Below is the forty-sixth part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.
NPF Final Report
This is the 46th extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.
Executive Summary Schedule 4J Continued
(a) The BSP investment was performing well as a high dividend long-term investment with good capital growth potential;
(b) Mr Wright’s reassessment of the value of NPF’s BSP shares should have been supported by a professional review;
(c) Mr Wright gave unprofessional investment advice to sell-off the BSP investment based on extraneous matters; and
(d) The trustees were in breach of their fiduciary duty in uncritically accepting Mr Wright’s advice and resolving to sell NPF’s BSP investment without obtaining independent advice about the decision to sell or the price offered.
Investment In 1998
Finalisation of the sale to DFRBF was protracted and in the meanwhile, BSP’s results continued to be very favourable. Mr Kaul clearly favoured holding onto the BSP shares and to await the results of a valuation that was being carried out by Coopers & Lybrand.
By the time Minister Lasaro finally approved DFRBF’s request to buy the BSP shares from NPF on September 1, 1998, the DFRBF had decided the price was too high and withdrew from the proposed sale.
While Mr Wright sought legal advice regarding a possible breach of contract by DFRBF, the NPF board adopted a positive view of the situation and decided instead to participate in a K15 million rights issue by BSP, which, together with a relaxation of the BPNG’s prudential guidelines, would free BSP to offer larger loans.
Misleading Conduct By Mr Wright
Not only did Mr Wright change his mind about the need to sell-off the BSP shares, he went ahead and acquired 333,333 shares in the new issue before seeking the NPF board’s approval.
At the November 6, 1998, NPF board meeting, Mr Wright sought the board’s approval for this purchase, deliberately not informing the board that the transaction had already been completed. This deliberately misleading conduct was improper.
Mr Wright also wrongly advised the trustees that the transaction would not require Ministerial approval as it was valued at K999,999, which was just below the K1 million level already approved by the Minister in June 1995 for transactions which would not require Ministerial approval.
This advice was wrong because the dispensation from seeking Ministerial approval for transactions valued under K1 million, applied only to transactions involving shares listed on authorised stock exchanges. The BSP shares were unlisted so the Minister’s approval was required for transactions above K500,000.
(a) The management and the trustees, failed in their fiduciary duties where independent advice was not obtained and no critical appraisal of the proposal to purchase further BSP shares, was performed (Exhibit B96);
(b) Mr Wright and Mr Kaul failed in their fiduciary duty by misrepresenting to the board that they were requesting board approval to purchase 333,333 shares on November 6, 1998, when in fact they were requesting ratification of the 333,333 shares already purchased without board authority on October 29, 1998;
(c) Mr Wright and Mr Kaul failed in their fiduciary duty as they had acted beyond their authorised financial delegation limit by committing the funds prior to obtaining the board’s approval;
(d) Mr Wright failed in his fiduciary duty to the board when he misrepresented to the board that the K1 million limit approved by the Minister, covered NPF’s investment in BSP. However, the dispensation only applied to the purchase and sale of shares listed on approved stock exchanges and the BSP shares were not listed on any stock exchange;
(e) The trustees failed in their fiduciary duty to the members when they failed to obtain Ministerial approval for the transaction thereby contravening Section 61 of the PF(M) Act.
Investment In 1999
Resignation Of Mr Wright And Engagement Of PwC
Mr Wright was forced to resign in January 1999 and the then recently appointed managing director Henry Fabila, appointed PriceWaterhouse Coopers (PwC) to review NPF’s investments. On March 8, 1999, Mr Marshall of PwC reported to the NPF board that NPF was facing huge unrealised losses and a severe cash flow crisis.
Proposed Sale Of BSP Shares
It was decided to try and sell the BSP shares and notes which were professionally valued by PwC at K5 to K5.90 and K4.25 to K5.20 respectively, which put the total value of NPF’s holdings in BSP at K8 million. NPF then offered 1,192,661 BSP shares to Finance Pacific for K6.5 million. The NPF board also resolved to offer to sell its Government Roadstock, worth K62 million, to Finance Pacific.
Mr Peter O’Neill’s Involvement
Finance Pacific, of which Peter O’Neill was then executive chairman, then made a package offer to buy the whole of NPF’s Government Roadstock as well as all of its BSP shares for K59.5 million, provided that NPF could obtain an extension of the Government’s expired guarantee of the Roadstock.
It was proposed that the sale would be to the Motor Vehicle Insurance Trust, which was part of the Finance Pacific Group.
The sale price of K59.5 million was exactly equal to the outstanding amount NPF owed to the PNGBC, which was also part of the Finance Pacific Group and so this proposed sale would clear that debt.
Mr Mitchell has given evidence that he was informed by Mr O’Neill and the new NPF chairman Jimmy Maladina, that the purchase of the Government Roadstock was dependent on the sale of NPF’s BSP shares (which would increase Finance Pacific’s holding in BSP to 30 per cent of its issued capital).
In view of the commission’s finding that Mr O’Neill was implicated with Mr Maladina in the NPF Tower fraud and received part of the illegal proceeds, the commission regards this proposed transaction between NPF and Finance Pacific with suspicion.
The sale, however, did not proceed because NPF had not succeeded in obtaining an extension of the Government’s guarantee of the Roadstock before Mr O’Neill was removed from the position of executive chairman of Finance Pacific.
Dividend Income BSP dividend payment history
According to BSP’s historical financial performance schedule, included in its 1999 Annual Report, the bank’s operating profit after tax had grown from K2.984 million in 1993 to K19.570 million in 1999, with 1999 being a record high (Exhibit B141).
As per the 1999 annual report, the total dividend paid between 1995 and 1999 was as follows:
BSP dividends received by NPF
BSP have confirmed that NPF was paid a total dividend of K2,358,082 for the years 1995 to 1999.
Directors fees and allowances paid to NPF’s representative directors on the BSP board, Mr Kaul and Mr Fabila successively, were correctly paid into NPF’s accounts.
The fact that the BSP investment has been profitable for NPF is due entirely to BSP’s successful management qualities and is not due to NPF’s investment policies or skills. It is probably fortunate that NPF never acquired sufficient equity in BSP to enable it to significantly influence BSP’s management policies.
