Is Australia s Mark Leibler involved in a conspiracy to evade taxes? report by an EIR Executive Intelligence Review Investigative Team.
A $45m scam, a murder and a `whoshouldadunnit'
Neil Chenoweth and Andrew Burrell
Strong men and accountants don't squirm. So the Victorian partners of the Horwath accounting group sat stony-faced as their own lawyer flayed their best clients.
They didn't flinch as Peter Hayes QC described some of Australia's richest families, clients of Australia's top tax accounting firm, as being driven by greed.
Not a murmur as Hayes referred to them as "very hard-to-please clients", people with an ongoing interest, an "obsessional interest", a "never-ending thirst" for, and in, tax avoidance and tax-deferral products.
"They cared for only one thing how little was in their tax statement at the end of the year," Hayes said.
The Horwath clients he was talking about, and the rest of the 186 plaintiffs in a case before the Victorian Supreme Court, see things quite differently.
They were all victims of the mid-life crisis of construction magnate Nathan Baron's son-in-law, Melbourne lawyer Max Green, whose 20-month rampage of fraud and theft cost some of Melbourne's richest families $45 million.
That is merely what Green took from them. Extra tax payments and penalties could have cost them another $30 million to $50 million, taking the full cost of the scam up to an estimated $75 million to $95 million.
The case, which is before Victoria's Supreme Court, has become a "whodunnit", or rather, "whoshouldadunnit". Who should have cottoned on to Green's scam and warned the hapless 185 investors?
More than that, the case chroniclesan extraordinary saga of damage control by some of Melbourne's leading accountants and lawyers that began on the day 14 months ago that Green's partners at law firm Aroni Colman were told he had been beaten to death
in a Phnom Penh hotel room, and they looked into their trust fund and found that all the money Green had raised was gone.
It was then that the anguished calls began.
One high-profile investor told the Supreme Court last week that Horwath partner Steve Jones told him in a 20-second telephone call to him at his home that the $170,000 he had invested through his company had disappeared.
Steve said to me: `I don't believe it, the whole thing is a sham!' and I said: `What do you mean?' He said: `The whole thing is a sham, I've got to call other people,' and that was it."
Green had stolen $12.66 million from Tab Fried, the brother-in-law of the senior partner at Aroni Colman, Benny Aroni. He had raised $1.8 million from forged mortgages. And he had raised $31.1 million in a leveraged tax scheme that involved supposedly spending $124 million buying 500,000 small items such as traffic dividers and safety helmets for Transfield building sites.
The scheme gave investors a return of up to 14 per cent, and the ability to claim four times their investment as an immediate tax deduction, to be repaid four to five years later.
Some $14.5 million of this was raised before June 30, 1997, which means investors would have submitted $59 million in claims for tax deductions for the 1996-97 year ~ claims that they did not know were fraudulent.
It was all a fiction. There were no traffic dividers, no leasing agreement with Transfield, nothing was real at all except the $31.1 million Green raised from investors looking for a tax break.
Green promptly whisked their money to Thailand, Hong Kong and the Channel Islands.
The lawsuit this has triggered goes to the heart of the tax industry in Victoria, which has been dominated by a not always easy alliance between Horwath and law firm Arnold Bloch Leibler.
Investors blame Green's partners at Aroni Colman, whom they are suing for $25.8 million, and the accountant that some of them used, Horwath (Vic), where investors are claiming $15.04 million. In turn, Horwath and Aroni Colman have third-party actions against a range of accountants, the National Australia Bank and various law firms including Arnold Bloch Leibler (ABL).
While the insults have been flying in the Supreme Court, most of Horwath's investors have stayed with them. Could it be that the unspoken message between most of the parties in this bitter case is, "We don't really mean it"?
In their hour of need, Arnold Bloch Leibler was a wonderful comfort to investors. ABL advised Max Green's widow, installed liquidators into the Green companies, a bankruptcy trustee for the estate and advised investors to engage Clayton Utz to mount their lawsuit against Aroni Colman and Horwath.
ABL itself is not being sued by investors. Indeed, it was so incensed when Aroni brought proceedings against it that it released a press release vehemently protesting its innocence and promising to pursue individual Aroni partners for full payment of costs.
Aroni Colman partners say it wasn't their responsibility to monitor Green and the trust fund. Victoria's beleaguered Fidelity Fund paid an estimated $2 million settlement last month, to save litigation over the doubtful position of whether Green's activities qualify for cover.
Aroni Colman's compulsory professional indemnity insurer, Victoria's Legal Practitioners Liability Committee, does not pay out for fraud. And its top-up insurer, AMP, whose policy specifically covers fraud, has said it is not required to pay until Aroni's other insurers have paid. A settlement agreement for $2 million to $3 million last week broke down.
