Posts Tagged ‘Ben Semos’

National Provident Fund Final Report [Part 40]

September 30, 2015 1 comment

Below is the fortieth 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 40th 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 4D Continued Investments – 1999 

Concern About NPF’s Unrealised Losses – Termination Of Mr Wright 

After Mr Wright’s employment with NPF was terminated in January 1999, he was replaced on the CXL board by trustee Nathaniel Poiya.

Mr Fabila reported in February on the CXL and STC results. Discussion centred on CXL, which showed a loss of K3.7 million, K2.5 million of which was attributable to a budget blow out in respect of directors’ remuneration. Although Mr Fabila wrote to the CXL chairman on this matter, he failed to provide the NPF trustees with an expert assessment of its CXL investment.

Advice from Ben Semos of Wilson HTM 

By this time, NPF management had begun to realise the enormous unrealised loss suffered on NPF’s investments as interest rates on NPF’s huge debts rose and the value of the kina and of resource stocks fell. Ben Semos of Wilson HTM was asked to advise on NPF’s investments. On February 6, commenting on each investment in turn, he advised selling CXL shares rather than STC. Mr Semos forwarded a mandate document appointing himself as sole agent and broker on the sell down but on February 19, 1999, Mr Fabila wrote cancelling all authority for Wilson HTM to act as broker for NPF.

On March 12, Mr Semos wrote again urging his appointment as sole agent to handle the difficult job of selling off large parcels of shares in STC, CXL and HPL without causing a massive fall in share prices.

On March 16, 1999 at a special NPF board meeting, the board appointed Mr Fabila and Mr Leahy to negotiate the sale of all NPF’s holdings in CXL to the Swires Group for a minimum price of $A3.75 per share (9.3.4). These negotiations were unsuccessful.

Unsuccessful Attempts To Sell CXL Shares 

By March 25, NPF chairman Brown Bai sought Ministerial approval to sell NPF’s CXL shares at $A3.75 and 50 per cent of the Tower Ltd. Unfortunately, Swires would not go beyond $A2 per share and Wilson HTM could only manage $A2.25.

Although Minister Lasaro had approved the sell down on March 25, 1999, his approval was not received by NPF until April 8.

Meanwhile, Mr Fabila had instructed Mr Semos to sell prior to receiving Ministerial approval and Mr Semos was actively involved trying to generate “good buying” for CXL, and for some other NPF holdings.

NPF Moves Away From Substantial Holdings Into Smaller Passive Holdings 

By May 1999, the sell down of equities in order to reduce NPF’s debt to the ANZ Bank had still not got underway. On May 11, Mr Fabila wrote a long explanation to Minister Lasaro, explaining the history of NPF’s disastrous investment strategies of obtaining significant holdings in PNG resource stocks and obtaining controlling interest in CXL and STC.

He explained how this had been financed by massive borrowings from ANZ and he laid the blame squarely on the previous Board of Trustees and on Mr Copland in particular (The letter is quoted in full at paragraph 9.4).

On May 21, 1999, the NPF board resolved to move away from substantial shareholdings in a few companies in favour of passive minority interests and to reduce holdings in any company to 11 per cent of issued capital (except for HPL).

Trustee John Paska spoke against the proposal, particularly against selling STC shares, sensing some “political” motivation. On May 28, 1999, NPF’s investment team, headed by Rod Mitchell submitted an investment fact sheet on STC recommending that its value be reassessed to reflect its much lower true value.

Selldown Of CXL Shares NPF’s Selldown Prompts Swires Takeover Offer For CXL

On June 3, 1999, Mr Fabila instructed Mr Semos to sell off NPF’s holdings of 8,266,679 CXL shares at $A2.56 or better. This prompted Swires to make a take-over bid for CXL by offering to acquire all the issued shares in CXL at $A1.50 per share (paragraph 9.7). Mr Fabila was prompt to accept Swires’ offer and obtained NPF board approval by circular resolution on July 7, 1999. This was ratified by formal board resolution at the 119th NPF board meeting on July 29 and 30, 1999.

CXL Share Valuation

Before finalising the sale, NPF management obtained an expert independent opinion on CXL’s fair market valuation from KPMG which on July 8, 1999, stated:-

“Our valuation of CXL is prepared in order to determine a fair market valuation of each share. The valuation has been prepared using generally accepted valuation principles and is based on information provided to KPMG by CXL. This information has not been verified by KPMG. Based on the information provided, our valuation of CXL is K62,461,000. Given the 21,060,370 shares in issue this equates to a value per share of K2.97.

“Swire PNG’s offer of $A1.50, as set out in their take over notice, equates to K2.68 per share (exchange rate K1= $A0.56).

“When considering the merits of the offer, it is necessary to consider the following:

  • Poor trading results for 1998;
  • Projected poor trading results for 1999;
  • Increasing cash flow requirements to fund trading losses and replacement of inventories;
  • Technical breach of current banking covenants;
  • Law and order issues in PNG;
  • Political instability;
  • The precarious nature of the kina currency; and
  • The lack of alternative investors for a minority investment of the size and nature in question.