The investment survived two misguided attempts by NPF to sell it.
Looking below the profitable surface of this dividend producing investment, we see Mr Wright acquiring notes without board authority and giving false and misleading information to the board when retrospectively seeking board approval for what he had already done. Once again, we find that the Board of Trustees failed to maintain control over management.
Executive Summary Schedule 4K Westpac Bank (PNG) Ltd, SP Holdings Ltd and Toyota Tsusho (PNG) Ltd
The NPF investment in these three PNG companies has been relatively small but profitable in terms of capital gain and dividends.
After their initial investments, there were no further transactions during the period 1995 to December 31, 1999, and the investments have not been the subject of report or discussion at any board meeting.
The initial investments in these companies was as follows:
The unrealised gains made by NPF in these investments at December 31, 1999, are in the ranges as follows:
- Westpac bank – between K669,600 and K1,103,600;
- SP Holdings – between K748,000 and K1,468,000; and
- Toyota Tsusho — between K34,931 and K120,074.
In addition to the significant capital gains made on these investments for the years 1995 to 1999, NPF earned the following in dividend income:
- Westpac bank – K1,135,375;
- SP Holdings – K600,000; and
- Toyota Tsusho – K140,266.
NPF’s investment in these companies is clearly consistent with more traditional investment philosophies of provident funds in most countries.
The full details of these investments are set out in the report.
Executive Summary Schedule 4l Crocodile Catering (PNG) Ltd And Maluk Bay Investment
In late 1996, the NPF was approached by representatives of the Crocodile Group of companies, which specialised in remote site catering in Australia and PNG.
The Australian company, Crocodile Pty Ltd (Crocodile Australia) was in financial difficulties and the principals wished to sell off its interests in Crocodile Catering (PNG) Ltd (Crocodile) in order to pay off the debts of Crocodile Australia and to enable them to obtain repayment of personal loans given by them to Crocodile Australia.
In January 1997, prior to obtaining the required Ministerial approval under the Public Finances (Management) Act 1995 (PF(M) Act), NPF acquired the share capital of Crocodile for K300,000.
In the period from January 1, 1997, to December 31, 1999, NPF then invested (in net terms) a further K7.4 million in the form of both equity and loan capital.
Crocodile performed very poorly because of:
- an apparent lack of management skills, particularly with regard to financial management skills, with the few profitable catering contracts managed by Crocodile “dragged” down by loss making contracts and a high administrative overhead structure (examples included at Transcript pp. 7166, 7208-9, 7290-7294, 7335-7338);
- a lack of attention to financial results and a failure to initiate appropriate corrective action in a timely fashion (examples included at Transcript pp. 7199-7200, 7202, 7208, 7220, 7242, 7280, 7288);
- an ineffective board of directors and poor corporate governance (examples included at Transcript pp. 7188-7189, 7192, 7307-8);
- managing director Garry Jewiss living in Indonesia to the detriment of effectively managing the PNG operations (see report on Maluk Bay);
- unfavourable economic conditions; and
- a continued investment in Crocodile without properly appraising this investment Transcript pp. 7177- 7178, 7261, 7091.
Crocodile recorded accounting losses every year from 1996 to 1999 and by December 31, 1999, there was a net unrealised loss of K7.4 million. Source: NPF accounting records/Crocodile accounting records (Exhibit CC700A). See table 3:
Summary of Crocodile financial performance as reported by financial statements in the period 1997 – 1999
Source : NPF accounting records/ Crocodile accounting records (Exhibits CC808B & 959).
Acquisition Of Crocodile
The due diligence performed by Mr Wright was inadequate in that there was no:-
- search into the background of the company and its directors;
- legal due diligence conducted; and
- financial appraisal of Crocodile’s catering and associated contracts.
Consequently, the information presented to the NPF board at the 104th NPF board meeting on December 9, 1996, was inadequate as a basis for an investment decision because:-
- It failed to mention Crocodile’s obligations to finance, construct and operate a warehouse at Paiam;
- Placer had provided free freight from Lae to Porgera and this artificially increased apparent net profits;
- NPF had no understanding of Crocodile’s business strategy;
- NPF did not assess Crocodile’s management team;
- NPF did not assess Crocodile’s business risks;
- NPF did not conduct a rigorous audit (including the commerciality of the contracts);
- NPF did not assess its ability to own and manage a remote site catering business or the appropriateness of doing so; and
- NPF did not consider the future funding requirements of the business and whether it would call upon NPF for funding.
NPF management, particularly Mr Wright and Mr Kaul, failed their duty to properly brief the board and the trustees failed their fiduciary duty to the members, by acquiring this business without insisting upon proper due diligence and analysis beforehand.
As sole shareholder, NPF appointed the following people as directors on the board of Crocodile: David Copland (chairman); Robert Kaul; Noel Wright; Tau Nana; Henry Leonard with Kenneth Frank as corporate secretary.
The practice was to hold Crocodile meetings at NPF headquarters the day before the scheduled NPF meeting.
From the start, it became apparent that it was a mistake to have appointed Mr Jewiss as manager, as he had few managerial and organisational skills and was extremely poor at consulting with and reporting to the Crocodile board.
To try and strengthen financial control, Crocodile’s former financial controller, Ray Barredo, was retained. This did not work and NPF was frequently called upon to make direct injections of financial support.
During 1997, Crocodile struggled to finance and organise the required warehouse at Paiam. It was eventually funded by a PNGBC loan guaranteed by NPF. The cost was about K4 million.
(a) NPF breached the PF(M) Act by entering the contract to acquire Crocodile before Ministerial approval had been given;
(b) NPF management, particularly Mr Wright, failed its duty to the NPF board by not performing due diligence on Crocodile prior to buying the company and by failing to critically appraise the business prospects and risks of becoming sole owner and manager of a remote site catering business;
TO BE CONTINUED
Below is the forty-fifth part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.
NPF Final Report
This is the 45th extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.
Executive Summary Schedule 4G Continued
Additional sales August-December 1997
Between August and December 1997, NPF management sold additional Orogen shares as follows:
The board was not explicitly informed of any of these transactions, though reference to them was made in the equity investment schedules.
