As corporate scandals unfold, are company boards doing enough to stamp out bad executive behaviour?
TPB - Regulator clears four of nine PwC tax agents over leaks scandal
ASIC confirms probe into MinRes’ decade-long ‘tax dodge’
How Chris Ellison’s secrets came to light
Allegations of serial tax evasion have raised questions about how the miner Mineral Resources is being run.
When mining group Mineral Resources asked Herbert Smith Freehills months ago to investigate scorching allegations against its founder, Chris Ellison, the law firm was thrust into one of the most contentious governance cases of the year.
There are two versions circulating about what happened next. Both raise serious questions about how the company, its board and the professional services firms working for it have handled a matter that had been live at MinRes for years before it hit the headlines a week ago.
Business circles in Perth have been buzzing over last week’s revelations in AFR Weekend that Ellison, former MinRes chairman Peter Wade and three founding executives operated an alleged tax evasion scheme for a decade, using a company domiciled in the British Virgin Islands to sell mining machinery to MinRes at a multiple of its purchase price.
Chris Ellison of Minerals Resources is in the spotlight over a tax evasion scandal.
Australian Taxation Office documents obtained by AFR Weekend show that the five men made a $7 million profit from the deals at the expense of shareholders in the three years after MinRes’ initial public offering in July 2006. The British Virgin Islands company was deregistered in 2014.
In December 2019, at a time when the executives feared the offshore deals were about to be exposed, Ellison’s tax advisers approached the ATO. They offered to voluntarily disclose the deals in return for an 80 per cent cut in penalties and an ATO assurance that it would not refer the matter to the Australian Federal Police, the corporate regulator or the Director of Public Prosecutions.
MinRes has been in crisis since the revelations. Its share price has plunged 25 per cent this week, wiping $2.3 billion off the company’s market value. When added to heavy falls last week, shareholders were down 32 per cent in a fortnight. The Australian Securities and Investments Commission confirmed on Wednesday it was making preliminary inquiries into the matter.
Holding the can
The official MinRes response has been somewhat muted in part because Ellison is on a pre-planned vacation at his house in southern France after spending time in Los Angeles last week. It’s unclear whether he will return to Australia in time for the annual shareholders meeting on November 21.
In Ellison’s absence current chairman James McClements has been meeting with the group’s institutional shareholders by himself ahead of the AGM.
McClements announced last Sunday evening that the board had engaged external legal counsel to investigate the alleged tax evasion, and that the investigation was “well advanced”. He did not identify the firm as Herbert Smith Freehills.
McClements characterised the scheme as a “private tax matter” for Ellison, which he had resolved with the ATO. He said that “payments made by MinRes to offshore entities connected with Mr Ellison related to pre-IPO sales contracts that were recognised as liabilities in the company’s financial statements at the time”.
The board had “full confidence in Mr Ellison and his leadership”, he said. In his own statement issued minutes later Ellison expressed regret for “a poor decision and a serious lapse of judgment”.
It’s a steep fall from grace for the plain-speaking 67-year-old New Zealand entrepreneur who founded the mining services business in 1992 that grew into Australia’s fourth-largest iron ore miner and a major lithium producer.
The group was valued at $15.6 billion in May, before a long share price decline which has cut its current valuation to $6.8 billion. Investors are concerned about the group’s debt level and falling iron ore and lithium prices.
‘Approved for sale’
Ellison has had a robust response to critics in the past, particularly proxy advisers. In November 2017, after investors voted against the MinRes remuneration report for a second time, Ellison told shareholders, “I think it is fairly well publicised that I don’t need a salary increase, there is no doubt about that, if they paid me $1 a year I would still do what I do”.
“I don’t do it for the money, I do it because I have a passion for my job and the business and the people within our business.”
Eight months before he made these comments, MinRes subsidiary PIHA sold earth-moving equipment to a luxury New Zealand alpine estate, Halfway Bay Station, owned by Ellison (75 per cent) and fellow MinRes director Tim Roberts (25 per cent), for a fraction of their current value.
