Barbara Smith's Westpoint Nightmare

I was thrilled to be appointed as a Member in the General Division of the Order of Australia in the Australia Day 2006 Honours List, “for services to business and commerce through the accounting and financial planning professions, particularly as an author and advocate for investment in superannuation, to education and to the community.”

Until May 2004, I had worked for not-for-profit and educational institutions for most of my working life, 10 years as the technical director of Taxpayers Australia, where I developed its self-managed superannuation services arm including an 800-page loose-leaf DIY superannuation manual. Prior to that, I spent 14 years lecturing in tax and financial planning at tertiary institutions. I had been a councillor of Diamond Valley for six years, shire president for a year and had written many technical books and articles.

The Australia Day gong was the culmination and highlight of my unblemished career and personal life in Australia spanning more than 40 years '” something I had aspired to achieving but had never truly believed would happen.

I received many wonderful letters of congratulation from a wide range of people, from Victorian Premier Steve Bracks, RACV president Clive Hall and people I had worked with or whose lives I had touched over the years. In addition, the Financial Planning Journal published a four-page article about my achievements including a full page photograph. My award was reported in the local papers and even in the Australian Financial Review.

However, I always try to keep in mind that the good times can be fleeting so I savour them when they are here.

THE WORST OF TIMES '¦

The same day as it ran the piece about me '” January 27, 2006 '” the Financial Review also ran a full-page article, 'Fallout from Westpoint widens’, which said Online Super (OLS) was in administration after action by the tax office (over tax arrears of about $300,000) and that a creditors’ meeting would be held that day in Sydney. It also highlighted that some OLS clients had invested in Westpoint products, and that certain property developments OLS managing director Colin Curran controlled and had been promoting to OLS clients may not be “faring well”. This is of great concern because some of these investments have still not been repaid and are being reviewed by ASIC.

I had first become aware that OLS was in administration a couple of days earlier when another creditor I had come to know emailed me asking whether I would be at the creditors’ meeting. The administrator had not notified me about the meeting so contacted his office and was shocked to learn he had not been given my address, even though I was still owed a substantial amount of money by OLS. I decided to fly to Sydney for the meeting. Very few people attended. When questioned about OLS clients, the meeting was told they had not been notified because they were not considered to be creditors at that time (even though some had paid for services that had not yet been provided!).

I first became associated with OLS when my partner, Ed Koken, and I attended a public presentation and approached the presenter about running 'Self-Managing your Super '” Trustees’ Duties and Obligations’ training courses for its clients via Taxpayers Australia Inc, where we both worked. When I met Colin Curran he was enthusiastic about the idea and said he was very keen to ensure OLS clients understood and complied with superannuation laws.

The training course highlights the requirement for self-managed funds to have an investment strategy, the importance of considering risk and return, and the need for diversification. Hundreds of OLS clients have attended it, both before I joined OLS and during the period that I was employed by OLS.

Curran asked me on several occasions to take on a position with OLS, either as a salaried employee or as a consultant. With the full implementation of the Financial Services Reform legislation on March 11, 2004, Curran approached me again to join OLS, saying OLS had been appointed as a Corporate Authorised Representative (CAR) of Strategic Capital Management Ltd (SCM) under its Australian Financial Services Licence (AFSL) and that one of its directors was Professor John Hewson. I have great respect for Hewson, and thus agreed to accept his offer. I joined OLS in May 2004 as an employee in the capacity of a tax and self-managed superannuation specialist, dealing with queries from advisers and clients about superannuation and tax-related issues and establishing pensions within self-managed superannuation funds (SMSFs), and writing technical seminars and workshops.

I had no desire to move to Sydney, so it was agreed that I would work from my home in Melbourne. I was also required to travel quite extensively, to make presentations at seminars and workshops around Australia. Curran wanted me to have a title that would appeal to the media so he suggested that I be referred to as the chief executive; however he made it clear that he would be the managing director.

