Home > Corruption, Papua New Guinea > National Provident Fund Final Report [Part 32]

National Provident Fund Final Report [Part 32]

September 18, 2015 Leave a comment Go to comments

Below is the thirty-second 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 32nd 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 4A Continued 

The sell-down resulted in a realised loss on the Vengold investment of $A37,772,991. The last months of NPF’s Vengold investment are described.

In July 1999, NPF sold off 629,400 shares at 8.2 cents Australian, pursuant to a board resolution. Acting investment manager (Haro Mekere) advised the board that at the current price of 9 cents per share, a 100 per cent sell-off by NPF would result in a realised loss of $A28 million.

In August 1999, Mr Mitchell and Mr Mekere asked Mr Telfer of Vengold to explain the dramatic fall in Vengold share prices.

They were given words of reassurance, and the NPF board consequently resolved “not to sell Vengold shares until developments in the market with regard to a proposed consolidation are known” (NPF management nevertheless continued to sell off 1.5 million Vengold shares in various parcels).

In September 1999, Vengold sold 95 million LGL shares for $A153 million in order to retire debt and, after this, NPF continued to sell-off the remainder of its Vengold shares, making a realised loss on Vengold of $A38,772,991 in the process. When the proceeds of the sale of NPF’s LGL shares is taken into account, the net realised loss on the Vengold and LGL investment, was $A29,559,580.


(a) The NPF management and the board were disastrously slow to reassess and change NPF’s strategy regarding its Vengold investment. Despite advice to sell from Wilson HTM in February 1999 and from PwC in March 1999, the sell-down did not commence until June 1999. Therefore, the management and the trustees were in breach of their duties to the NPF contributors by delaying the sale;
(b) The July 1999 NPF board resolution to hold onto its Vengold shares on the strength of assurances by Mr Telfer, was a serious error of judgement;
(c) The sale of 1,536,000 shares by management (Rod Mitchell, Henry Fabila and Haro Mekere), in defiance of the board’s July resolution, was a breach of duty.
(d) Mr Maladina’s failure to attend Vengold meetings until December 1999, after his appointment in May 1999, was a breach of his fiduciary duty to the NPF contributors. It deprived NPF of vital information regarding Vengold’s plans and contributed to the loss suffered by NPF caused by holding onto this investment while the prices were failing.
In this matter, Mr Maladina would find it difficult to raise a defence of “acting in good faith” and he may be liable to NPF for losses incurred by his actions.

Vengold’s Change Of Strategy In December 1999 Benefits Mr Maladina 

Vengold’s dramatic conversion to an lnternet related company and how Mr Maladina profited from it, are described.

Mr Maladina learned of Vengold’s change of strategy at his telephone attendance at the Vengold Board meeting on December 8, but kept the knowledge to himself.

After the public announcement on December, 10, Vengold’s share price began to rise, which enabled NPF to obtain 27 cents a share on the sale of its last parcel of Vengold shares. Over the following months Vengold shares reached a peak of $C4.83 per share.

On September 27, 1999, Mr Maladina was allocated 150,000 options exercisable at 18 cents and a further 50,000 exercisable at 26 cents Canadian. He exercised these options on March 8, 2000, gaining a profit of approximately $C795,000 (K1.4 million).

Evidence shows that these funds were credited to Mr Maladina’s company Ferragamo Ltd on March 16, 2000, ($A852,183). Mr Maladina also received (and kept or himself) $C3000 in directors fees.


