worse. Which just goes to show how even the cleverest of market operators can get it wrong.