how did $50mil shareholder money disappear, page-2

Read this transcript and weep as it sums what has happened to cvi and it's shareholders. Very upset personally to have been caught up in this I believe the law and the regulators have seriously let us down and should be held accountable. The only solution, as it ever was, is to throw away the key to ship them off to Texas for some real justice.

Other people's money: examination of corporate skulduggery in Australia in particular Independent Resources which can be traced to a Malcolm Keith Johnson

HENRY BOSCH: I can think of a number of quite prominent citizens in Australia that I'd like to see behind bars.

ANDREW OLLE: And before you start speculating aloud on just who corporate watchdog, Henry Bosch, would like to see behind bars, remember those defamation laws.

Australians like to laugh at the dodgy brothers image of business, but corporate villainy in this country is now way beyond a joke. Our tolerance of fraud and malpractice is a matter of notoriety, even in those havens of free market economics and deregulation, Britain and the United States, which have shown far more willingness to liquidate corporate crooks. They recognise that investment is a risky enough business, without being exposed to the sort of skulduggery uncovered in tonight's report. Paul Barry investigates the disappearance of some $200 million which shareholders sank into just one little known group of Australian companies.

PAUL BARRY: In deregulated corporate Australia, it seems you can get away with anything. Million dollar fees - no problem. Lying about your profits - that's okay. Ripping off your shareholders - well, who's going to catch you? After all, some of the best known names in Australia have done that, and they're still walking the streets.

The rest of the world, looking at our financial markets, thinks corporate Australia has run amuck. After this story, you may see their point. It's about a group of companies you may never have heard of, but they're one of Australia's biggest corporate disgraces, and they're still in business. The name is Independent Resources, or IRL.

DAVID JENKINS: Well, the whole IRL group of companies, we maintain there is over $200 million which has been invested in ways which is to the detriment of their shareholders.

PAUL BARRY: Lost?

DAVID JENKINS: It is lost, yes.

PAUL BARRY: Will you ever get it back?

DAVID JENKINS: We know where some of the money is because it's been frozen by the Serious Fraud Squad in London, but we maintain that that is not the lion's share of the proceeds, that is just petty cash paid to someone that's helped. The lion's share has not yet been found.

PAUL BARRY: The IRL group is almost ludicrously complex, an interlocking web of companies with cross share holdings that go in all directions. This is just a rough attempt to map it. It was controlled from 1987 to the end of 1988 by Max Greenham, a Perth businessman, and Michael Fuller, an Adelaide solicitor. Both had connections with Peter Briggs, a Perth entrepreneur once gaoled for tax fraud. Since Greenham was killed in a mystery air crash, just before Christmas 1988, Michael Fuller has taken over the leading role. When he first came on the scene, the share prices of the key IRL companies were riding high. Now the shares are almost worthless. Those same companies - Spargos, Jingellic, Claremont and Enterprise - that once thrived, with profitable goldmines, rich oil fields or mountains of cash, are now virtually insolvent. Together, they have lost more than $200 million of shareholders' money, and the scandal of the IRL saga is that the money has flowed out while the authorities have looked on. For two years, the authorities have been investigating these companies but it has been left to two shareholders to do what the corporate cops could not.

David Jenkins and Nigel Burch have risked everything they own and have devoted two years of their lives to the fight. They've done it out of a burning sense of outrage at what has been allowed to happen.

DAVID JENKINS: Well, I suppose there is three basic reasons why I have done these things. The first reason is because of my basic Christian philosophy. The second reason is because I and a lot of other people, thousands of people, have been disadvantaged financially by what these directors have done. And the third reason is because there is a grave injustice in this situation, and the injustice is that if a man goes into a toy shop, buys a toy gun, points it at a building society employee, steals two or three thousand dollars, runs away, is apprehended, charged and convicted, and he receives perhaps five or eight years gaol and he is called an enemy of society. But these men, they become public officers of public companies, they have perhaps a legal or accounting background, and they sit down and they methodically and systematically steal every single dollar that these companies own. They're not pursued, they're apprehended, they're not charged and they are not convicted. They just run around the streets, free and easy as you go.

PAUL BARRY: To understand this story, you need to understand what a company is. Essentially, it's a pot of money that shareholders put together for some purpose. Now, because there's too many of them to actually run the company, what they do is elect directors to run it for them. Now, as far as these directors are concerned, this company is a pot of other people's money, and they therefore have certain duties. They can be as incompetent as they like - there's no law against that - but they do have a duty to be honest. If they're not honest however, there's a couple of simple ways that they can get their hands on the shareholders' money. They can either buy things for themselves or their mates, for far more than they're worth, or they can lend money to themselves, or companies they control, and not pay it back. In the IRL saga, the directors did both.