“Overall, we are of the opinion that the offer price is not unreasonable and represents a price that whilst not great provides an exit alternative to shareholders, thereby giving a level of certainty which may not otherwise exist.” (Exhibit S152)

Department Of Finance Recommendation On CXL Selldown 

Mete Kahona of the office of Public Enterprises and Asset Management, wrote a brief to the Secretary for Finance supporting the sale of NPF’s CXL shares to Swires at $A1.50 per share. The brief highlights the problems caused by investing in a significant holding in such a company:

“NPF’s Acceptance of the Offer.

“The fund’s management supports the acceptance of the current offer by John Swire & Sons Limited and KPMG’s recommendation with the following argument:

  • That CXL has been touted around the market by a number of stock brokers with no serious interest what so ever in the stock;
  • That the CXL with a falling kina has suffer large diminution in value;
  • NPF debt to equity ratio would be reduced to 20 per cent from 45 per cent;
  • Failure to accept the offer means that NPF will breach current interest cover ratios required by the ANZ Bank; and
  • Acceptance of the offer allows NPF to keep its strategic holding in Steamships Trading Company. NPF’s Board Position

“The board at its previous meeting discussed NPF’s debt problem and agreed to the sale of Collins & Leahy shares down to 11 per cent of its market capitalisation.

“It is for the above arguments that the NPF board supports to accept the current offer by John Swire & Sons for $A1.50 per share held in Collins & Leahy.

“For your information in this regard.” (Exhibit S153)

NPF’s Realised Loss On CXL Investment

The proceeds of the sale, $A12,354,269, were paid to ANZ Nominees, which held the shares as security for the ANZ loan facility and it went towards retiring NPF’s debt to ANZ. The loss suffered by NPF was:

npf 40 a

(This does not include the effects of foreign exchange loss and bank fees).

Sell-Down Of STC Shares Negotiations With Swires 

On September 17, 1999, through capital Stockbrokers Ltd, Mr Mitchell ascertained current market price for STC was $A2.50 per share.

He then negotiated a sale of NPF’s entire STC share holding (7.3 million shares) to Swires at $A2.25 per share ($A16.425 million).

This strategy was approved by the NPF board on November 29, 1999, which resolved on “the sale of 100 per cent of its share holding in STC at a price no less than $A2.25 per share net of all costs”. The following problems occurred arranging the actual sale.

Negotiations With Bromley Group (Lemex International) 

After Mr Mitchell received Swires’ offer of $A2.25, he informed Mr Semos and asked him to contact Sir Michael Bromley to gauge if he was interested. This produced an offer from Lemex International Ltd of $A2.26 per share, which was then increased to $A2.28. Mr Mitchell then made an unauthorised decision for NPF to retain 5 per cent of its STC holding to see whether this would enable Lemex to go higher. On the morning of September 7, Lemex increased its offer to $A2.30 and Mr Mitchell said that he required time to consider the offer. He then left a message for Swires that an offer of $A2.30 had been received and then Mr Mitchell attended another meeting. Some time later, Swires left a message in Mr Mitchell’s office offering $A2.40 for NPF’s entire STC holding.

Acceptance Of Lemex Offer

Before returning to his office, Mr Mitchell accepted Lemex’s offer of $A2.30 per share for 95 per cent of the shares.

Realised And Unrealised Loss On STC Investment

At that price, NPF’s situation on its STC investment as at December 30, 1999, and November 3, 2000 was:

npf 40 b

The realised loss on the sale of 5,762,023 shares as at December 31, 1999 was therefore $A7,160,677 and the unrealised loss on the retained 5 per cent of shares was $A1,315,526. By November 3, 2000, that unrealised loss had increased to $A2,392,291 – making a total realised and unrealised loss in November 2000 of $A9,552,968.

Complaints By Swires

After the sale to Lemex, the Swire Group expressed considerable bitterness that Mr Mitchell had accepted the Lemex offer without formally checking whether Swires had improved on it. Swires wrote a letter of complaint to the chairman of NPF and Mr Semos and others wrote in support of Mr Mitchell.


(a) Mr Fabila was acting without board authority in seeking to mandate Wilson HTM as sole broker;
(b) Mr Semos’ comments about CXL in his report of February 6, 19996 should have been made much earlier consistent with his duty to “know your customer” (NPF) when Wilson HTM was providing investment advice (Mr Semos’ statements indicate that on occasions, he had given investment advice although on other occasions, he simply executed client’s instructions without giving advice);
(c) Mr Mitchell’s decision to retain 5 per cent of STC was contrary to the board resolution of November 29, 1999, to sell off all NPF’s holding in STC;
(d) Mr Mitchell failed to maximise the price obtainable for the sale of NPF’s STC shares. Mr Mitchell failed to actively conduct a “Dutch auction” to bring forth Swires best offer before accepting Lemex’s offer of $A2.30 per share;
(e) Mr Mitchell was acting in stressful and difficult circumstances when trying to finalise a deal to sell off NPF’s shares in STC. The commission accepts that he was trying to act in the best interests of the members of the fund and that he had no ulterior motives. Nevertheless, his failure to seek out Swire’s last highest offer before accepting the lower Lemax offer was careless and unprofessional. It was a failure of his duty to NPF. At the time of this failure Mr Mitchell was acting managing director and was therefore also a trustee bearing all the onerous fiduciary duties of a trustee. He is therefore personally liable for the losses suffered by the contributors from his breach of fiduciary duty unless he can successfully raise the defence that he was acting in good faith. This would be a matter for a court of law and is beyond the scope of this commission.