It was well known that I was the CEO in name only, and was not involved, nor responsible for the day to day and strategic operations of OLS. When I joined, OLS was a corporate representative of Strategic Capital Management Ltd, and it and the subsequent AFSLs were responsible for vetting investments and investment advice provided by Online Super and its authorised representatives, not me. In fact, I was not involved in giving investment advice, or in analysing, promoting or recommending any investment products (other than the self-managed superannuation fund structure itself). If a client wanted such advice, I referred them on to their licensed representative who, in turn, I assume sought advice from the AFSL where necessary.

The services I provided were limited to technical and tax issues relating to self-managed superannuation funds, and training and running client and public seminars.

Curran also agreed that I could continue to run the tax accounting practice I had established in 1981. These activities absorbed all of my time and as I have already said I had no part in the day-to-day running of the business or in selecting or promoting specific investments.

I first visited the OLS offices on May 26, 2004, for a meeting with the directors. On that day I became aware that OLS had been served with a notice by Tony Yiu (a delegate of ASIC) dated April 30, 2004, pursuant to section 33 of the ASIC Act, requiring production of specified books of OLS. I expressed my concern to Colin Curran and his fellow director Andrew Hewlett and my initial gut feel was to walk away from OLS, but Hewlett assured me it was part of a general review by ASIC of companies for the purposes of ensuring compliance by directors of their duties.

I was never shown, nor given access to the subsequent report by ASIC.I assume it went to the directors and its AFSL, and am not aware of its content or recommendations. I was not concerned about that, as it was outside of the scope of my duties. However, a subsequent conversation I had with SCM about compliance issues confirmed that they were implementing it. In addition, and as a result of that review, there was a strong focus on compliance within OLS with the AFSL implementing compliance procedures that it appeared to enforce rigidly. In addition a full-time internal compliance officer was appointed by OLS.

New or updated financial services guides (FSGs) and compliance manuals were issued to authorised representatives. In addition, Strategic Capital Management (SCM) had a face-to-face, in-depth induction program with each of the authorised representatives and myself. Each of the authorised representatives had the scope of their advice clearly defined by SCM.

SCM had one of its senior staff members overseeing the client workshops that I made technical presentations to, and generally the SCM representative made a presentation at each workshop. These workshops were always organised and hosted by Jenny Pearse, OLS’s marketing and administration manager and later OLS’s general manager. Along with other presenters, I didn’t sit through most of the presentations, rather I would sit outside the room and talk to OLS’s authorised representatives and to other presenters and that is how I got to know Neil Burnard from Kebbel Investment Bank. He introduced me various projects, including a Westpoint project known as York Street, Sydney.

Based on published information Burnard provided, I made a decision to invest $50,000 into this project in late September 2004 and appear to have lost all or part of this money in the collapse of Westpoint. I made that decision from what I thought was an informed position, and like other investors am suffering the consequences (although I stuck to my strategy of no more than 5% in a higher-risk investment) (see reasons for that decision in a separate article headed Mezzanine Finance).

My last visit to the Sydney office of OLS in 2004 was on December 13, 2004, for a technical training session with OLS authorised representatives, and this was also the last one where I was known as the CEO. I had a major operation on January 20, 2005, involving a full hip replacement and was on sick leave for several weeks and recovery took several months.

On February 1, 2005, (while I was in hospital) Pacific General Securities Pty Ltd replaced Strategic Capital Management as Online Super’s Australian financial services licence provider.

My next trip to Sydney was on April 28, 2005. It did not involve a visit the OLS offices; the purpose was to present technical sessions on superannuation law to the Australian Investors Association on April 29 at the Tattersall’s Club in the city and to an OLS workshop at the Novotel in Homebush on April 30. During that trip I took the opportunity to meet with Pacific General Securities staff. Prior to that meeting I was not aware of any compliance problems, but I was extremely perturbed by some of the issues raised in that meeting about Online Super, especially those relating to products being promoted that Pacific General Securities said they had not approved. I made an appointment with a Melbourne law firm on May 4, 2005, to discuss my position of being chief executive of Online Super in name only.