(a) The additional sales of Orogen shares, between August and December 1997, were made without board approval; and
(b) There was a breach of Section 61 of the PF(M) Act in respect of the shares sold on September 26 and 30, 1997.
Investment In Orogen – 1998
During the economic downturn of 1998, NPF management acquired a further 425,000 Orogen shares for $A1,011,935, without NPF board approval:-
Sources: NPF accounting records/ Wilson HTM statements/Merrill Lynch Statement (Exhibits OR11 to OR13)
It seems that despite the general economic downturn and the falling value of Orogen shares neither the NPF management or the board reviewed this investment.
(a) The Board of Trustees did not adequately consider the implications of Orogen’s falling share price, in terms of NPF’s investment portfolio;
(b) It failed to address the following:
- The impact of this investment on NPF’s strategy i.e., whether the fund should hold the investment long- term, consider reducing its exposure or sell its holding;
- The impact on NPF’s ability to comply with the ANZ Bank loan covenants as the Orogen share scrip was held as security for NPF’s foreign currency loan with ANZ Bank;
- The NPF board members should have, but did not, seek independent investment advice regarding this investment, especially towards the end of 1998, when the share price fell and huge unrealised losses were incurred;
- NPF’s investment division headed by Mr Wright gave limited advice to the board;
- Transactions undertaken by the management were made without the approval of the board, and the board was not explicitly notified, in this regard; and
- These failings of the NPF Board of Trustees and management, constituted a breach of their duties as Trustees and officers of NPF.
Investment In Orogen 1999
On February/March 1999, Pricewaterhouse Coopers (PwC) advised NPF on how to cope with its desperate financial situation. Following this advice, by circular resolutions, NPF resolved to sell off most of its equity portfolio including 50 per cent of the investment in Orogen.
In summary, the Orogen sales were as follows:-
Sources: NPF accounting records / Wilson HTM statements (Exhibits OR11 to OR13)
Wilson HTM was appointed as sole agent for the sell-down, without NPF board approval.
Orogen consistently paid dividends to NPF totalling K2,506,627 between 1996 and 1999. The annual dividends were as follows:
The study of the investments showed that it was reasonably profitable because it was a passive investment in a large, professionally-run company which had spread its risks by
investing in a wide range of PNG resource companies, many of which had well established, commercially-producing resources and / or excellent prospects. NPF had no say in the management of Orogen, except to vote as a small investor.
Examination of the performance of NPF management and trustees in the initial acquisition, subsequent purchases and eventual sell-down shows: breaches of fiduciary duty; failure of management to give the board proper advice and to keep it fully informed; and failure of the trustees to seek advice and to exercise their authority in the interests of the members of the fund.
Executive Summary Schedule 4J BSP Investment
This was a passive, risk averse investment in a consistently profitable bank. NPF never held more than 10.48 per cent of the company and it has been a safe and profitable investment for NPF.
The initial investment was made well before January 1990 and in January 1995, NPF held 812,500 shares.
During the period under review, NPF purchased 504,078 convertible notes, which were later converted to shares. At the end of the period under review, NPF held approximately K7.2 million BSP shares, making an unrealised profit during the period of K4.8 million. In addition, the regular annual dividends during the period under review, totalled K2.36 million and directors fees amounting to K500 per sitting were paid, or are payable to NPF (See paragraph 9.1 of the Report).
The investment was marred by management’s failure to keep the NPF board fully informed of its activities, some of which were beyond management’s delegated authority and by the board’s failure to maintain control over management.
Management failed to provide expert advice to the board and the board failed to seek it. These matters are reported on in detail in the text of Schedule 4J and in the Schedule of findings at paragraph 12.
Despite its safe profitability, there were two attempts to sell-off this investment. The first was a proposed sale to the Defence Force Retirement Benefit Fund (DFRBF) by Mr Wright in December 1997.
This occurred in a fit of pique after he felt he had suffered personal affront when BSP refused to invest in the NPF Tower. This attempted sale came to nought when the DFRBF discontinued the purchase.
The second attempted sale occurred in March/ April 1999, when there were negotiations to sell NPF’s BSP shares to Finance Pacific, parcelled together with the sale of Government Roadstock. This sale did not proceed as described below.
NPF appointed directors to the BSP board and their fees were paid to NPF.
NPF still holds its BSP investment, which continues to be profitable in terms of dividends and unrealised gains.
Investments In 1995
In 1995, BSP increased its capital base by issuing convertible notes. NPF purchased 504,078 notes in two parcels for a cost of K504,078. The management papers prepared for the NPF board gave a reasonable brief to the trustees, except that for several months, Mr Kaul was referring to the convertible notes as “shares”.
In December 1995, a further 96,598 notes were purchased for K96,598 without obtaining the requisite board approval beforehand. No expert advice was provided on the 1995 investment.
(a) Mr Kaul and Mr Wright exceeded their delegated powers by purchasing 96,598 BSP convertible notes on December 18, 1995;
(b) The trustees failed in their fiduciary duty to the members by not reprimanding Mr Kaul and Mr Wright for the purchase of 96,598 convertibles notes without the board’s approval;
(c) Mr Kaul’s frequent reference to convertible notes as “shares” in management briefs, was confusing and misleading;
(d) NPF management (Mr Kaul and Mr Wright) failed in their duties to provide timely and accurate information to the board about the fund’s investment in convertible notes;
(e) Mr Kaul failed in his fiduciary duty when he did not inform the trustees of Mr Haiveta’s instructions to POSFB, MVIT and NPF not to withdraw their deposits from BSP as the bank’s liquidity problems were so acute;
(f) The NPF management and the trustees failed in their fiduciary duties to the members due to the fact that the initial and subsequent purchases of convertible notes were made without specific professional and independent advice;
(g) Minister Haiveta’s direction of January 18, 1995, for NPF not to withdraw deposits from BSP was an improper interference with NPF’s statutory authority. It demonstrates the conflict of interest inherent in having Ministerial responsibility for the State’s financial affairs, the banking system and NPF. The Minister’s responsibility for State affairs is in potential conflict with his responsibility for NPF and its members.