One of IRL's trademarks has been to buy things in far flung places, places where it is hard to check on what they've done, places like the Philippines. Fifty million dollars of shareholders' money is missing in this country, presumed lost. Some of the money went through the Manila Stock Exchange. You don't have to be mad to invest here, but it does help. Punting here, in mining shares in particular, is a bit like going to the race track, yet here in 1987, $30 million of shareholders' money from two IRL companies, was used to pick up a stake in a goldmining company called Benguet Exploration. At the very least, the IRL companies paid three times the market value. Six months earlier, the same shares had changed hands for one tenth of the price. The company they bought into was virtually bust back then, but there's no question that it is now. The shares have not been traded since last year and they are all but worthless.

IRL's directors said the shareholders were getting exploration areas with great potential, but it was all hope, hot air and promises, for this is what they got. The Thanksgiving mine was said to be the country's fifth largest gold producer. Today, it produces no gold at all. The mine closed down four months ago because no-one had paid the electricity bill. No-one had paid the wages either, so now the miners and their families are taking the place apart and making off with whatever they can carry.

There's probably not a single shareholder in Australia who's been able to come to this place to see how his or her money has been spent. Perhaps it's just as well for their health that they haven't. It's only two and a half years since they bought this mine and the company that went with it. God knows what the hopes for it were then, but looking at it now, it's pretty hard to believe it was ever worth $40 million. Yet that was the value the purchase put on the company, and this was the company's only significant producer. Thanksgiving was once an excellent gold mine, but that was thirty years ago. By the time the Australians came on the scene, it was pretty much played out. Production had been falling for years; the mine had been losing money; the bankers were on its back. In short, it was a rotten buy, but after IRL took over, things went from bad to worse. Production fell further; the debts rose higher; the losses grew larger. Now, half the seams are flooded, the other half exhausted. Shareholders have done their dough, but maybe it was just a bad buy. Everyone makes mistakes, only IRL's directors seem to make them all the time.

Two hundred miles out of Manila, way up in the hills, on the remote east coast, there's another IRL disaster - the Icoha chromite mine. IRL bought a third of the mine, or the company that owned it, at much the same time they bought Thanksgiving. Icoha too was an old mine which had been losing money for years, and the company was bust, but IRL said there were hopes of reviving the operation and getting platinum out of the hills. Without shareholders' consent, indeed without their knowledge, the IRL directors took $18 million from the shareholders of three group companies, to put into Icoha, but like so many IRL plans, it has all gone wrong. No reserves of platinum have been found. The $18 million was meant to be for exploration and development, but so little has been spent on development since IRL took over, that the mine is in a far worse state than before. Icoha's management in the Philippines say they never saw the $18 million that Australian shareholders coughed up. Icoha's accounts confirm that the company received only one tenth of the money, so where did the rest go? It went in to a private company called IRAG, Independent Resources Asia Group, largely owned by Michael Fuller and his associates. What happened to it then is something of a mystery. IRAG is also now bust. The Australian shareholders in Enterprise, Jingellic and Spargos, who put up the $18 million, have done their dough again.

But the horror story does not end there, at least for the shareholders of Spargos. In 1988, another $15 million of their money was used to buy the output of an even more remote copper mine called King King. The problem is there isn't a mine at King King, there never has been, nor is there any output. As the company's pictures show, it's still just a dream, and a bad dream at that. The right to mine the land is the subject of legal dispute, and has been for as long as anyone can remember. Two years after the $15 million went in, two thirds of it has been written off and shareholders can wave goodbye to the rest, as well.

Okay, this is what happened. This company over here paid $15 million for the output of a copper mine, to this company here, but because there was no copper mine and no output, this company lent it on to another company over here. Now these two companies have one very important thing in common - they're both controlled by Michael Fuller, but they also have one even more important difference. This one over here, which forked out the money, is owned by you and me, the mug punters, and this one over here, the one which got the money, that's not only controlled by Michael Fuller, it's also owned by him. But surely, we can get our money back. Well, unfortunately not, because by now, the money has vanished and this company here, is bust.