Concluding Comments

The NPF’s large scale investment in STC and CXL was inappropriate for a provident fund which should concentrate on small passive, risk-averse equity investments.

By making an amateurish attempt to take over these companies, NPF was obliged to acquire large shareholdings (21 per cent of STC and 38 per cent of CXL) which was bound to motivate the companies’ powerful owners to resist the takeover attempt. This happened.

NPF’s acquisitions were funded by borrowed capital (drawdowns on its ANZ facility) and when economic circumstances made it impossible for NPF to service this debt, it was obliged to sell down its equity portfolio, including its investments in STC and CXL. It was unable to do so at competitive prices because of low demand for the shares. It was then left at the mercy of the powerful Swires Group, which could ensure that the price offered would be low.

Because of Mr Mitchell’s inexperience, NPF sold to Lemex International at 10 cents below Swire’s intended final offer but in any event NPF’s realised losses on these investments, totalling $A23,483,324 and unrealised loss of $A2,392,291 (for a total of $A25,875,615) made huge inroads into members funds. The main procedural short-comings regarding these investments included management’s failure to provide the board with expert investment advice and failure to keep the board advised of the on-market transactions, some of which exceeded management’s delegated authority.

Once again there was failure by the board to seek out proper investment advice and failure to exercise proper control over management.

There was also failure by DoF to provide critical comment on NPF’s strategies. There was improper conduct by Minister Chris Haiveta in enthusiastically approving Mr Copland’s misguided strategy of leading NPF into a K40 million strategy to take over, merge and manage two of PNG’s largest retail and manufacturing corporations, without seeking expert advice from DoF or elsewhere.

The main responsibility for leading NPF into the misguided attempt to takeover CXL and STC must be borne by Mr Copland, who conceived and inspired the policy, Mr Kaul and Mr Wright who implemented it and Minister Haiveta who gave it such enthusiastic and unqualified support without seeking expert advice.

The commission’s major findings in the context of the commission’s Terms of Reference are listed in paragraph 10 of Schedule 4D.

Executive Summary Schedule 4E Macmin NL


NPF was enticed into the Macmin investment by an address given to the NPF board by Macmin managing director Robert McNeil.

Macmin was a small or junior minerals exploration company. It was avowedly a high risk, speculative enterprise, which had interests in the Wapolu and Wild Dog projects in PNG.

Its aim was not so much to be the owner of a rich, income-producing mine as to be alert to bringing in joint venture partners to the early stage of a project with a view to selling its interest when there was a chance of a quick profit. For these endeavours it was chronically under funded. It was essentially a “father and son” corporation.

Mr Copland and Mr Wright and also Mr Kaul became enthusiastic about Macmin’s prospects and set out to obtain a significant interest in the company for NPF.


National Provident Fund Final Report [Part 34]

September 22, 2015 1 comment

Below is the thirty-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 34th 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 4B Continued 

In October 1997, Mr Wright wrote in his investment report: “The board needs to give some consideration to how much we want to spend to push the price up at the end of the year”.

The commission recommends that this matter be reported to the Australian Stock Exchange for consideration as possible illegal share ramping (paragraph 6.9).

During October 1997, NPF management again purchased shares for $A2,959,967 also without board authority:

npf 34 a

During this period, Mr Copland and Mr Kaul purchased HPL shares without disclosing this to the NPF board. As they continued to participate in NPF discussion and decision-making on the HPL investment, they were both in a conflict of interest situation and of improper conduct.


(a) Mr Copland failed to disclose to the NPF Board of Trustees, that he owned 273,000 shares and 125,000 options in HPL. This was improper conduct;
(b) The proposal by Mr Wright for the board to buy shares at year end 1997 and the subsequent purchases of seven parcels of shares in October totalling 3,718,361 shares for $A2,959,967, a strategy designed expressly to increase end of year profits, constituted improper conduct and may amount to illegal share ramping;
(c) When Mr Copland and Mr Kaul participated in the decision to “buy into” HPL shares for that purpose on the October 28, 1997, that decision would also increase the value of their shareholding in HPL. Their failure to disclose to the NPF board their own shareholdings and options in HPL and their participation in the vote, was improper and a breach of their fiduciary duty to members.

On December 11, 1997, the NPF almost formalised the incipient take-over of board functions by management when it resolved: “To approve management’s discretionary buying of shares in HPL between December 11, 1997 and December 31, 1997”. (Exhibit H60)

The resolution did not impose any limit as to quantity or price and really amounted to a licence to buy until the end of the year.