(a) Under the principles of trust, where Mr Maladina sat on the board of Vengold because of NPF’s investment in that company, NPF have the right to recover from him all the profits received in respect of:

  1. The profit $A852,1832.77 he obtained by exercising Vengold options; and
  2. Director’s fees of $C3000 (approximately K5000);

(b) Where NPF suffered a loss because Mr Maladina failed in his fiduciary duty to advise them of Vengold’s proposed change of corporate strategy, he may be personally liable for that loss;
(c) The commission also finds that Mr Maladina’s conduct is, prima facie, criminal in nature. Mr Maladina was grossly negligent in his role as a trustee and on the evidence available to this commission, it could not seriously be argued that Mr Maladina’s actions were in “good faith”. He is then, personally liable to the NPF for losses caused by his breach of trust;
(d) Mr Maladina should be referred to the Commissioner of Police to consider criminal prosecution and to the president of the PNG Law Society to consider whether his conduct has been unprofessional. NPF’s financial loss on its Vengold and LGL investments (not including interest on its ANZ loan from which the investment was funded), was as follows:

Concluding Comments

The Vengold investment was one of NPF’s greatest investment follies.

From the very beginning, Mr Wright and also Mr Copland were captivated by dreams of quick, easy profits to be made by capitalising on corporate takeover manoeuvre expected to be launched by Placer Dome, Rio Tinto and other corporate players interested in exploiting the reportedly fabulously rich Lihir Gold mine. For this dream, they were prepared to gamble, and lose more than $A38 million of NPF members funds.

The whole dream was funded by loan capital from ANZ. It was entered into without the benefit of wise conservative expert advice.

Many of the investment decisions were taken by management without NPF board approval and, in the case of options trading, despite the board’s direction not to do so.

As with other resource stock investments, NPF was faced with a dilemma when the economic conditions changed. As share prices plummeted, interest rates rose and the value of the kina fell, NPF was unable to honour its loan covenant with ANZ.

It had no option except to sell off the investments but, because of the prevailing low value of the shares, a massive sell off would realise a massive loss.

In the case of Vengold, the chance for NPF to offset some of that loss, by benefiting from Vengold’s re- birth as an Internet company was lost because Mr Maladina, as NPF’s representative on the Vengold board, kept the information to himself and used it for his own personal profit.

The profit he made, of about $A852,183 and directors fees of K5,000 is recoverable by the NPF.

Executive Summary Schedule 4B Highlands Gold Ltd/Highlands Pacific Ltd 


Initially, the NPF held a small passive investment in Highlands Gold Ltd (HGL). However, from October 1995, NPF began speculative buying in the hope of benefiting from an anticipated takeover bid by Placer Dome.

In the process, NPF participated in underwriting a share placement by HGL.

NPF led the opposition to Placer Dome’s bid and negotiated terms more favourable to NPF. Under a new structure, Placer Dome acquired all the shares in HGL for 75 cents a share. NPF and the other shareholders obtained shares in a new entity, Highlands Pacific Ltd (HPL).

NPF and the other shareholders obtained shares in a new entity, Highlands Pacific Ltd (HPL).

This company was formed to take the assets of HGL other then its Porgera interest and the receivables from Orogen (which remained with HGL and were thus acquired by Placer Dome).

NPF applied its takings from the HGL takeover and, borrowing additional funds, purchased shares in HPL to a value of $A50 million. It then made further on-market purchases and sub- underwrote a portion of a capital issue by HPL. Eventually, NPF acquired 73,852,175 HPL shares for a cost of more than $A69.5 million.

These corporate plays and investments were masterminded by NPF chairman David Copland, in conjunction with Noel Wright, the NPF finance and investment manager, with the support of managing director Robert Kaul and the enthusiastic support of Minister for Finance Chris Haiveta.

Many of the acquisitions were made either without the NPF board’s knowledge or prior to its approval. NPF did not obtain independent investment advice and did not perform due diligence.

The trustees failed to seek expert advice themselves or to direct due diligence. When they became aware of management’s unauthorised activities, the trustees failed to object or criticise or give directions about management’s future conduct. Mr Copland and Mr Aopi were appointed as directors of HPL and failed to disclose to NPF that they held personal interests in that company, which led to a conflict of interest. They also failed to disclose that they considered that they held their seats on the HPL board as independent directors, not as NPF representatives.