The rules of the Australian Stock Exchange are designed to prevent that sort of thing. If directors are paying or lending their shareholders' money to themselves, or to companies that they own, the rules say shareholders must be given the chance to veto the deal. But in the IRL saga, when the transactions took place, shareholders were never even consulted. Stock Exchange rules were consistently broken, yet the Stock Exchange did next to nothing. Only after prolonged pressure from the shareholder action group, was the Stock Exchange persuaded to act over a huge loan involving Enterprise Gold. Then, Michael Fuller and his fellow directors simply took no notice. The next step was farcical. The Stock Exchange suspended trading in Enterprise shares, thus denying shareholders the chance to sell out. Their money was gone, the directors were still at large, all that had changed was the shareholders were now locked in.

NIGEL BURCH: We wanted further action, we wanted the company to be forced to hold the meeting that should have been held, to approve the transaction, but Adelaide Stock Exchange just refused. They just would not do it. Eventually, we got our solicitors in Adelaide to write to the exchange and demand action.

In the letter, they pointed out that it was the duty of the exchange to enforce its listing rules, and a letter came back from Adelaide Stock Exchange's solicitors saying, we are unaware of any authority for this proposition, that it's their duty to enforce the rules.

PAUL BARRY: What do you think of their performance?

NIGEL BURCH: Well, I think the exchange created a climate, I feel, that was conducive to abuse.

DAVID JENKINS: We pointed out breaches to the Stock Exchange and if they had been proficient and efficient in their application of the different rules and the different laws that are available to them, some of these things wouldn't have happened.

PAUL BARRY: Are you happy with the performance of the Stock Exchange, in this IRL saga?

RAY SCHOER: It's been very difficult for the exchange. You've got to realise there are really two areas of offences here, or alleged offences - that's under companies and securities law, they're also under the listing rules. In terms of the listing rules, the exchange has spent a lot of time and resources trying to enforce the rules. It does it mainly through suspension, and virtually all of the IRL companies, or group of companies, were suspended. The step beyond that would have been to go to court to try and enforce the rules or to delist the companies.

PAUL BARRY: The Securities Industry Code, section 42, gives the courts the power to enforce Stock Exchange rules if companies are breaking them. A successful action might well have protected shareholders, but the Stock Exchange was not prepared even to seek enforcement.

RAY SCHOER: I think the exchange, at the time, thought that those rules may not be enforcable in court.

PAUL BARRY: What's the point of having rules if you can't enforce them?

RAY SCHOER: Well, that's a problem and it's something the exchange is addressing now, seeking to redraft the rules to make them clearer and more enforcable.

PAUL BARRY: Well, how have we got to this stage where, in 1990, we are still talking about changing the rules so the rules actually have some force? I mean, the Stock Exchange, it's not as though it's come into existence a couple of years ago, and nor has corporate crime.

RAY SCHOER: Well, I guess in the past, the problem wasn't perceived to be as great as it is now. Clearly the exchange is seeking to lift its game, it's got something like fourteen people now, directly involved in market surveillance and enforcement. That far exceeds the total resources the Government has put into the area. That's largely come about over the last twelve months and the exchange doesn't intend that this will continue, the present situation.

PAUL BARRY: Promises to shut the stable door in the future, even assuming they come true, were a fat lot of good to David Jenkins, but if the Stock Exchange would do nothing, there was at least the law to rely on. The Companies Code, section 320, is designed to protect minority shareholders who are being treated unjustly. It gives courts the power to fix the problem, but exercising his rights was going to cost David Jenkins $100,000 in legal bills and if he lost the case, he would go down for another million, because he would pay the company's costs as well. The answer, thought Jenkins, was to enlist the help of Australia's corporate watchdog. Surely, in a case so blatant, Henry Bosch and the National Companies and Securities Commission would bite on his behalf. But once again, it was not to be.

HENRY BOSCH: Now you say, why didn't we do it? It is not something that we are allowed to do. Under the Act, we are allowed to intervene when a shareholder takes a section 320 action. We are not allowed to initiate one ourselves. We asked for that power, back in 1983. It was refused to us. I am happy now that the new Act, the Corporations Act, has a power in it that permits the ASC to initiate oppression actions and I hope it will be used.

PAUL BARRY: Henry Bosch and the NCSC did do something. They investigated, in fact, they have now been investigating for two years and more, so why, you may ask, have they not prosecuted. You may not believe this, but they don't have the power.

If you had had the power to prosecute, would you have prosecuted in this case?

HENRY BOSCH: Yes, yes, I think we would. Certainly, if we'd had the power to take an oppression action, we would have taken it much earlier.