An equipment list dated March 21, 2017, which detailed the items for sale to Halfway Bay Station Limited, has the first 11 entries totalling $277,000 marked with a pen, and signed “approved for sale” by Wade, the then MinRes chairman.
While Ellison’s tax case involved selling machinery to MinRes for more than it cost, with Halfway Bay MinRes was selling machinery to an Ellison company for less than market value. In total, the same equipment would cost at least three times to purchase today, according to one assessment.
MinRes helped organise the machinery to be shipped to Dunedin, leaving Fremantle on April 6, together with a massive barge which Halfway Bay bought independently, after it was cleaned and repainted in Fremantle.
“At no time was plant and equipment purchased at undervalue from a subsidiary of Mineral Resources Limited,” Mr Roberts said in a statement. “At no time did I request Mineral Resources Limited to supply plant and equipment at a discount.”
There is no indication that Roberts, who sat on the MinRes board audit committee for three years from November 2016, was directly involved in the sales.
Last week’s revelations paint a picture of a group shrouded in secrecy and governance failures. The questions now are what the board knew and what action, if any, it took to address these failures.
None of this might have come to light, but in January 2022 MinRes fired its procurement boss, Steve Pigozzo, in retaliation for whistleblowing about misconduct within the company. Four months later on 30 May, MinRes doubled down by suing Pigozzo in the Federal Court for alleged breaches of his employment contract. The company leaked its accusations against the former executive to news outlets that same day, in an apparent preemptive strike to discredit him.
In June 2022, Pigozzo commenced his own Federal Court claim against MinRes for unfair dismissal. This was met within hours by an application from MinRes to suppress the details. Pigozzo’s claim remains the subject of extensive suppression orders and AFR Weekend has not seen nor has any knowledge of the pleadings or documents filed.
But it is public knowledge that sometime before January 2022, MinRes was warned by its own procurement boss that there had been misconduct.
Fund managers say they have been told by the company that the board called in an unnamed external law firm last year to investigate the offshore transactions. In this account, the investigation has been running for at least a year.
A source close to the company has offered an alternative version: that Herbert Smith Freehills was called in only in June this year, and that it reported to the board in early July. MinRes began settlement talks with Pigozzo days later, with the agreement to finalise the case announced on July 28.
Herbert Smith Freehills told AFR Weekend: “Understandably, given our legal and professional obligations, we are unable to comment on client matters.”
MinRes declined to comment. ASIC has made it clear it wants to read the law firm’s final report on the investigation.
Tight circle
But on either account, whether MinRes called in Herbert Smith Freehills this year or last, there is a timing problem. A whistleblower emailed independent directors about Ellison’s offshore payments in June 2022.
By that time Ellison had settled with the ATO. This meant MinRes had to reverse the accelerated depreciation it claimed against the inflated prices it paid to Ellison’s British Virgin Islands company up to 2009.
While Ellison agreed to recompense MinRes for the tax adjustment, senior MinRes officers and directors, in particular the board audit committee, from 2022 at least should have been aware of the tax settlement.
Instead, MinRes insiders say details of both Ellison’s tax settlement and the Pigozzo case were kept within a tight circle, raising questions over McClements’ leadership as chairman since Wade retired in March 2022.
What was the auditor doing through this time? MinRes’s long-term auditor RSM Australia signed the 2021 and 2022 accounts, which contain no disclosure of any tax adjustment related to the Ellison settlement.
MinRes’ audit bill jumped from $743,000 for RSM in 2022 to $5.45 million for EY in 2023, and $5.65 million this year. These later accounts also do not mention a tax adjustment.
For investors the last line of defence is the board audit committee. In 2021 the MinRes audit committee was chaired by investment banker Kelvin Flynn and included McClements and, for half the year, Wade, the then MinRes chairman. Flynn left the board last January and was replaced as audit chair by former KPMG partner Denise McCormish.