Management took full advantage of this virtually unfettered discretion, to buy up HPL shares by purchasing 4,330,635 HPL shares over 15 days to December 31, 1997, at a cost of $A3,540,036. By increasing NPF’s end of year profits in this way, management increased the size of the senior management onus under the staff bonus scheme.

Investment in HPL – 1998 

Between February and June 1998, NPF management continued to purchase HPL shares without board authority, long after the end of year licensed buying spree had ended.

By this stage, NPF held approximately 70 million HPL shares representing an investment of approximately $A60 million.

npf 34 b

The price had dropped from $A1 in June 1997 to 61 cents in June 1998, yet Mr Wright was still presenting a rosy future to the trustees. Because of the huge size of the HPL investment, the fall in share value represented an unrealised loss of over $A20 million on the HPL investment. This loss was compounded by the facts that the investment had been purchased largely with borrowed funds and that interest rates on the loan were steadily rising.

Both management and the trustees were seriously failing in their duty and fiduciary duties by not calling for any independent expert opinion on how to handle this situation.


(a) Mr Wright continued to give one- sided overly optimistic reports to the NPF board about HPL’s immediate and mid-term prospects and failed to initiate a revaluation of the huge investment in light of falling share prices.
(b) Mr Wright and NPF management repeatedly acquired shares for NPF with no reference to or approval of the Board of Trustees. This constituted breaches of duty by management as well as a failure by the trustees to supervise and control management;
(c) NPF trustees failed in their fiduciary duty to contributors by not directing management to report on the changing values of NPF’s major investments or seeking independent advice; and
(d) Both Mr Wright and the then trustees may be personally liable for losses incurred by NPF because of these breaches of duty. It is unlikely that a defence of “acting in good faith” would succeed.

Appointment of Mr Fabila – May 5, 1998 

Mr Fabila replaced Mr Kaul as managing director on May 5, 1998. He obtained a report on NPF’s investment portfolio from Deutsche Securities, which pointed out the extreme bias towards PNG resource stock and PNG businesses. Mr Fabila chose to ignore this report and not disclose it to the NPF board.

This was a serious failure of Mr Fabila’s fiduciary duty to the members of the fund as it deprived the board of its last chance to minimise the losses, which were soon to become realised.

Termination of Appointment of Mr Copland and Mr Aopi 

On August 1, 1998, Mr Copland’s appointment as a trustee was terminated and shortly afterwards Mr Aopi resigned from the NPF board.

Both continued, however, as “independent” directors of HPL and a struggle to have them replaced by NPF representatives, ensued. Both had been receiving K50,000 per annum in directors fees which were payable to NPF if they represented NPF on the HPL board. Legal proceedings are occurring regarding this aspect.

In October 1998, Herman Leahy finally spoke out, critically examining the value of this loss-making, non-dividend producing investment to NPF.

Both Mr Copland and Mr Aopi had also been allocated options by HPL. The directors fees and options issued to them were as follows:

Directors Fees  Findings

With regard to the benefits received by Mr Copland and Mr Aopi, the commission has found at paragraph 7.9:

npf 34 c

The commission finds that the names of Mr Aopi and Mr Copland were submitted by NPF to HPL for appointment on the HPL board of directors. The understating between NPF and Mr Aopi and Mr Copland was that they would act as NPF’s representatives on the board. As such, they were obliged to pay any remuneration or benefits received to the account of NPF. Their failure to account to NPF for benefits received as directors of HPL, was illegal and improper.

Appointment Of Mr Fabila And Mr Maladina to HPL Board 

After Mr Maladina was appointed as chairman of the NPF board on January 27, 1999, he and Mr Fabila were appointed as NPF’s representative directors to the board of HPL in May 1999.

Wilson HTM Assessment Of NPF Portfolios

In February 1999, Ben Semos of Wilson HTM, at the request of Mr Fabila, reported on NPF’s portfolio. With regard to HPL, he noted:

Holding: 72,877,733
$A Average Net Entry Price: 0.9393
$A Current Price: 0.22 – 0.23 $A
Total cost: 69,402,748
$A Market Value: 16,033,101
$A Net Loss: 53,369,647

It showed an unrealised loss on HPL of $A53.3 million.

Mr Semos recommended against selling because of the size of the loss which would be realised and in the hope that Ramu and Frieda River would produce results, saying that they: “Present incredible long term upside and phenomenal benefits to PNG’s future growth.” (Exhibit 96)

He also said that a sell-off would provoke a corporate takeover, which “would not be in the interest of PNG”.


Wilson HTM and Mr Semos in particular, failed in its duty to “know its customer” and carry out a reasonable investigation upon which to base its recommendations regarding NPF’s massive investments in HPL. It should have advised that the investment strategy regarding HPL was completely inappropriate for NPF.