PAUL BARRY: Henry Bosch and the NCSC in fact recommended prosecution of Michael Fuller, to New South Wales' Corporate Affairs. They had the power, but they were not prepared to act, and they did not investigate. They put it in the too hard basket. With the authorities ducking for cover, Jenkins and Burch were on their own and since no-one else would do it, they took up the fight themselves. They took their own legal action, and won immediate comfort. In January this year, the Perth Supreme Court ruled that Michael Fuller and the Spargos' directors had prima facie breached their duties to shareholders. That case is still in court, awaiting judgment, but for Jenkins, the end may now be in sight.

DAVID JENKINS: I have put twenty one months of my life into pursuing these people because no-one else was prepared to do it. It has been a strain, yes, a great strain and I've also committed every penny that my family owns, in the court actions, to see that justice and right is done, because no-one else would do it. The National Companies and Security Commission wouldn't do it; the Stock Exchange wouldn't do it; no-one was prepared to take on these guys. And I think that we should look at this matter, not individually, because this is not an isolated incident. In aggregate, over a lot of companies that have gone into receivership over the last couple of years, you are looking at billions of dollars that has been taken out of the Australian investing community. And the effect that that has had, has not affected one or two people but it has affected hundreds and hundreds of thousands of people all over the world, and the aggregate effect of that is that people overseas now, won't invest in Australia because they view it as a corrupt society, because none of these directors have been pursued or convicted.

PAUL BARRY: In IRL, $200 million of shareholders' money has been lost, but where in the maze of companies has it ended up? The answer it yet another puzzle. Behind the top company in the IRL group, into which most of the funds disappear, is another web of offshore companies and family trusts. Michael Fuller admits he is behind some of them but the ownership of others remains a mystery to the Australian authorities, or at least it did until they received some help from the other side of the world.

The answer to where the money has gone and who controls the IRL group of companies may well lie here in London, 12,000 miles away from the shareholders in Australia who have lost so many millions of dollars. The Serious Fraud Office in Britain is currently investigating the affairs of a man that they believe is the Mr Big behind IRL. He's not a director of any of the IRL companies, he's not publicly a shareholder. Nevertheless, people here believe that he is the man who pulls the strings.

His name is Malcolm Johnson, seen here in a photograph taken almost fifteen years ago. He is a big man, six foot three, and some sixteen stone, with a passion apparently for polo. He is also wanted by the police. The warrant for Johnson's arrest, issued in February, alleges that he has defrauded the British Post Office out of $2.4 million by selling them shares in a worthless American company called Duralite. But the Post Office isn't the only one to be conned. Mr Johnson's story was so good that a small army of well heeled investors, including some of Europe's best known bankers and stockbrokers, were persuaded to part with their cash. None of the victims now wants to talk publicly about how they were fooled, but what they will say is that Johnson claimed to control a big Australian mining group. Johnson said he was IRL. Investigations by the Serious Fraud Office have confirmed that. Set up just three years ago, with draconian powers to demand documents and get answers, they cracked the case which our corporate watchdogs could not.

DAVID LEIGH: It's all very well to have offshore bank accounts but someone has to give the instructions. And somebody, somewhere, is saying move this money from this bank account to that one, and that is the person that you're looking at.

PAUL BARRY: David Leigh is on secondment to the Serious Fraud Office. An accountant who has long specialised in chasing money trails and investigating fraud, he says the new powers are invaluable.

DAVID LEIGH: Extremely useful, these powers are very penetrating powers. They were brought in in 1987 and they can require anybody to produce any documents, anywhere in this country, and answer any questions. They can enable a lot of progress to be made in investigating frauds.

PAUL BARRY: Unlike in Australia, the SFO can compel lawyers and advisers to disclose who they act for, and that is what often reveals who the offshore companies conceal.

DAVID LEIGH: It's very unlikely that any company, any firm of brokers or lawyers or accountants, will take instructions from someone they don't know. They will actually know the identity of that person.

PAUL BARRY: When the Serious Fraud Office raided Johnson's solicitors, they found documents that revealed he was behind some of IRL's major shareholders. The solicitors' papers recorded that Johnson controlled the whole IRL group - Enterprise, Jingellic, Claremont, Spargos - all the names were on the list. One memo even noted that Malcolm was now seeking respectability. He intended privatising IRL, cleaning it up, and floating it off again. But of Johnson himself, there was no sign at all. Leaving his two houses in Chelsea, and his valuable art collection, he had skipped the country.

His magnificent Surrey mansion, worth some $10 million, he had also left behind. Like so many of his ilk, Malcolm Johnson had wanted to live like a country gentleman, but he won't now be able to do that in England. All his assets have been frozen by the Crown, and when Four Corners went to take a look, there was only the gardener holding the fort.