Also on the audit committee is investment analyst Xi Xi, retired academic Colleen Hayward, who attended four of six audit committee meetings last year, and Susie Corlett, an experienced geologist who also runs a miniature donkey stud near NSW’s Barrington Tops.
How Richard White’s humble tech nerd image came undone
As Australia shutdown amid the COVID-19 lockdown of early 2020, WiseTech founder Richard White received an interesting LinkedIn invitation.
Former Sydney criminal lawyer Zena Nasser added him on the business social media platform and the pair began chatting. It was a critical time for WiseTech, whose logistics software is used by international shipping companies and port agencies. The pandemic was severely restricting supply chains and movement around the world.
Forged in this high-pressure environment, their relationship blossomed when lockdown restrictions began to ease in mid-2020.
This is despite White already being in a long-term relationship with Christine Kontos, a logistics expert at WiseTech. White’s relationship with Kontos was serious enough that he gave her a $7 million house in Melbourne.
Richard White’s personal life spilled into the open after his now wife, Zena Nasser, (right) found out about his lover Linda Rogan. Robert Duong
It was a “match made in heaven”, according to messages on Instagram between Nasser and Sydney wellness entrepreneur Linda Rogan, filed as part of a Federal Court action. “He works, I spend”, Nasser told Rogan.
It is these messages from Nasser to Rogan in June 2022 that arguably set in train the series of events that led to White being forced to resign as chief executive of WiseTech, which he co-founded in 1994 and built into a $38 billion success story.
In August 2022, Nasser organised for Rogan to join her and White for dinner at Bambini Trust, a Sydney CBD restaurant popular with lawyers and businesspeople. After they ate the trio went to White’s penthouse in the nearby Eliza apartment block overlooking Hyde Park.
“I want to make you and your business massively successful,” White wrote later that month.
White allegedly had a brief affair with Rogan – who was once a contender to appear in The Real Housewives of Sydney – which began soon after the dinner.
‘Don’t come near me again’
According to Rogan’s legal claim, White promised to invest in her business Bionik and gifted her a $13.1 million Vaucluse mansion.
By the end of October 2022, Nasser discovered White’s relationship with Rogan. “You didn’t have to lie … Richard admitted it … don’t come near me again,” she said in a text to Rogan.
Apart from the affair, Nasser also discovered White had used another front company, Maravillosa, to allegedly hide the purchase of the Vaucluse home for Rogan.
In her affidavit, Rogan said White explained the deal was structured to ensure “that no one can trace the property back to me or you. Zena will never know I own this house”.
But White’s clandestine scheme misfired and, after seizing control of Maravillosa from the dummy directors, Nasser evicted Rogan, who’d only possessed the love nest for three weeks.
While Nasser was dealing with her rival, White was nowhere to be seen. Rogan was stuck with a $92,000 furniture bill.
Rogan had a garnishee notice put on White’s bank account in April 2023. White successfully had it overturned in August that year. However, he didn’t come knocking for the money until August this year when a bankruptcy notice was served on Rogan.
It could have been settled at the time. Worth billions, White could easily absorb a $92,000 loss. But instead hostilities intensified. Rogan retaliated by applying to throw out the bankruptcy notice while also preparing an explosive 143-page affidavit, alleging White was pursuing her not for the money but because they had once been in a relationship.
His offer to help her with her business, she alleged, was tied to sex after a trip to New York. White and Rogan eventually settled this week.
White ignored his own advice
Two months before launching his disastrous legal action against Rogan, White appeared on the Financial Review’s How I Made It podcast. Explaining the key to his success, White said he spent time “ensuring there are no risks or I’ve got plans when the risks happen”.
White does not appear to have followed his own advice by taking on Rogan in court over the insignificant furniture bill. So what changed?
A possible answer can be be found in two significant events in White’s life that took place at the time.