Investments In 1996
The NPF board, by circular resolution, approved the purchase of an additional 300,000 shares from the Defence Force Savings and Loan Society for K480,000.
There was no valid reason why this occurred by way of circular resolution.
In a paper seeking ratification of the resolution by the board, Mr Kaul misrepresented the number of notes already held by the NPF. He gave the figure as 230,921 instead of 504,078. No independent expert advice was obtained in this regard.
(a) The purchase of 300,000 additional shares, together with 504,078 convertible notes, took NPF’s total holding in BSP to 13.25 per cent. It was imprudent not to have obtained independent investment advice and not to have performed a critical investment analysis. Accordingly, this represents a failure on NPF management and board in their fiduciary duty to the members;
(b) The trustees failed in their fiduciary duty where they did not ratify the circular resolution approving the purchase of 300,000 shares at the next scheduled board meeting;
(c) The NPF management and board failed in their fiduciary duties to the members because a professional independent valuation of the share purchases was not performed to ascertain whether the purchase price was fair. This was imprudent; and
(d) Mr Kaul’s report, included in the board paper for the June 28, 1996, meeting, stated that NPF owned 230,921 convertible notes. This was inaccurate and misleading, as NPF owned 504,078 convertible notes as at December 31, 1995.
During 1996, management failed to report the purchase of K96,598 worth of convertible notes and the board failed to inquire about this purchase. In August, however, the board did direct management to report on BSP’s prospects.
This is one of the rare instances during the period under review where the NPF board made a firm corrective resolution directing management to perform its proper role.
(a) Management failed to notify the board of the purchase of K96,598 worth of convertible notes in December 1995 and the trustees failed to inquire into this purchase throughout 1996;
(b) Trustees showed strength and initiative in requiring a management paper on BSP in August 1996.
Investments In 1997
NPF did not buy or sell BSP shares or notes during 1997. It monitored this investment by way of Mr Kaul’s attendance at BSP Board of Directors meetings, rather than by way of reports at NPF board meetings.
There was concern that BSP’s capital base was insufficient to enable it to grant the large loans required by NPF. BPNG failed to approve a BSP loan of K30 million to NPF for this reason.
Revaluation of BSP share value
In October 1997, Mr Wright revalued NPF’s BSP shareholding, raising the value to K3 per share. This gave an unrealised gain of K2,565,650 to NPF. He did not obtain any expert advice on the revaluation.
Proposal by Mr Wright to sell NPF’s BSP investment
In December 1997, Mr Wright recommended the sale of NPF’s BSP holdings to the DFRBF. His paper to the NPF board clearly shows that a large part of his motivation for recommending this sale was that the BSP management had decided not to participate in the construction of the NPF Tower, which had been discussed.
Mr Wright’s emotional state and sense of betrayal is disclosed by the language he used, including the following:
“Given the above, I almost find it a personal affront that the BSP board have not given support to the Tower when the NPF board has never failed them.”
In order to state a case that BSP owed it to NPF to support the Tower project, Mr Wright disclosed that NPF had previously placed 70 per cent of its IBD’s with BSP, a “small bank” and that NPF had borrowed from BSP at a higher rate than could have been obtained at a larger bank.
However, if these claims are true, they indicate that NPF management made inappropriate investment decisions, which were against the best interests of NPF’s members.
Despite the fact that Mr Wright’s personal, emotional bias was clearly displayed, the NPF board resolved to approve his recommendation to sell-off its very satisfactory BSP investments, as recorded in the minutes of the NPF board meeting of December 11, 1997:
Bank South Pacific Limited (BSP)
The deputy managing director tabled an offer from Kina Securities Limited to pay K3.75 for NPF’s share holding in Bank South Pacific on behalf of the Defence Force Retirement Benefit Fund. The offer was made subject to final approval from the Defence Force Retirement Benefit Fund board.
It was noted that in relation to NPF’s dealings with BSP over the past several months:
(i) BSP refused to take an equity position in the NPF Tower; and
(ii) BSP refused to take up floor space in the NPF Tower; and
(iii) There was much reliance on the expertise of Noel Smith, the current managing director of the bank who obtained his support from the National Bank of Australia.
(iv) The bank’s low capital base prohibited it from lending to major clients so it could never be in the big league.
In view of these matters it was resolved to approve the share sale to Kina Securities Limited”. (Exhibits B79-B81)
TO BE CONTINUED
Below is the forty-fourth part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.
NPF Final Report
This is the 44th extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.
Executive Summary Schedule 4G Continued
This was corrected by regazettal on April 15, 1996, but meanwhile all previous transactions in OSL or NML shares exceeding K500,000 between January 26 and April 15, 1996 were invalid, as they still required specific approval from the Minister.
In paragraph 4.4.6, the commission indicated that several of the sales of OSL shares in 1996 were without NPF board approval.
Furthermore, BPNG approval for the sales had been on the condition that the proceeds of the sale must be brought back into the country. This did not happen as Mr Wright authorised the brokers, Wilson HTM, to use the funds to purchase other ASX listed shares.
(a) THE sale on February 14 and 15, 1996 of 1,000,000 shares for $A1,316,288 and the three sales after May 27, 1996, totalling 1,000,000 shares were not authorised by the NPF board;
(b) MR Kaul and Mr Wright were responsible for these unauthorised sales in breach of their duty to the NPF contributors;
(c) THE NPF board contravened Section 61 of the PF(M) Act for any shares sold without Ministerial approval prior to April 15, 1996, where the value of the sale transaction was more than K500,000;
(d) THE NPF board contravened Section 61 of the PF(M) Act for any shares sold without Ministerial approval on and after April 15, 1996, where the value of the transaction was over K1,000,000;
(e) MR Kaul failed in his fiduciary duty to the members regarding sales not authorised by the board;
(f) MR Wright failed in his duty to NPF for his part in these unauthorised sales;
(g) NPF had clearly sold the two million shares before it obtained Internal Revenue Commission of Papua New Guinea (IRC) Tax clearance and the BPNG approval. This contravened the requirements of the BPNG and the IRC; and
(h) BASED on NPF’s Wilson HTM statement (Commission Document 748), the proceeds from the sale were used to purchase other ASX listed shares. The proceeds were not brought back into Papua New Guinea as directed by the BPNG.