GARDENER: Get away. I am going to ring the Derby police. You do not take photographs of this property without permission, alright? In fact ...

PAUL BARRY: You ring the police, you're welcome to do so.

GARDENER: I shall do that now.

PAUL BARRY: Are you Mr Johnson's gardener?

GARDENER: What?

PAUL BARRY: Is Mr Johnson home?

GARDENER: It is.

PAUL BARRY: Is Mr Johnson here?

GARDENER: Why?

PAUL BARRY: Because I'd like to talk to him, if he is. Your boss is wanted for fraud.

GARDENER: Are you prepared to repeat that?

PAUL BARRY: It is a free country and your ...

GARDENER: Did you talk .. did you mention fraud?

PAUL BARRY: Your employer, Mr Malcolm Johnson, there is a warrant out for his arrest for obtaining property by deception.

GARDENER: Well, I don't know ...

PAUL BARRY: Is he here? Is he here?

GARDENER: You see .. no he is not, no.

PAUL BARRY: Where is he? Where is he?

GARDENER: If you show me any warrant.

PAUL BARRY: Where is he?

GARDENER: I don't know. If you know so much, why ask me? In fact, you know more than I do. You do. I mean, you are full of knowledge.

PAUL BARRY: Malcolm Johnson has been in trouble with the law before. In 1978, he spent three months in London's Pentonville Gaol, having been picked up by the British police. That October, he was extradited to Australia to face three charges of fraud.

The story started here, in Adelaide, at Flinders Trading, the city's leading electrical store. Under Johnson's management, it had gone bust owing more than $1 million. The liquidators had moved in and Johnson was charged with milking money out of the company. Adelaide policeman, Malcolm Smith, led the investigation and brought Johnson back on the plane from England. Even twelve years later, he remembers it well.

MALCOLM SMITH: We had been on the plane for a few hours and he said to me, `Well, you've had the opportunity to see me and listen to me now for a few hours. What do you think of me?' And I said to him, `Well Malcolm, I get the impression that you are a nice fellow but you just tell lies and steal other people's money', and that didn't help his ego at all. He was quite deflated after that.

PAUL BARRY: Did you like him?

MALCOLM SMITH: I told him more than once, he was a crook. He just accepted that. I told him, `I know you are a crook, you know you are a crook. All we've got to do is produce the evidence to convince a jury that you're a crook'.

PAUL BARRY: The jury was convinced. At the Supreme Court in Adelaide in December 1978, Johnson was sentenced to twenty one months in prison, but he never went to gaol. In the end, after a retrial, Johnson got off with a $200 good behaviour bond. According to the judge, he had seen the error of his ways and would act honestly in the future. A gaol sentence, it was said, would hinder his return to the world of commerce.

Quite why the world of commerce needed him back is hard to understand. By this time, Johnson had twice been made bankrupt and he'd shown a talent for crime. In the case of Flinders Trading, he had wanted to take over the company but he had no money, only massive debts, so what he did was this - he talked his way on to the board of the company and got Flinders to buy a company from him. He had just bought that company for $100. He sold it to Flinders for $300,000 and that's how he got the money.

It was a brilliant deal, almost a blueprint for IRL. Supporting the valuation of $300,000 was a bid from a West Australian businessman, Peter Briggs. Johnson was later to work for him, and this man was Johnson's lawyer in Adelaide at around this time - Michael Fuller. The Fuller Johnson relationship continued through the 1980s and in IRL, it appears to live on.

Out in the wilds of Oklahoma, suitably far from its Australian shareholders, the IRL group in mid 1989, made its biggest ever deal. It bought a half share in an oilfield, at a cost to the Australian shareholders of $US28 million. For the company that bought it, Beach Petroleum, it was a major investment, a third of all the money the company had, so it was vital that it was a good buy. Shareholders were told, when the deal came to light, that an independent expert had valued their purchase at $US77 million. It seemed almost too good to be true, and so it was.

The Burbank field is seventy years old and long past its best. The oil rush passed by here a long time ago. Production from these pumps has been falling steadily since the 1950s. It's getting harder and harder to get the oil out, and Burbank's wells are now being shut down by the score.

BRUCE CHOWRY: In '88, there was 240 of them operating; '89, 210.

PAUL BARRY: They're not pulling enough out of the ground.

Bruce Chowry(?) knows the Burbank field well. It was a fabulous field in its day, he says, but now it's a shadow of its former self.