As a consequence of the advice I received on that day, I told Curran on my next visit to Online Super, on May 10, that I was resigning from the position of chief executive due to my concerns and confirmed this in writing on May 11. It was agreed that my title would be changed to technical services adviser or head of technical services to reflect the role that I had always had.

When I was told by Pacific General Securities that it was not willing to continue as Online Super’s Australian financial services licence provider I was advised to tender my resignation, which I did on June 30, 2005. I agreed to three months notice because for five weeks of that period I had arranged an overseas holiday, and I had already committed to run technical seminars in September for or with parties external to Online Super.

Curran asked me to make a presentation about a particular product type that I was not willing to promote. When I contacted Pacific General Securities, then the AFSL provider, and found that this product was not on its approved list I walked away from Online Super. For this and other reasons, Pacific General Securities took the necessary steps to revoke Online Super’s corporate authorised representative status.

I had no involvement whatsoever in the events leading to the termination of Strategic Capital Management, the appointment of Pacific General Securities, or its replacement with Great Pacific Securities Ltd in July 2005.

I am owed a substantial amount of money by Online Super in respect of unpaid superannuation or expenses I paid on the company’s behalf, which has not been reimbursed. In addition, my company is owed a considerable amount of money for my books that were held by Online Super on consignment for sale or return; or for books I sold to their clients and other people on credit cards, which have never been paid for; and OLS has still failed to return unsold books despite frequent direct requests and requests to its liquidator.

It is also important to note that, I was never paid commissions by Online Super; I have always lived in Melbourne and never at any time worked in Sydney and my visits have been infrequent and short.

I enjoyed working with the clients of Online Super and was sorry when I had no choice but resign; however, my legal advice proved to be correct, given that some eight months later it was placed in liquidation.

MY SOCIAL RESPONSIBILITY

Although it would be easier to hide and pretend it hasn’t happened, I believe my social responsibility involves my willingness to support other victims of the Westpoint fraud by going public about my failed investment in York Street and making the information I have about it available to ASIC.

This is not always pleasant and has already resulted in me being subjected to a series of uncomfortable or humiliating situations, including being interviewed by ASIC, the cancellation of speaking engagements, a smear campaign against me including defamatory emails being circulated and being stalked by a film crew at the Sydney Investment Expo and tricked into an interview that I was told was about investments by the ABC, but which I found out afterwards was with Four Corners. The interview was intermingled with a strange mixture of questions. How sad that a reputable program did not choose to identify itself first, as I would have given them far more in-depth answers to the questions they obviously wanted me to respond to had they chosen to do so.

I find it difficult to understand why some Westpoint investors are blaming other victims such as myself, rather than attacking those who are directly responsible for the failed Westpoint Corporation.

I am one of the only former Online Super individuals that appears not to have gone into hiding, and have been working extensively to assist former Online Super clients in many different ways on a pro bono basis. In keeping with my own ethical commitment to decency, since Online Super has gone into liquidation I have run my 'Self Managing your Super '” Trustees’ Duties and Obligations’ trainer course free of charge and at my own cost for several former clients in Perth who had paid Online Super, even though Online Super had pocketed the money.

Tony Killer, in talking about Westpoint in the March 6 issue of Independent Financial Adviser magazine, under the heading 'Greed is (not) good’ says: (IFA March 6-12 2006) “We all have reservations on many things in life but due to the wonderful world we live in you will not find anyone going public.” I happen to disagree with Tony. I still remember Lindy Chamberlain’s father being quoted as saying that all it takes is for good men to remain silent for corruption to flourish. Silence about reservations on schemes like Westpoint condones the fraud that is occurring and allows it to continue and extract more savings from uninformed victims. Some of us are willing to go public and in doing so we may be demonised, but we also find out who our true friends are, and in life they are the best asset anyone can have.