Transactions In OSL Shares 1997-1999
In 1997, NPF held no OSL shares and there were no transactions.
On December 16, 1998, NPF management purchased 222,000 OSL shares through Wilson HTM and then sold them on January 17, 1999, for a loss. The NPF board was never informed about these two transactions. The transactions may have been required by Mr Wright to obtain share scrip as security for his unauthorised transactions in options, which were occurring at that time.
(a) THE NPF board did not approve the purchases and sales of 222,000 OSL shares in December 1998/January 1999;
(b) THE officers responsible breached their duty and may be personally liable for the loss, unless it can be shown that their actions were “in good faith”.
OSL paid dividends between 1992 and December 1999 of $A59.046 million. NPF received dividends of K49,500 in 1995 and K20,000 in 1996.
The main features of the NPF’s investment in OSL was the fact that it held a relatively safe and profitable dividend-providing investment in a large and proven PNG resource company.
Mr Copland, Mr Kaul and Mr Wright seemed driven to become in-volved in more risky smaller ventures in which NPF could have some control and in which there was a chance of a windfall from corporate takeovers and the like.
To fund such an investment with more “upside”, management decided to sell off the OSL investment. Making a grave error in judgment and without expert investment advice, management sought approval from the Board of Trustees, by circular resolution, to sell off the OSL shares and invest the proceeds of the sale by acquiring shares in NML.
In gross breach of fiduciary duty the trustees approved.
Thereafter, management set the pace for a total sell-down of OSL, often proceeding without board approval and sometimes without the board’s knowledge.
NPF management, particularly Mr Wright and Mr Kaul, and the NPF trustees, were in breach of their duties to the board and to the members of NPF in their handling of this investment.
Executive Summary Schedule 4H Orogen Minerals Limited
NPF’s investment in Orogen proved to be moderately profitable as shares purchased at $A29,487,447 (K32,241,239) were sold at $A30,809,481 (K42,229,956), resulting in a realised capital gain of $A1.32 million (K9.9 million). In kina terms, this represents an annualised return on capital of 10 per cent per annum for the period NPF held this investment. In addition, NPF received dividends of K2,506,627. Between April and June 1999, the investment had to be sold off to relieve NPF’s debt burden.
From start to finish, however, this investment was marred by NPF management’s cavalier approach to its obligation to properly brief the Board of Trustees about transactions being undertaken on behalf of NPF. Management also failed to obtain expert independent advice regarding its large initial investment in Orogen and subsequent “on market” purchases.
It also failed to seek such advice and provide it to the board when Orogen share prices fell steadily from 1997 onwards.
These breaches in management’s common law duties to the NPF board are dealt with in detail in the text of the report and in the list of findings in paragraph 8.
To some extent, the trustees were therefore “kept in the dark” about unauthorised transactions and management did not properly advised them about the risks and prospects of this investment.
Nevertheless, the trustees also failed in their fiduciary duty to maintain control of management and to challenge management over its failure to provide proper advice to the board.
The trustees also failed to criticise and reprimand management about those unauthorised transactions, which were subsequently disclosed to the board.
The trustees breaches of fiduciary duty to the NPF members are detailed within the text and in the list of findings at the rear of the report.
Investment In Orogen 1996
The most serious breaches of duty occurred at the commencement of this investment.
There were known risks associated with investing in Orogen as Orogen intended to invest in PNG resource stock, which is inevitably risky.
Despite these known risks the trustees approved an investment of K34,999,640 for 20 million shares in the initial share issue with very little discussion taking place and no expert investment analysis regarding the proposal. Management (Mr Kaul and Mr Wright) and the trustees all failed in their duty, in this regard.
The Department of Finance (DoF) analysis of this investment was very inadequate and it gave an unsubstantiated recommendation for the Minister to approve the investment. Although the full number of 20 million shares was cut back, management acted without board authority to purchase additional shares “on market” (through the stock exchange) at a higher price than the board had approved.
(a) MANAGEMENT (specifically Mr Wright and Mr Kaul), were in breach of their duty to the board by not providing independent expert investment advice before recommending an initial investment of K34,999,640 in Orogen, which involved significant investment risks;
(b) THE trustees failed their fiduciary duty to the NPF members by approving the investment of K34,999,640, without first seeking independent expert investment advice;
(c) THE NPF management did not obtain board approval before making additional transactions through book building or the additional “on market” transactions at higher prices than the board had approved;
(d) MINISTERIAL approval was obtained after NPF had contracted liability, which it had done so without board authority. The Minister failed to query or reprimand NPF about this breach of Section 61 of the PF(M) Act;
(e) WHERE NPF management acted in excess of their delegated authority and without the Board of Trustees approval, they were in breach of their duty to the NPF. If losses occurred, the officers concerned may be personally liable, unless they can successfully claim that they “acted in good faith”;
(f) THERE is no clear documentary evidence to conclusively show who initiated these transactions, however Yamyam Gire and Haro Mekere have given evidence (Transcript pp. 2558 – 2576 and 4104-4106 respectively) that during the period in question, Mr Wright usually gave instructions to the brokers. Mr Kaul has said that in most cases he was aware of Mr Wright’s transactions and would have approved, at least implicitly (Transcript p. 5090).
Other confidential evidence available to the commission confirms that it was usually Mr Wright who gave instructions to Wilson HTM;
(g) MR Kaul’s letter of the November 15, 1996, (Exhibit OR44), expressly showed that NPF requested Ministerial approval after liability had been contracted. Mr Haiveta’s response (Exhibit OR45) does not say anything in relation to this obvious breach by NPF. Mr Haiveta was remiss in not criticising NPF and demanding that Ministerial approval be obtained before NPF made acquisitions that required such approval.
Investment In Orogen 1997 Sales 1997
On May 5, the NPF board meeting resolved to “approve in principle as a matter of policy that where required a certain parcel should be realised where the need to use some cash arises in investment initiatives . . .”.
The minutes show that Mr Copland advocated this policy so that NPF could “realise some of the shares into cash and invest in areas where the board will have influence as a matter of policy” (presumably by obtaining a seat on an “policy” investee company’s board).
