Free-for-all at Babcock as regulator sits by

Australia's corporate regulator has taken the novel approach

of outsourcing its investigative work to receivers, while those who believe they have been wronged are being encouraged to seek their own justice through civil courts.

Never has this been more apparent than in its approach to Babcock & Brown, the financial engineer that was placed into administration in March, marking it as one of Australia's biggest ever corporate collapses.

It was clear last year, as its share price was in free fall, that many of the company's bullish statements to the market  such as predictions of a $750 million full-year profit  were at best misleading.

It is possible the Australian Securities and Investments Commission was working behind the scenes. But justice should not only be done, it should seen to be done.

Now word is emanating from within the smoking ruins at B&B that the administrator Deloittes has uncovered evidence of unusual share dealings at the upper echelons at the firm as it was facing oblivion.

It is understood the firm's insurer, AIG, is examining whether it should honour claims made against its directors and officers insurance policies.

Among the accusations are that several senior executives  despite explicit public denials at the time  had large personal margin loans outstanding against their shareholdings.

Investigations have centred on Babcock & Brown's $40 million capital injection into the troubled stockbroking firm Tricom, and the motives behind that action.

There also are suggestions that several senior employees, some based offshore, were given the opportunity to trade shares outside the firm's strict trading windows.

Babcock & Brown's principals, who floated the company in 2004, were only allowed to trade their stock during specified periods each year. The shares were then sold into a bookbuild conducted by the company.

It is understood that in March last year  after the trading window had been closed  dispensation was given to four senior offshore-based principals to sell their stock at $12.80.

By that stage Babcock & Brown shares were in a death spiral, having fallen from their $33 peak the previous year.

In August last year certain senior executives sold more shares for about $2.60. It is believed these were sold into the employee incentive trust, a body funded by the subsidiary Babcock & Brown International, which was responsible for accumulating shares to hand out to employees in the future.

Within weeks the company's stock price had plunged to 70c and later bottomed at 15c.

Babcock & Brown owes its 25-member banking syndicate $3.9 billion, and notched up losses last year of $5.4 billion, putting it into the pantheon

of biggest ever corporate basket cases.

Although noteholders voted in March to wind up the company in the hope of retrieving their $600 million, they found nothing but scorched earth. All the company's assets are owned by Babcock & Brown International, now controlled by the banking syndicate and represented by McGrathNicol,which is quietly trying to liquidate the firm.

Those still left at the company have seen little evidence of the corporate regulator in recent months.

At the weekend ASIC's chairman, Tony D'Aloisio, said the commission could not prevent corporate collapses because, unlike banks, they were not subject to prudential rules.

True. But false statements fall within ASIC's bailiwick. So do investigation of corporate collapses and vigorous prosecution of those who do not abide by the law.