On the advice of PwC, NPF then sold off its entire holding of HPL shares. As at December 31, 1999, with the sell-down still proceeding, NPF had realised a loss of $A27,332,554 on sale and an as yet unrealised loss of $A1,8974,100 for a total loss of $A46,296,654 million on its HPL investment.

npf 34 d


The evidence shows that NPF’s nationalistic, so called “gutsy” play to lead the other PNG institutions to block Placer Dome’s take-over bid for HGL and turn it to the advantage of NPF and the other PNG institutions, was master minded and controlled by Mr Copland and Mr Wright, with the support of Mr Aopi and Mr Kaul and the enthusiastic support of Minister Haiveta.

The NPF trustees allowed NPF to be led into this huge, high-risk and speculative investment, without question or protest. With the exception of Mr Taureka, when provided with a circular resolution committing NPF to a $A50 million investment, they simply signed on without seeking expert advice, relying on their faith in Mr Copland and Mr Wright.

Thereafter, the trustees stood by silently while NPF management acquired more and more HPL share to peak at 72.9 million shares at a cost of $A69,402,748. These acquisitions were usually in parcels worth less than K1 million to avoid the need for Ministerial approval (and DoF scrutiny).

As these unauthorised acquisitions became known, the trustees, including the DoF representative public service trustees, failed to question or criticise management for acting in excess of their authority.

As the HPL share price continued to fall from $A1 to 30 cents a share and below, both management and trustees seemed paralysed, doing absolutely nothing to try and save the members of the fund from the financial catastrophe, which was clearly approaching.

During this period, NPF suffered from a lack of responsible leadership.

Until August 1998, its chairman was Mr Copland who masterminded and continued to support the investment until the termination of his appointment in August 1998.

He was followed by the well qualified and efficient Brown Bai whose honest attempts to restructure NPF’s investments stopped after a few months when he stood down at then Prime Minister Skate’s direction.

His successor Jimmy Maladina has been found by the commission to have been dishonest, fraudulent and not acting in the interests of the members of the fund.

When Mr Bai stood aside as chairman and acting on the direction of the Prime Minister nominated Mr Maladina as his successor, Mr Bai remained as a trustee. However, in dereliction of his fiduciary duty to the members, he simply absented himself from attending meetings while the fortunes of NPF plummeted.

The board’s other DoF trustee, Vele Iamo, also continued his long-standing practice of not usually attending NPF board meetings. This was a serious failure of Mr Iamo’s fiduciary duty to the members.

On the management side, for most of this period the manager was Mr Kaul who gave evidence that he was unable to control Mr Wright and had difficulty communicating with Mr Copland.

In full knowledge of what was happening with this and other investments, Mr Kaul went along with the initiatives of Mr Copland and Mr Wright. He was party to and supported Mr Wright’s repeated purchases of HPL shares without board approval.

This was a breach of fiduciary duty by Mr Kaul.


National Provident Fund Final Report [Part 3]

August 7, 2015 2 comments

Today we re-publish the third 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.

This is the third 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 for NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Approval to mount take-over attempt of STC and CXL

In early April 1996, Mr [Robert] Kaul and Mr [David} Copland met with Minister [Chris] Haiveta at the Gateway Hotel (Schedule 4D, paragraph 4.4.1) and obtained the Minister’s instant verbal approval to mount a campaign to buy a controlling interest in STC and CXL and to then amalgamate and manage the two companies. This would require the expenditure of approximately K40 million of funds borrowed from the ANZ to buy the STC and CXL shares then on offer from the DFRBF and the POSF.

Incredibly, the NPF board approved the purchase after only 30 minutes discussion. There were no briefing papers and the board took no expert advice.

The boards of DFRBF and POSF did not even meet face-to-face to discuss the proposed sale to NPF and Minister Haiveta approved the sales by DFRBF and POSF and the purchase by NPF without seeking or receiving DoF or other expert advice (Schedule 4D, paragraph 4.4.1).

It seems the Minister was not even given a written brief on these transactions, which he had already approved verbally at the Islander Hotel. Both POSF and DFRBF approved the sale by circular resolution and Minister Haiveta gave his immediate approval without even waiting for a request.

Clearly, Minister Haiveta was very proud of his achievement in promoting these transactions as demonstrated in his self-congratulatory letter to Prime Minister Sir Julius Chan on June 4, 1996, and in his explanation to Parliament on July 30, 1996 (Schedule 4D, paragraphs 4.4.5 and 4.4.6).

Minister Haiveta’s improper conduct and referral

The commission, however, finds that Minister Haiveta’s active role in these matters, his instant approvals and total failure to seek expert advice amounts to improper conduct and may constitute a breach of the Leadership Code. Similarly, the trustees who voted for this circular resolution to spend K39.7 million of borrowed funds, without seeking any independent expert advice, were guilty of a gross breach of their fiduciary duty to the members of the fund, for which they may be personally liable.

Breach of fiduciary duties by all Trustees

When considered together with their many other similar breaches of fiduciary duty, the commission has recommended that all trustees, with the exception of John Jeffery, who was only appointed late in 1999, should also be referred to the Ombudsman Commission to consider whether they were in breach of the Leadership Code (Schedule 1, paragraphs 10.5.5 & 18.5(c)). As trustees of the NPF board, they were subject, as leaders, to the Leadership Code. Some are still leaders in some other leadership position whereas some are no longer leaders. If any of the former trustees are being considered for subsequent leadership positions, however, their previous failure of fiduciary duty to the NPF members should be taken into account and assessed by the Ombudsman Commission.