This resolution was wrongly taken by management as authorising it to sell Orogen shares without reference to the board to approve the sale.
The following sales occurred in 1997: See table 1 below.
Source : NPF accounting records/ Wilson HTM & Merrill Lynch statements (Exhibits OR11 OR13 ).
These sales did not have NPF board approval and were improper breaches of management’s duty to the board.
(a) MANAGEMENT (especially Mr Kaul and Mr Wright) directed Wilson HTM to sell 10 parcels of shares in June 1997, without the prior approval of the NPF board;
(b) MANAGEMENT, specifically Mr Kaul and Mr Wright, did not subsequently explicitly inform the board about these unauthorised “on market” share sales and the board’s ratification was not obtained. After September 1997 when the Orogen share price began to fall sharply from $A3.9 to bottom at $A1.6 in March 1999, NPF management failed to provide expert evaluation of this investment and the trustees failed to seek it. This was a breach of duty by both management and the Trustees.
Purchases in 1997
Throughout 1997, NPF management continued to acquire Orogen shares and did so without seeking the requisite NPF Board approval.
The purchases were as follows:- See table 2 below.
Sources: NPF accounting records/ Wilson HTM statements/ Merrill Lynch Statement — (Exhibits OR11-OR13).
There were references to some of these purchases in the equity portfolio schedules filed with the board papers but the references were out of date and inaccurate. They were sufficient, however, to have put the trustees on notice that unauthorised purchases were occurring. Failure by the trustees to observe these transactions and to reprimand management was a breach of fiduciary duty by all trustees holding office at the time. Clearly, the conduct of management, namely Mr Wright and Mr Kaul, was improper and they were in breach of their duties to the NPF Board.
(a) NPF management directed 12 “on-market” purchases totalling 1,087,973 shares for a total cost of $A3,917,879, without the requisite prior board approval;
(b) The purchases were later reported on the monthly equity schedules tabled at subsequent board meetings but the information was sometimes inaccurate and well out of time. The attention of the Trustees was not drawn explicitly to the equity schedules;
(c) MANAGEMENT, particularly Mr Wright and Mr Kaul, were in breach, respectively, of their duty and fiduciary duty to NPF members by this failure;
(d) THE trustees were in breach of their fiduciary duty in not monitoring management’s unauthorised activities and bringing them under control;
(e) THERE was a breach of Section 61 of the PF(M) Act with regard to the shares purchased on the October 2, 1997, as Ministerial approval was not sought or given.
TO BE CONTINUED
Justice Poole has slammed the Solicitor General’s office for its repeated failure to defend claims for damages brought against the State – claims which all drain the public purse of monies that could be spent on vital services like schools and hospitals.
The judge says the conduct of the lawyers in the Solictor General’s office raises serious questions of professional negligence and even professional misconduct as they fail to defend claims against the State and abandon any defense their clients could raise.
Delivering his judgement on 22 September in the case of Pangu v Korr  in which the defendants were the Police Commissioner and the State, the judge said:
“8. The Defendants have filed no relevant material whatsoever. There is no Notice of Intention to Defend or Defense; although the file contains numerous affidavits of search, procedural motions and notices of ceasing to act or of appearance.
9. It seems that, yet again, the Solicitor General’s office is content to allow Default Judgments to be entered against the State because lawyers are unable or unwilling to try to defend or to settle such claims. In effect, they abandon any defense which their client, the State, could raise. Such conduct by a lawyer in private practice would raise serious questions of professional negligence and even professional misconduct.”
The case involved a claim against the police for wrongful arrest, malicious prosecution, unlawfully seizing, using and damaging a vehicle and stealing property from it.
The Solicitor Generals Office is part of the Department of Justice and Attorney General headed by Secretary Lawrence Kalinoe. The Department currently has twelve Australian’s working within it as part of Australia’s Strongim Gavman aid program. Some of those lawyers work directly inside the Solicitor General’s office.
There has still been NO ACTION to cancel the huge SABL land grab, revoke the unlawful leases or stop the illegal logging in Papua New Guinea. The Chief Secretary’s latest pitiful attempt to fool us into thinking otherwise otherwise only emphasizes the Prime Minister’s failure.
It is now 833 days, since Prime Minister Peter O’Neill was told that the SABL leases were unlawful and should be cancelled.
On June 24, 2013 O’Neill was given the reports of the SABL Commission Inquiry which detail the widespread fraud and mismanagement used by foreign logging companies to gain illegal access to over 5 million hectares of land.
O’Neill has REPEATEDLY STATED the leases will be canceled and illegal logging stopped.
In September 2013 O’Neill told Parliament:
“We will no longer watch on as foreign owned companies come in and con our landowners, chop down our forests and then take the proceeds offshore”
In June 2014, announcing an NEC decision cancelling the leases, O’Neill said
“We are taking these steps to reclaim our customary land illegally lost to foreigners with the help of corrupt public servants and leaders”
“As a responsible government we want to ensure that all citizens have access to the lands of their ancestors. We will not allow our land to be lost to unscrupulous people out to con our people”
In May O’Neill promised a new Task Force to look at the Commission of Inquiry recommendations and legislation to cancel some of the leases, and just this weekend the Chief Secretary told us the government ‘hopes’ some of the land will be returned ‘in the not too distant future’… but, the fact is WE ARE STILL WAITING for the leases to be cancelled and the logging stopped.
For 833 days O’Neill has failed to ensure the SABL leases are revoked and he has been complicit in the illegal logging of our forests by foreign logging companies.
Crucially, although the Lands Department Secretary has been suspended, the Prime Minister has failed to take any action to remove the many corrupt public servants responsible for the land grab or distance himself from the politicians, including key Minister’s, complicit in the illegal deals and who are now blocking any positive action to revoke the leases and stop the logging.
Prime Minister Peter O’Neill has aided and abetted the theft of logs worth hundreds of million of kina and the destruction of thousands of hectares of pristine forest.
Below we continue the re-publication of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.