During the economic downturn, from 1997 onwards, when the HPL share prices were in continuous decline, the management and trustees failed to address the mounting unrealised losses which led to NPF eventually incurring losses of more than $A49.5 million on this investment at the sell-down which commenced in March 1999.

The report on HPL highlights improper conduct, failure of duty by management and failure of fiduciary duty by trustees.

It highlights procedural and structural deficiencies such as, Ministerial approval, required under the Public Finances (Management) Act (PF(M) Act), was not always obtained. Further, the Minister’s approval was sometimes given without seeking advice from the Department of Finance (DoF).

The investment in HPL was risky and speculative and the company was not expected to pay dividends in the short to medium term. It was wholly inappropriate for a provident fund to invest heavily in this type of investment.

In mid-October 1995, anticipating a take-over bid for HGL, Mr Copland and the NPF management decided that NPF should substantially increase its holding in HGL. Between October and November, NPF increased its small passive holding of 1.6 million shares by purchasing a further 3,070,000 shares for $A2,713,252 as shown in the following table:

npf 32

The purchase of the first two parcels was authorised by Mr Wright, probably at Mr Copland’s instigation, but entirely without the knowledge or consent of the NPF board.

When subsequently seeking NPF board approval to purchase a further 3.1 million shares in HGL, Mr Kaul made partial and inaccurate disclosure of the earlier purchase, thereby misleading the board. Before the board approved the further purchases, Mr Kaul had already sought and Minister Haiveta had already given Ministerial approval to purchase 3.1 million shares in HGL. Neither NPF nor Minister Haiveta sought or obtained DoF advice on the appropriateness of this purchase.


(a) Mr Wright failed in his duty to the board by not providing unbiased investment advice critically examining the risks as well as the possible upside of investing in HGL in October 1995;
(b) Mr Kaul exceeded his authority by requesting Ministerial approval for the investment before the board had resolved to approve the investment;
(c) Minister Haiveta failed in his duty to supervise NPF investments by granting approval without seeking DoF or other expert advice;
(d) When seeking retrospective approval for unauthorised purchases, Mr Kaul misled the board by understating the number of shares purchased prior to board approval;
(e) Minister Haiveta failed in his supervisory duty by approving the acquisition of 3.1 million shares at 90-95 cents prior to the board approving a more narrowly worded resolution;
(f) The board of trustees failed in its fiduciary duty to members by not insisting that management carry out due diligence and provide independent advice on the HGL investment;
(g) Where officers and trustees failed in their duty and fiduciary duty respectively to ensure that independent expert advice was obtained before entering into this risky investment they are potentially personally liable for losses incurred by members of the fund consequent upon their failure of duty.
Whether or not they are personally liable to reimburse the fund for the loss will partly depend upon whether they can successfully raise the defence of “acting in good faith”.
It is particularly difficult for trustees, who have an onerous fiduciary duty, to succeed in this defence (See report on structure).

Investment In Highlands Gold Limited – 1996

In 1996, Mr Wright, fully supported by NPF chairman Mr Copland, led NPF on a strategy of acquiring HGL shares in anticipation of an asset sale by MIM Holdings.

In a paper headed “The potential NPF plays for 1996”, Mr Wright recommended that NPF buy a further 5-10 million HGL shares at 0.83 to 0.93 cents “. . . as a speculative play hoping Placer Dome PLC and MIM arrange their buy at AUD1.204”. Mr Wright added that this would be “a gutsy play”.

Mr Kaul’s management paper for the 98th NPF board meeting speculated that Placer Dome might buy out MIM’s stake in HGL.

Management did not provide and nor did the board seek, any independent expert advice regarding this proposal.

Relying on optimistic claims by Mr Wright and the fact that Mr Kaul and the very experienced chairman Mr Copland, were in favour, the board approved the purchase of a further 1 million shares at no more than 86 cents per share.


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  1. September 21, 2015 at 12:00 pm

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