Continued “on-market” purchases without Board approval

The NPF continued to purchase STC and CXL shares during 1997, often not informing the trustees.

In 1998, Mr [Noel] Wright continued to purchase STC and CXL shares on market. The STC purchases were frequently without board approval and totalled $A4.1 million. The CXL purchases which totalled $A793,839 did not require specific NPF board approval because of the its previous open-ended approval (Executive Summary 4D, paragraph 4.1).

Referral of Ben Semos and Mr Wright to ASIC

At Schedule 4D, paragraph 8.3, the commission recommends the referral of Mr [Ben] Semos of Wilson HTM and Mr Wright to Australian Securities and Investment Commission (ASIC) to investigate whether they acted to manipulate the share prices of STC and CXL.

During 1997 and 1998, NPF was the major buyer of CXL and STC shares on the Australian Stock Exchange (ASX) and no doubt helped to maintain the price above its natural level (Schedule 4D, paragraph 8.3.3).

Mr Wright fails to review investment as share prices fall

By July 1998, CXL performance was poor. At that stage, NPF owned 38 per cent of the equity in CXL.

Mr Wright should therefore, have reviewed CXL’s results and instigated a reconsideration of NPF’s takeover strategy.

In November 1998, CXL’s profits were still very low and falling. Instead of reconsidering the investment, Mr Wright purchased an additional 43,280 shares at $A5 per share.

By the end of 1998, NPF held 38 per cent of CXL’s share capital and 21 per cent of STC and the profitability of both companies was under pressure. Their share prices were being maintained by NPF’s own acquisitions. NPF management and trustees remained inactive despite CXL’s rapidly deteriorating performance. This amounted to a paralysis of management, which plagued NPF’s management regarding all its investments during this time of financial crisis.

In January 1999, NPF was facing up to its own serious unrealised losses caused mainly by the crippling burden of interest payments on its huge debts to PNGBC and ANZ, the fall in the value of the kina and in the value of its non-producing investments in PNG resource stock. Mr Semos recommended the sale of NPF’s CXL holdings and a partial sale of STC.

Attempts to sell STC and CXL shares as price falls

The hopeless march to take over STC and CXL was now put into reverse because of NPF’s own financial crisis. Having such large holdings in both these relatively small companies, however, was making it very hard for NPF to selldown without promoting a significant fall in the market share price. Meanwhile, John Swire and Sons (Swires), which owned STC and CXL, sat and waited until it could buy back NPF’s holdings in its companies at rock bottom prices. There seemed to be no other potential buyers.

In March 1999, NPF was under extreme pressure from ANZ to sell equities in order to repay debt, as it was repeatedly in breach of its agreement to maintain a 160 per cent security cover. By July 1999, NPF’s unsuccessful attempts to sell its CXL holdings had brought the price down and prompted a take over bid by John Swire and Sons at $A1.50 per share. NPF obtained an independent opinion from KPMG in favour of accepting the Swire offer. NPF then sold its CXL holdings to John Swire and Sons making a realised loss of $A16,322,647 as follows:-

Total shares acquired 8,236,179
Total shares sold 8,236,179
Cost of shares sold 28,676,916
Consideration received (12,354,269)
Total loss on sale $A16,322,647
(Schedule 4D, paragraph 9.7.6)

NPF experienced similar problems selling off its STC holdings. Its test of the market in September 1999, indicated a market price of $A2.50 per share.

By November 2000, NPF had sold all but 5 per cent of its STC shares to Lemex International Ltd for a realised and unrealised loss of $A9,552,968 as follows: (on the table below).

The sale to Lemex International Ltd attracted complaints by Mr Pratt of John Swire and Sons against Rod Mitchell for failing to accept a better price from Swires. These complaints are reported in Executive Summary 4D at paragraphs 10.5 and 10.6.

Responsibility for K25,875,615 loss

The commission finds that it was a combination of Mr Copland’s personal agenda against STC, Minister Haiveta’s misguided enthusiasm for the nationalistic “big picture” approach, Mr Wright’s egotistic and misplaced over-confidence and the trustee’s complacent reliance on Mr Copland’s reputation as an expert in commercial and financial matters which led NPF into this foolish and risky endeavour to acquire, amalgamate and manage STC’s multi-faceted trading enterprise, which caused a loss of K25,875,615 in NPF members’ assets.

Highlands Pacific Ltd – Schedule 4B

The heaviest single loss

NPF suffered a realised loss of $A27.3 million from its investment in HPL and an unrealised loss on shares still held at December 31,1999, of $A19 million for a total loss of $A42,296,654. It was NPF’s single biggest equity investment loss.

This investment was largely motivated by a misguided sense of PNG nationalism and was driven by Mr Copland, Mr Wright and Mr Kaul, with the very enthusiastic support of Minister Haiveta. These people formed a plan in 1995 to increase NPF’s small passive holding in Highlands Gold Ltd (“HGL”) with the hope of benefiting from an expected takeover bid for HGL by Placer Dome.