The Inquiry findings provide an unprecedented insight into the methods that are still being used today by the mobocracy that is routinely plundering our government finances. The inquiry uncovered for the first time how the Waigani mafia organise complex frauds using mate-networks, shelf companies, proxy shareholders, and a willing fraternity of lawyers, accountants, bankers and other expert professionals.
The Commission findings also reveal the one grand truth at the centre of all the corruption in Papua New Guinea: it is pure theft, no different from an ordinary bank robbery. However, if you steal the money by setting up, for instance, a bogus land transaction, the crude nature of the criminal enterprise is disguised to all but forensic experts, making it seem the perfect crime!
NPF Final Report
This is the 43rd extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.
Executive Summary Schedule 4F Continued
Table of Niugini Mining share purchases in 1996
Source: NPF accounting records/Wilson HTM records (Exhibit NM2-NM4).
The purchases in January to February were authorised by the board by circular resolutions. No advice was given to the trustees other than that Mr Wright believed it was a good idea and that some Oil Search shares should be sold to finance Niugini Mining purchases as the latter had more significant upside than Oil Search.
The board endeavoured to inject some control over the widespread use of circular resolutions by resolving on February 23, 1996:
“. . . that management seek formal approval from the board for all circular resolutions obtained in between board meetings by tabling those resolutions at the first board meeting after the resolution has been taken.” (Exhibit NM58)
(a) THE NPF management, (particularly Mr Kaul and Mr Wright) did not present to the board any independent advice in respect of the investment in Niugini Mining;
(b) MR Kaul and Mr Wright failed to properly discharge their duties by not making timely disclosure to the Board of Trustees of the unauthorised purchases;
(c) THE NPF management failed to properly discharge their duties by purchasing shares without the board’s approval
(d) THE Board of Trustees failed to reprimand or question management over the unauthorised share transactions; and
(e) NPF management acted in excess of their delegated authority by purchasing shares without express board approval.
Sale Of Shares In 1996
In 1996, NPF also sold shares as per the following table. This was authorised by management without board approval.
Table of Niugini Mining share sales – 1996
Source: NPF accounting records/Wilson HTM records (CD 748), Exhibits NM2-NM4.
(a) MANAGEMENT sold 370,000 shares in 1996 for $A1,292,974 without prior board discussion or approval and the sale was not subsequently ratified by a formal board resolution. No loss was incurred by NPF;
(b) SPECIFIC Ministerial approval was not required as the sales were within the general K1 million approval previously granted by Minister Haiveta;
(c) ROBERT Kaul and Noel Wright jointly bear responsibility for these unauthorised sales. It was a breach of Mr Kaul’s fiduciary duty to the contributors and a breach of Mr Wright’s duty to NPF. No loss to NPF has been established.
Sale Of Shares – 1997
In January and February 1997, NPF management arranged the sale of 1,300,000 for $A4,090,158 without the approval of the NPF board. In doing this, Mr Wright was in breach of his duty to the NPF board and Mr Kaul who, as managing director, was also a trustee, was in breach of his fiduciary duty to the members.
Management never disclosed these sales to the trustees explicitly but they were shown in the schedule of investments placed before the board in May, 1997. This did not provoke discussion at the May board meeting and the trustees once again failed to reprimand management for exceeding their authority.
(a) NPF management sold 1,300,000 shares in 1997 for $A4,090,158.00 (K4,377,541) without prior board discussion or approval and the sales were not subsequently ratified by the board;
(b) THE sale on February 21, 1997, of $A2,013,954 (K2,169,040) was more than K1 million and therefore required ministerial approval. As ministerial approval was not obtained there was a breach of Section 61 of the PF(M) Act;
(c) MR Kaul and Mr Wright were responsible and Mr Kaul breached his fiduciary duty to the contributors and Mr Wright breached his duty to NPF. No loss to the NPF has been established.
Sale Of Shares – 1998
Once again, management purchased 32,300 shares on January 12, 1998, and sold them again on January 29, 1998, through Wilson HTM without the knowledge or authority of the board. A profit of $A13,890 was made. It was yet another breach of duty by Mr Wright and possibly Mr Kaul, which may have had connections with Mr Wright’s trading in Lihir options.
This risky, unwise investment returned a small profit and was sold off voluntarily, not part of the 1999 forced sale. Both management and the trustees displayed the same failure to perform their common law and fiduciary duties as demonstrated throughout the period under review.
Executive Summary Schedule 4G
Oil Search Ltd (OSL) was PNG’s largest oil and gas explorer and producer in December 1995 and the fourth largest oil and gas exploration company registered on the Australian Stock Exchange (ASX).
NPF had bought 4,954,000 shares in OSL in 1994 and was still holding them at the beginning of the period under review. During 1996 NPF sold off all its OSL shares for a realised profit of $A3,571,011.
In 1998 NPF acquired 222,000 shares and disposed of them in January 1999 for a loss. See table 6.
Source: NPF accounting records / Wilson HTM records (Commission Documents 748, 525) Exhibits OS4 and OS5.
The total realised profit on OSL at December 31, 1999, was $A3,034,637.
The stated reason put forward by Mr Wright for selling off OSL shares in 1996 was because he thought the share price would decline and he recommended that the proceeds of the sale should be used to purchase shares in Niugini Mining Ltd (NML) which he said had more “upside” than OSL.
In fact, the price of OSL rose significantly after NPF sold out and the price of NML fell significantly after NPF bought in.
Oil Search Share Price
Source: ASX (Commission Document 752)
Sale Of OSL In 1996
During the time NPF held the OSL shares, they showed an unrealised gain of $A2,724,700 at December 31, 1995. Management never reported to the board on, or analysed, the investment.
Attractiveness Of NML – The Lihir Factor
Mr Wright and Mr Kaul, with the enthusiastic support of Mr Copland and Minister Haiveta, felt NML was selling at a “one off” low price and acquiring NML shares would give NPF an interest in Lihir Gold, as NML held 17.15 per cent of Lihir. A management paper, signed by Mr Wright and Mr Kaul, was circulated to NPF trustees on January 11, 1996, advocating the disposal of 954,000 OSL shares, in three tranches, at $A1.20 and acquiring 420,000 NML shares at $A2.70.