First, White, 69, and Nasser, 45, tied the knot in Austin, Texas. Second, the couple celebrated the birth of their daughter via an American surrogate. A month later, White decided to go after Rogan.
The timing of White’s resignation on Thursday could not have been more inopportune.
The board informed the ASX just as cake was being cut at the company’s Alexandria headquarters in Sydney to celebrate its 30th anniversary.
White and WiseTech chairman Richard Dammery were present. People present at the event say White choked up as he said goodbye to staff.
What made his position untenable were revelations published by The Australian Financial Review, The Age and The Sydney Morning Herald that White had been accused of bullying and intimidating by a former colleague on the WiseTech board and that he had bought a multi-million-dollar house for Kontos.
For years, White crafted an image of a humble tech nerd who championed female entrepreneurs. Several of these women have alleged inappropriate behaviour by the billionaire who had contacted them via LinkedIn or at business functions.
White traded on what one described as his “wealth, fame and business status” in his offers to help. But it soon became clear White’s interests were of a sexual nature, the women said.
Then there was an application for an apprehended violence order brought against him by Nasser – later withdrawn via a sworn affidavit – that the WiseTech board only found out about on the weekend. And a confidential payment to settle allegations against him made by another former lover that only some current directors knew about.
There may be more repercussions. WiseTech says it has hired law firms Herbert Smith Freehills and Seyfarth Shaw to review many of the issues raised.
But White will remain front and centre at WiseTech, whose market capitalisation has seesawed amid the revelations.
He now takes the title of founder and founding chief executive – and keeps his $1 million annual salary to provide advice to the board.
The company won’t even be able to sack him unless he is given two years’ notice “except for a misconduct or material breach”.
White’s road to building one of Australia’s largest fortunes was not an overnight success. He founded WiseTech when he was nearly 40 after spending much of his teenage years and 20s in the White family’s refrigeration business while attempting to become a rock star.
He never quite made it. The closest he got to music stardom was running his business repairing instruments for the likes of AC/DC and The Angels. He sold that and started a lighting equipment business in the 1980s.
In the early 1990s he worked as a computer consultant. After working with logistics companies, he found they had disconnected systems and thought he could develop software to help. WiseTech was born.
White founded WiseTech in 1994 with Maree Isaacs, whom he met when they both worked at Sydney rock radio station Triple M. Over the years, the company’s growth and success has been entwined with White’s leadership.
Even this week, after a string of front page revelations, some investors still worried that White’s exit would harm the company’s growth far more than the lurid disclosures about the businessman’s personal life.
People inside the business describe his influence as “cult like”.
The spotlight is now on WiseTech’s directors.
Until the board received questions from White’s conduct and relationships, many of the directors who joined after 2020 were unaware of many of the issues. But two directors, Isaacs and Charles Gibbon, have served on the board for more than a decade.
Isaacs owns a little over 3 per cent of WiseTech shares. Gibbon is the founder of investment company Shearwater Capital and owns 5.5 per cent of the company.
Meanwhile, White’s chaotic private life had resulted in confidential settlements, legal actions and an allegation of inappropriate behaviour by a former lover, which reached the board. In March 2021, White finalised a confidential settlement and paid a former lover several million dollars. Of the current directors, only Gibbon and Isaacs were on the board at the time.
Gibbon declined to comment. Isaacs did not respond.
The pair did not answer questions about why they did not tell new directors about allegations made against White in 2020, which resulted in the businessman paying a woman he was in a relationship with $2 million, the level of disclosure about his relationship with an employee, his alleged conduct towards another director – and whether they intend to stay on the board.
Why White clung on to his role at the top of WiseTech as his personal life disintegrated and despite a $11 billion fortune, is a question only he can answer.
It is a question that the businessman went some way to answering when, as the cake was cut on Thursday afternoon in the company’s Alexandria office, White told his staff that he had been struck by the reality that he was simply holding on to the job.
“I’ve been the happiest I’ve been in so long,” he said.