Evidence of share ramping

During its investigations, the commission uncovered evidence of share ramping in December 1996 directed at raising the price of HGL shares at year-end and thereby increasing the end of year bonus payable to NPF senior management. The commission recommended that this matter be referred to ASIC for investigation (Schedule 4B, paragraph 5.11).

In January 1997, during the takeover transaction, Placer Dome retained HGL’s Porgera interests and Oregon receivables and the new entity Highlands Pacific Ltd (“HPL”) was established to acquire and hold HGL’s other, less valuable and non-income producing interests.

NPF leads PNG consortium to acquire HPL

In January 1997, (Schedule 4B, paragraph 5.14.3) NPF led a consortium of PNG institutions to acquire HPL. NPF applied its takings from the sale of its HGL shares, together with $A22.4 million borrowed from its ANZ facility, to acquire $A50 million worth of HPL shares in January 1996. During 1996 and 1997, NPF purchased further HPL shares on-market for a total investment of $A69.5 million, despite the fact that the market value of HPL shares was steadily falling.

Possible liability of Wilson HTM for recommending high-risk HPL investment

This was an extremely high-risk, speculative investment, with no hope of any income return in the medium term future and it was acquired mainly with borrowed funds, which attracted a rising interest rate, as the ILR rose in succeeding years. It was a totally inappropriate investment for a superannuation fund and well outside the 1993 investment guidelines. The commission finds at Schedule 4B, paragraph 7.1, that NPF’s share brokers, Wilson HTM, who advised NPF to make this thoroughly unsuitable investment may have liability at common law or under Australian Security law, for not giving suitable advice to its client, NPF, which it knew was a superannuation fund.

table 1

Irregularities in acquisition of HPL shares

The initial investment of $A50 million in HPL was decided by the NPF board by way of an illegal circular resolution with only Trustee Taureka voting against it. No independent expert advice was given or sought by the trustees before this so called resolution (Had the matter been considered at a proper face-to-face board meeting, there is a chance that Trustee Taureka’s well founded reasons may have prevailed).

As described in Schedule 4B, many of the subsequent acquisitions of HPL shares were either without the NPF board’s knowledge or occurred prior to its approval. Mr Wright and Mr Kaul were in breach of duty in making these unapproved purchases. No expert investment advice was obtained (Paragraph 6.7, Schedule 4B).

Responsibility of Trustees and Minister Haiveta

The trustees passively acquiesced in these unauthorised purchases by management and failed to criticise, reprimand or endeavour to restrain management once they became aware of the unauthorised acquisitions after the event. They were thus in serious breach of their fiduciary duty to the members of the fund.

Once again, Minister Haiveta’s conduct in granting approval to massive expenditure on HPL shares, without seeking DoF or other expert advice, was improper conduct and, possibly, a breach of the Leadership Code.

All trustees who approved or acquiesced in these acquisitions without insisting that management obtain expert advice and who failed to control management’s unauthorised share acquisitions, were in breach of their fiduciary duty to the members (See Schedule 4B, paragraphs 4.3, 5.2 & 5.9).

Conflict of interest of Mr Copland and Mr Aopi

Initially, Mr Copland and Mr Aopi were appointed as NPF’s trustees on the board of HPL. They, however, took the view that they were appointed in their own right as independent directors. This placed them in a conflict of interest situation (Schedule 4B, paragraphs 6.4 & 6.5(a)). They both received directors’ fees and options which they improperly retained for their personal benefit (Schedule 4B, paragraph 6.8).

NPF’s acquisitions in HPL commenced at $A1 per share and the HPL share price fell steadily thereafter to a low of $A0.30 per share in 1999.

Management paralysis as value of investment falls

NPF management and trustees seemed paralysed in the face of this looming financial disaster. By the end of 1998, the HPL shares had so little value that the ANZ refused to accept them as security for the loan facility, describing them as having virtually “junk bond status” (Schedule 2E, paragraphs 12.3.1). In August 1998, Deutsche Securities reported very critically upon NPF’s unbalanced portfolio and concentration in PNG related investments, but no action was taken.

Sell-down at huge realised loss

In March 1999, PwC recommended the sale of NPF’s loss-incurring HPL shares and in May 1999, NPF sold one million HPL shares at 30 cents per share. The board attempted to sell a further 19 per cent of its HPL holdings but this proved very difficult to achieve (Schedule 4B, paragraph 13.11.2).

At December 31, 1999, NPF had suffered a net loss on HPL share sales of $A27,322,554 and an unrealised loss on HPL shares

table 2

Investment in Vengold

Foolish investment

This investment was one of NPF’s greatest follies.

It was driven by the desires of Mr Copland and Mr Wright and the easily persuadable Robert Kaul to place NPF in a position where it could benefit from a possible takeover bid by Placer Dome, which was trying to maximise its interests in the Lihir Gold Mining venture.