BRUCE CHOWRY: Probably it's 20,000 barrels a day, when this field came in.

PAUL BARRY: And now?

BRUCE CHOWRY: Now about a thousand barrels a day. I think you're looking at the tail end of the field right now, in as far as production and so on. To get one barrel out of oil, you have to lift about 100 barrels of fluid, so in that sense, you're looking at pretty good expense just on lifting costs.

PAUL BARRY: Supposing you were buying this field, or half of it, as the Australians have bought, what would you be prepared to pay for it?

BRUCE CHOWRY: I might go $2 to $3 million for what we're talking about here.

PAUL BARRY: Is that all?

BRUCE CHOWRY: That's all I'd go.

PAUL BARRY: You don't think it's worth more than that?

BRUCE CHOWRY: Knowing what I know, no.

PAUL BARRY: Australian shareholders have been told magic new methods will get Burbank's old oil to the surface. It's the secret that supposedly makes this field a good buy, but the polymer injection technique they've been promised is anything but new. In fact, they stopped using it on the Burbank field six years ago because it was uneconomical. To use it again, oil prices would need to be double what they are today. The Burbank field may have a famous past, but it doesn't seem to have much of a future.

VINCE SMITH: It's an old field, it's well past middle age. I would say it's perhaps in its dotage. Unless a very cheap and economical way of recovering oil comes about, it is in its last stages.

PAUL BARRY: And is there any magic new cheap recovery system that you know of?

VINCE SMITH: Not on the horizon, that I know of.

PAUL BARRY: Vince Smith is an expert on oil recovery and he probably knows the Burbank field better than anyone in the world. For twenty three years, he advised Phillips Petroleum how to get more oil from it. Vince Smith now values oilfields for a living. We asked him what the Burbank field is worth. His view is that $6 million should buy you the lot.

Shareholders in Australia have paid $US28 million for a half share of that.

VINCE SMITH: It's far too much.

PAUL BARRY: No question about that?

VINCE SMITH: No question in my mind, about that, under present economic conditions.

PAUL BARRY: What would you say to the people who have paid that much?

VINCE SMITH: I feel sorry for them. They've lost their money.

PAUL BARRY: In Oklahoma, they say that buying oilfields is very much like buying a second hand car - you need to be extremely careful of what you're doing, and it's very easy to be taken for a ride. Well, in paying $US28 million for something that may only be worth one tenth of that, the poor Australian shareholders certainly did get taken. But that's only half the story. The real question is, where did their money go, in whose pocket did the bulk of their $US28 million end up?

The money paid by the Australian shareholders in July 1989, went to a company called Firstway. Based in Liberia, a small country on the west coast of Africa, Firstway is owned by a trust based in Hong Kong. It is managed from the Channel Islands and has bank accounts in Switzerland. According to affidavits sworn by the Serious Fraud Office in London, the man behind Firstway is Malcolm Johnson. Our investigations in Oklahoma confirmed that.

CHARLES JOHNSTON: The 47 percent that was purchased, in my opinion, was purchased by the London group of people, consisting of Malcolm Johnson's company. That's what I have been told.

PAUL BARRY: Almost a year before the Australian shareholders bought the Burbank bargain, this man's partner, Larry, was acting for a man who was buying the Burbank field. He is in no doubt that that man was Malcolm Johnson. Johnson, Four Corners believes, bought the field for just $7 million.

CHARLES JOHNSTON: Larry tells me that Mr Johnson is a very secretive person, he's a very powerful person, and one that you shouldn't cross.

PAUL BARRY: And what happens if you do cross him? What did Larry say then?

CHARLES JOHNSTON: Larry says you could end up feeding the fish.

PAUL BARRY: Malcolm Johnson, according to Larry, was the number one man. There was a pecking order in which strict rules applied, almost like a secret society.

CHARLES JOHNSTON: I assumed, and this is an assumption, that this is a very strong closed organisation, and you have to stay in your position. In fact, at one time, Larry used the term `London Mafia'. He says, I am playing this straight down the middle.

PAUL BARRY: In Charles Johnston's papers, Malcolm's name pops up everywhere, in his telephone notes, an intriguing message: top secret, forget Claremont and Woodbine, keep quiet. Later, a letter to his lawyer. `The people in London had companies called Woodbine and Claremont.' `I mentioned the two names. Tony said never to mention them again.' The reason for all this secrecy is plain. Both companies are connected with Malcolm Johnson. They are also companies in the IRL group. The person selling the Burbank field is thus on both ends of the deal, only he has bought it, Four Corners believes, for $7 million and then collected $28 million from the poor Australian shareholders.