The NPF board approved this proposal by way of circular resolution, despite receiving no investment advice or report.
NPF sold its OSL shares on January 11 and 12, at $A1.20 and $A1.23 respectively, after which the price rose (paragraph 4.3)
At the 99th NPF board meeting on February 23, 1996, Mr Kaul sought approval to sell a further two million OSL shares. The board resolved to approve the sale. Mr Wright and Mr Kaul did not advise the board they had already sold 1,000,000 OSL shares, without the board’s knowledge or approval. Another 100,000 shares were sold (on their prior direction) on the day of the meeting. This was a breach of duty by Mr Kaul and Mr Wright and amounted to improper conduct.
Management then proceeded to sell off the remaining two million OSL shares without further reference to the board. When the board was informed of this at the June 1996 meeting, there was no criticism of management for these further breaches of duty.
The sale of NPF’s OSL shares in 1996 was as follows:
Source : NP accounting records/ Wilson HTM records (Commission Documents 748, 525), tendered document OS4 and OS5.
The sales of 1,100,000 shares, prior to the February 23, 1996, NPF Board resolution, were made without the Board of Trustees’ approval.
Lack of Ministerial Approval
Although the Minister had purported to grant a standing approval in January 1996, for NPF to acquire and dispose of shares in batches up to a limit of K1 million without needing to apply to him, that approval was invalid as it had been signed and gazetted using the wrong sections of the PF(M) Act.
TO BE CONTINUED
Between 2003 and 2010 over 5 million hectares of land was stolen from village people using fraudulent SABL leases. Many of the leases are being used as a cover for illegal logging operations. In 2013 a Commission of Inquiry said the leases were unlawful and should be revoked. But the government is still delaying taking any action while foreign logging companies clear-fell the forests and ship the profits off-shore.
Below is the latest statement from the government explaining how it is doing nothing to cancel the leases, and won’t be doing anything in the foreseeable future, while trying to pretend it is taking the issue seriously.
“Chief Secretary to Government, Manasupe Zurenuoc, has applauded the Special Agriculture & Business Leases (SABL) Implementation Taskforce, for the outstanding report to implement the recommendations found during the Commission of Inquiry into SABLs.
APPLAUDED A TASK FORCE THAT WAS SET UP EIGHTEEN MONTHS AFTER THE GOVT RECEIVED THE COI REPORT AND WHICH HAS TAKEN OVER TEN MONTHS TO PRODUCE A REPORT THAT ANY COMPETENT LAWYER COULD HAVE PRODUCED IN A WEEK!
AND WHERE IS THIS OUTSTANDING REPORT? OF COURSE THE GOVT IS KEEPING THAT FIRMLY UNDER WRAPS…
“This special taskforce is comprised of Dr Laurence Sause (Chair & Policy and Government Advisor) and two retired public servants Kutt Paonga (Legal advisor) and Daniel Katakumb (Land Advisor). Sir Manasupe said in 2011 the government set up a Commission of Inquiry into SABLs, which found that many leases needed to be revoked.
THAT IS RIGHT – THE COI WAS SET UP IN 2011 – MORE THAN FOUR YEARS AGO!!!
SINCE THEN LOGS WORTH HUNDREDS OF MILLIONS OF DOLLARS HAVE BEEN SHIPPED OVERSEAS AND THOUSANDS OF HECTARES OF FOREST TRASHED WHILE THE GOVT HAS SAT ON ITS HANDS
“He said the government then referred the matter to a ministerial committee to implement the findings of that particular inquiry. “However, the ministerial committee could not progress much for various reasons,” Sir Manasupe said.
AND WHAT WERE THOSE REASONS? THE PUBLIC DESERVES TO BE TOLD WHY THE GOVT MINISTERS COULDN”T DO THEIR JOB? MAYBE BECAUSE THEY WERE BEING PAID OFF BY THE LOGGING COMPANIES?
“He said towards the end of 2014, Cabinet set up a special taskforce – SABL Implementation Taskforce – under the Chief Secretary, to look at means and ways on how to effectively implement the COI findings.
SO THE FIRST COMMITTEE DOES NOTHING FOR 18 MONTHS AND THEN THE GOVERNMENT SETS UP ANOTHER AND WE DON”T HEAR FROM THEM FOR NEARLY ANOTHER 12 MONTHS
“Currently the laws are complicated and ineffective to revoke these leases therefore amendments to the legislation will be considered.
BULLSHIT! SINCE 2007 THE NATIONAL COURT HAS REVOKED FIVE SABL LEASES. THE LAWS ARE VERY SIMPLE AND REVOKING THE LEASES IS STRIGHTFORWARD (UNLESS OF COURSE YOU ARE BEHOLDEN TO THE LEASE HOLDERS AND THE LOGGING COMPANIES)
“From the report provided by this special taskforce, the government now has a clear way to implement the revocation of non-genuine leases. “I commend the taskforce for a job well done in making it easier for the government to move forward,” Sir Manasupe said.He said the taskforce had advised the government on how best to implement the findings of the COI.
SO IT HAS TAKEN THE GOVT 833 DAYS TO FIND A WAY FORWARD?
THE GOVT MUST EITHER BE INCOMPETENT OR CORRUPT – YOU CHOOSE!
“Out of the 75 SABLs throughout the country, only 42 SABL reports were provided by only two members of the commission – Nicholas Mirou and John Numapo – who provided finding recommendations that 30 were to be cancelled, 11 to be suspended and that only one SABL was in order. “The other 30 SABL reports, however, have not been received by the government hence the government is now pursuing other actions to obtain them,” Sir Manasupe said.
NOW PURSUING ‘OTHER ACTIONS’ – WHAT ACTIONS? AND AGAIN WHY THE DELAY OF 27 MONTHS?
“He also announced that the report was now ready to go before Cabinet for approval.
AND WHEN WILL THAT HAPPEN?
“In the not too distant future, the government hopes that some of the land will be returned to landowners,” Sir Manasupe said.
FANTASTIC! ‘NOT TOO DISTANT FUTURE’!!!
AND NOTE – THE GOVT HOPES…. – NO PROMISES THERE!!!
AND ONLY “SOME OF THE LAND WILL BE RETURNED”