National Australia Bank, which paid bank cheques made out to other parties into Green's account, has made a settlement with the investors, reportedly for $3 million to $4 million, but is still being pursued by Aroni Colman and Horwath.
Like Aroni Colman, Horwath is also caught between a rock and its liability insurer. Lloyds of London does not believe Horwath is liable to pay out anything and seems to be directing Horwath's legal strategy as a scorched-earth policy, to the apparently intense discomfort of Horwath partners.
"Horwath has been painted ... as a money-grubbing, reckless, disseminator of a tax scheme, with negligent ~ almost reckless ~ disregard for pretty obvious risks, and ... Horwath was actively marketing it for its own financial advantage," complained Hayes. "It could not be further from the truth."
Rather, their clients were sophisticated investors. Plaintiffs such as Maurie Alter's company Edingbay had "accumulated hundreds of millions of dollars through tax minimisation", Hayes said.
To show this, Horwath's clients would be required to produce their personal tax records.
Hayes seemed to be looking forward to this almost as much as he was to cross-examining ABL senior partner Mark Leibler over threats Hayes alleges he made against Horwath's commercial base.
Horwath says ABL should have detected the fraud when Horwath had to do due diligence on the scheme.
"ABL did not provide general legal advice to any clients who entered into the scheme," Leibler said in an ABL press release last June. "ABL was not retained by any clients to protect their interests generally in what amounted to major commercial transactions."
ABL was "retained by three accounting firms to advise whether the proposed documentation for various syndicates accurately complied with and brought into effect the principles contained in Joint Venture Participation Offerings relating to the schemes".
"ABL's letters were highly qualified, and very limited in their application. ABL's advice was based on numerous assumptions and was subject to various qualifications, set out in the letters," Leibler said.
"People in certain circles in the tax industry virtually don't sneeze without asking Mr Leibler for a tissue," Hayes told the court. "And what happened is that the first thing that Horwaths have done is go to their contacts at Arnold Bloch Leibler."
Hayes referred to a "delicious story" involving a meeting between Maurie Alter, Alter's executive Bill Boerkamp and Leibler last May, recorded in a file note by Boerkamp.
Hayes said that Boerkamp wrote that Leibler said he was suspicious, that he wouldn't touch anything that came out of Aroni Colman with a barge pole.
(Leibler was not the ABL partner dealing with Horwath and other accountants over the Green scheme.)
Boerkamp wrote: "[Leibler] didn't advise us or warn us despite being aware Horwath & Horwath were trying to take control of their clients without Arnold Block Leibler being able to directly talk with them, and they were not in the business of touting for business.
"He claimed we should have asked them for a fee, and we would have been told. He said, too, he said none of their clients invested, but when I said some of his partners [had], he said two without his knowledge."
Hayes said it was a "pity [Leibler] didn't bother to tell his client, Horwath, or indeed any of the plaintiffs. Mr Leibler, the king, he was smart enough to smell a rat, the only one that did, but he didn't pass it on, it seems, to his own partners.
"Mr Leibler was obviously kept in a hermetically sealed room."
ABL counsel Maxwell described parts of the file note as a fiction: "It's self-evidently a desperate attempt to rescue a drowning case and Horwaths are desperately clutching at fragments of second-hand information based on somebody else's file note, to which that person doesn't even refer in his witness statement."
A salutary feature of the Green scam was that every time he or his commercial partner, William Lewski, approached a financial institution for a loan ~ Capital Finance Australia, Bankers Trust and allegedly the National Australia Bank ~ he was caught out by demands for information and withdrew hurriedly.
With Bankers Trust, its lawyers, Mallesons Stephen Jaques, wanted BT to establish direct contact with Transfield to establish the bona fides of the scheme.
Tax accountants offered no such caveats.
A key part of Horwath's defence is a "clear distinction" it draws between a normal investment and a tax-oriented product.
"If you started to sniff around someone else's territory in that particular part of the profession or industry, you will very quickly be off the list," Hayes said.
"Obviously if you are making an investment for the sake of the investment, both the clients and the accountants are going to be much more interested in making sure that it works, that everything is in place."
Max Green's Victims The worst hit Tab Fried Various $12.656m Besen Family (Sussan clothing chain) Highpoint Shopping Centre $2.0m Maurice Alter Edingbay P/L $1.19m Bloom Family 13 Coromandel Place P/L $1.19m (Portmans clothing chain) Bloom P/L $232,000 Matthew Bloom $50,000 Michael Bloom $12,500 Mayer Pag (tour bus operations) Silam Holdings P/L $1.19m Rettig family (property) Molteno P/L $1.15m Pratt Family - $1.0m Baron Family (construction) Texron Holdings P/L $852,000 Barry Baron $20,000 Kanat Family (Flair Menswear) Boulet P/L $593,000 Gandel Family (property) Abbotsleigh P/L $170,000 Dr Robert Dempster - $400,000 Perri Cutten Perri Cutten Austr