Back in Australia, Michael Fuller is the man charged with explaining this deal. He is executive chairman of Beach Petroleum, the company whose shareholders' money has been taken. Fuller has told a court that Malcolm Johnson is neither involved in the Burbank deal, nor in controlling IRL, but that is hard to believe.

CHARLES JOHNSTON: I have a letter here addressed to Malcolm Johnson.

PAUL BARRY: As an example, when our man in Oklahoma invoiced Malcolm Johnson for $1400, it was Fuller's Beach Petroleum that eventually settled the bill. More to the point, when Beach bought the oilfield, they seemed to have made only the most cursory inquiries. Valuing oilfields is perhaps more of an art than a science, especially when there's a particular figure that you want to get to. But to do a proper valuation, there are three things you really have to know: how much oil is there in the ground; how much can you sell it for, when you get it to the surface; and what's it going to cost you to get it out? Now, unless you know all those three things, a valuation is pretty much meaningless, yet when the IRL companies spent $28 million to buy the Burbank field, they specifically did not request all that information.

CHARLES JOHNSTON: Beach Petroleum, through Anthony Pearce, say they want a figure of barrels in the ground, period. They do not want what normally would be supplied.

PAUL BARRY: Is that, in your view, a proper and full valuation?

CHARLES JOHNSTON: It's hard to answer that. It's unusual.

PAUL BARRY: But if you were buying an oilfield, would that be sufficient information?

CHARLES JOHNSTON: No sir - an oilfield or an oilwell.

PAUL BARRY: So why didn't Beach Petroleum and Mr Fuller, ask for the information they needed? Why were they content with a valuation of $77 million which in effect, was meaningless? And, even more to the point, why didn't they ask Charles Johnston, the man who gave them that $77 million valuation, what would you pay for this marvellous property?

CHARLES JOHNSTON: Well, I think $8 million would be a fair market value.

PAUL BARRY: Eight million?

CHARLES JOHNSTON: Yes, now the other 50 percent, 53 percent, is worth more.

PAUL BARRY: But $8 million for the bit that the Australian shareholders have ended up with?

CHARLES JOHNSTON: I could live with that.

PAUL BARRY: Shareholders may find it harder to live with. They may be disturbed to hear that Beach did not even receive its valuation from Charles Johnston until twelve months after the deal had been done, until it was too late to get their money back.

NIGEL BURCH: This is from a shareholder that's lost money on Spargos and he said, `I will now try to contact your Premier, Bob Hawke. He appeared on TV recently, asking for British investors to subscribe to Australian companies. How can he expect our cash when there is so much skulduggery in your country?'

PAUL BARRY: The scandal about the Burbank transaction is that it came two years after the Australian authorities first started investigating IRL. Little wonder that the action group gets letters from overseas shareholders saying, `What is wrong with your country? Do you have no police?' But wait for it, there is worse to come. The man who has run Australia's corporate regulators since 1985, expects little or no improvement.

If something like the IRL saga happened again in five years' time, would you be reasonably confident that the outcome would be different?

HENRY BOSCH: I am afraid not, no. I told you, I am a bit depressed about all this.

PAUL BARRY: The problem of how Australia regulates business malpractice does not end with IRL. It takes in some of the best known names in Australia. Their crash has cost shareholders and the banks, several billion dollars, but the way they have dealt with other people's money has cost Australia its good name. Politicians, businessmen, lawyers, all now agree we need to clean up the mess, but will we, and will we ever take off the gloves and treat multimillion dollar corporate crime seriously, as real crime?

DAVID JENKINS: Well, I think that's one of the problems, that we face at the moment, as a country. The legislation just isn't adequate to enable the regulatory bodies to pursue these people, as they should be pursued. I mean, if you take the Companies Act, here, you've got here .. here for instance, is a fine, if you're found guilty of an offence, of $1,000. That's just ridiculous, it should be $1 million. If you have .. here is another one, you are sentenced to six months gaol, for an offence of this Company Act. This is ridiculous, it should be six years gaol. Or where there is two years gaol, or five years gaol, it should be twenty years gaol, or twenty five years gaol. And where a fine is perhaps $2,000 or $10,000, it should be $200,000, or a million, and these directors should be made to pay these penalties. And I think if the courts were given the power to implement these more significant penalties, it would be a much greater deterrent for people to commit the offences that they have committed.