Advised and encouraged by Ben Semos of Wilson HTM, NPF swapped its LGL shares for shares in Vengold Inc, a small Canadian mining and mineral exploration company. NPF then invested heavily in Vengold by on-market share purchases.

Vengold held significant shares in LGL and this increased NPF’s LGL interests through its significant Vengold holding.

NPF acquired $A45 million worth of shares in Vengold between April 1997 and September 1998 (Schedule 4A, paragraph 6).

It thereby achieved and maintained a 19.9 per cent share of Vengold’s capital and a seat on the Vengold board of directors. NPF’s initial Vengold director was Robert Kaul who was followed by Henry Fabila. These directors very properly paid their directors fees into an NPF account.

When Mr [Jimmy] Maladina was appointed to the Vengold board in 1999, on his own insistence, he retained the directors’ fees and options paid to him and also exercised the options making an illegal profit of approximately $A852,183 and directors fees of K5000, which is recoverable by NPF (Schedule 4A, paragraph 8).

Trustees fail to reprimand management for unauthorised acquisitions

The NPF management’s acquisition of Vengold shares was often without the approval of the NPF Board of Trustees and, once again, the trustees failed to reprimand and control management for exceeding its authority and failing to keep the board informed (Executive Summary paragraph 8 and Schedule 4A, paragraph 5.16).

This continued into 1998, despite the falling gold price and falling value of Vengold shares (Schedule 4A, paragraph 6.12).

At no stage did management provide the NPF board with expert advice about this investment and the board failed to seek it, thereby breaching its fiduciary duty to the NPF members (Schedule 4A, paragraphs 6.11 & 6.12).

This investment advice was badly needed as Vengold was making share issues, which diluted NPF’s holding. Vengold also purchased 61.3 million LGL shares from Orogen, which increased the risk to Vengold because of the volatile nature of LGL shares.

Also during this period, Placer Dome bought heavily into Vengold. Despite all this activity regarding Vengold, NPF just adopted a “wait and see” attitude, when it really needed sound expert advice (Schedule 4A, paragraph 6.12(d)).

Mr Wright’s illegal trade in LGL options

During the period October 1995 to November 1997, Noel Wright illegally traded in LGL options through the Wilson HTM overseas account. He continued to do this even after a NPF board direction to cease the practice (Schedule 4I).

Mr Maladina’s profits from directorship of Vengold — referred to Police Commissioner

Mr Maladina was appointed chairman of the NPF board in January 1999 and he quickly arranged for himself to replace Mr Fabila as NPF’s director on the Vengold board.

By February 1999, Wilson HTM advised NPF to sell 4.2 million Vengold shares, then trading at $A0.50 cents. NPF held onto the shares for a further four months. During this period, Mr Maladina was appointed to the Vengold board but failed to attend several meetings and Vengold share value dropped to between 7 and 10 cents. The company was close to bankruptcy but paid directors fees and distributed options to directors, as it planned to change its focus from mining to an information technology company (Schedule 4A, paragraph 7.4).

Mr Maladina attended his first Vengold board meeting in December 1999. He collected his fees but failed to notify the NPF, which was desperately selling off its Vengold holdings at 7 to 8 cents, that Vengold was being transformed in a way, which may revitalise its share price.

NPF’s sale of the last of Vengold shares was at 27 cents per share, as the price was beginning to rise. Mr Maladina converted his options and then sold his shares when Vengold share price had risen to Canadian $4.50. He made a profit of K1.4 million from the sale, which he did not pass on to NPF. The money was banked to his company Ferragamo Ltd (Schedule 4A, paragraph 8).

NPF made a realised net loss of $A29,559,580 from its investment in Vengold (after taking account of the profits from selling off its LGL shares) (Schedule 4A, paragraph 7.11; Executive Summary paragraphs 15 and 15.1).

The commission has found that Mr Maladina’s conduct in these regards was criminal in nature and has recommended that he be referred to the Commissioner for Police for investigation (Schedule 4A, paragraph 7.11; Executive Summary paragraphs 15 and 15.1 and 16).

The full details of the Vengold investment are given in Schedule 4A which also has a comprehensive Executive Summary.


The other loss making equity investments were Cue Energy Resources Ltd (“Cue”) reported on in Schedule 4C and Macmin NL (“Macmin”) in Schedule 4E.

In both, these small companies, NPF made significant investments and obtained seats on the board of directors in order to influence company policy.

They were high-risk investments in non-income earning companies and quite inappropriate for a superannuation fund.

With Cue, NPF management went to extreme lengths to support the cash hungry company, even borrowing in order to on-loan to Cue.

Mr Copland, Mr Kaul and Mr Wright all held undisclosed interests in Cue. As Cue made unwise investment decisions in Indonesia, the NPF increased its support for Cue when it should have been selling down the investment in order to protect members’ funds.

At one stage, acting on the self-interested advice from Mr Semos of Wilson HTM, Mr Kaul exposed $A25 million of NPF member’s funds to help Cue acquire assets in Indonesia, by sealing an irrevocable underwriting offer (Executive Summary 4C, paragraph 2.5).