PAUL BARRY: But deterrence relies on one thing, you have to catch people first, before you can punish them. If the IRL saga is anything to go by, there's precious little chance of that. Australia's top corporate cop, the NCSC, has just half a dozen skilled investigators to run ninety cases at once. That clearly has to change if we are to make any progress at all.

HENRY BOSCH: You have a budget of $7 million a year, which is what we pay for the subsidy on school buses in the ACT, or the research institute of the Alligator Rivers. It isn't a very high political priority for investor protection, is it? So first thing, we've got to fund the commission properly, and I mean by many times as much as we've got now.

PAUL BARRY: Do you think that the new system which is about to start, or about, about, about to start, whenever it does, will that have the resources that it needs?

HENRY BOSCH: Well, I very much hope so, but it's quite uncertain, you know. The Commonwealth Government has been talking about that for three years. It's a year since the ASC, or since the chairman of the ASC was appointed, and they still haven't got a budget; they still don't know how much money they're going to get; they still don't know how many people they're going to be able to employ. There's still a wrangle going on about those things. Originally, Lionel Bowen said that there would be plenty of money, that all the problems were going to be solved. I have to say that I have some scepticism now, because of the delay and the lack of assurances that have been given.

PAUL BARRY: Before Ray Schoer joined the Stock Exchange last year, he ran the NCSC for almost a decade. He would agree that you have to find money for more investigators, but that in itself, he believes, won't be enough. If we want to prosecute corporate crime, we need to make more radical changes, in particular, to the legal system.

RAY SCHOER: I think we have to relook at the whole system of courts. We need courts that are able to deal with commercial matters. They are very very complex, they're very technical. A balance sheet, even to many accountants, seems to be a mystery. I've seen plenty of auditors who had trouble with balance sheets and certainly, to put that before a judge or a jury, is really asking a lot of the system.

HENRY BOSCH: We need expert juries, expert magistrates, specialist courts, that can understand these questions. The juryman off the street, you know, could have a most enormous difficulty in understanding these very complex financial stories. Now you imagine such a juryman. He's charged by the judge to acquit, unless he is satisfied beyond reasonable doubt, that a particular set of circumstances has been proved by the prosecution. If he can hardly understand what's happened at all, how is he going to be sure beyond reasonable doubt? That's the sort of problem that we're up against.

PAUL BARRY: You're talking of changes, changes that you think are needed, do you see those changes either being made, or likely to be made?

RAY SCHOER: A lot of people are talking about it. I believe even the courts are talking about it, but I don't expect the changes to come about, in the short term. I think that there is a strong view within the community, about civil rights and the rights of people, where the onus of proof should lie, and that should lie on the Crown. It would be very difficult in commercial cases, with that standard of proof, to get convictions.

PAUL BARRY: Are you optimistic or pessimistic?

RAY SCHOER: Pessimistic.

PAUL BARRY: It is often said that the Americans do know how to deal with corporate crime. The gaoling of Ivan Boesky and the humiliation of junk bond king, Michael Milken, with a $600 million fine, have at least achieved a cleansing of the system, but despite appearances, the Americans have not relied solely on the courts. They have powers to threaten those they catch with confiscation of all their assets, before conviction, and that threat then allows them to bargain.

HENRY BOSCH: In the great series of successes that the Americans have had, there has not yet been one not guilty plea. They have done it all outside court.

PAUL BARRY: Should we be satisfied with that, or would you like to go further? I mean, shouldn't we actually be trying to put people in prison, for doing some of these things?

HENRY BOSCH: Well, Boesky did go to prison for three years and then he got remission.

PAUL BARRY: And a tax break.

HENRY BOSCH: And a tax break. They have done better than we have. I'd like to do as well as they have - of course I'd like to do better, as well - and I can think of a number of quite prominent citizens in Australia that I'd like to see behind bars.

PAUL BARRY: Last week, the National Companies and Securities Commission raided IRL's offices in three States. It's a shame they did not do it two years ago, for it's now too late to get the money back. It is not too late, however, to clean up the mess that is corporate Australia, but it will need money and political will, and some vision. It is not too late, but if we don't act now, it will be.

ANDREW OLLE: Paul Barry presented that rather bleak portrait of Australia's corporate playground. Some fifteen months back, you may remember, the same reporter put the business activities of Alan Bond in the spotlight. Well, you may have seen the movie, now read the book. The research he did for his award winning Four Corners report inspired Paul Barry to dig even deeper, and next week, The Rise and Fall of Alan Bond hits the bookstalls.