More from the Senate Hansard Report about the "Hider Loan Affair" the 36% interest loan made to Geo2 (during its last days prior to administration) by an investor group which included the company's Legal Advisor and former director, Charles Hider. For the information of GEL shareholders who like Lutine Bell have lost a bundle.
FROM HOT COPPER: hotcopper.com.au
Title: TREASURY PORTFOLIO : Australian Securities and Investments Commission
Date: 23 November 2000 Committee name: ECONOMICS LEGISLATION COMMITTEE Department: TREASURY PORTFOLIO
Program: Australian Securities and Investments Commission Page: 168 Proof: NO
Database: Estimates Comm. Source: SENATE
Senator CONROY —Sure. I am talking about the ones that require ministerial approval downwards. Anyway, we will not labour any further. Who is our GEO2 expert? Mr Longo, you are smiling. Have you investigated the details of the $1.5 million short-term loan detailed in the companies recent prospectus?
Mr Longo —As you know, we forced additional disclosure of the details of that loan.
Senator CONROY —These are matters you have completed, I am assuming, so you are in a freer position to talk about them, rather than if they were ongoing.
Mr Longo —There is no doubt that GEO2 has had some difficulties and are now under administration. The recent incident where we took action was to force the company to be a bit more open about what we felt were material facts about that loan.
Senator CONROY —Unfortunately GEO 2 have a long history of misleading the market. You just have to read the Australian to know for how long.
Mr Longo —That is correct. This is not the first time GEO 2 have been the subject of ASIC scrutiny.
Senator CONROY —No. Unfortunately, notwithstanding approaches to you and the ASX, in the case of the contract with the People's Liberation Army of China—with the alleged turnover of $17 million that they announced just prior to a capital raising—there was no contract ever signed. There is still no proof whatsoever that that contract existed. Investors signed up on the basis of a fraudulent statement by the company. Knowing as I do that ASIC were asked to look at it, and knowing as I do that the ASX were asked to query the announcement—and the fact that all of these people have now lost their money—GEO 2 unfortunately has a long history. Have you been able to confirm to whom the establishment fee of $60,000, the guarantee fee of $30,000 and the legal costs of $14,372 are being paid?
Mr Longo —At this stage, I cannot inform the committee whether they are matters that we are inquiring into at all. The focus of our interest in GEO 2 over these several incidents has been disclosure driven. I think I should come back to the committee on notice to confirm the correctness of what I am saying—that our recent interest in GEO 2 has been disclosure driven. We have not taken a particular interest in the various elements of the transaction although, on the face of it, it is a lawful transaction. Our concern was that investors be well aware of the material terms of it.
Senator CONROY —So you do not have a view on whether the interest rate of 36 per cent plus a default rate of 40 per cent, with interest paid in advance, is a fair return for a short-term investment?
Mr Longo —You would appreciate that it is not really a matter for ASIC. If my memory serves me, it was certainly a concern of ASIC that, in the initial disclosure by the company, the financing terms were described as within the norm of the industry.
Senator CONROY —Can I get a piece of this, if this is normal!
Mr Longo —Upon scrutiny, it occurred to us that those rates of interest and those other terms that you referred to could not fairly be characterised as generally acceptable terms. For that reason, we forced additional disclosure. Having done that, the terms under which the company wants to raise or borrow money is really a matter for the company and its shareholders.
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According to a recent document lodged with ASIC, Geo2 has applied for approval not to conduct an audit of the company to establish what went wrong. Is ASIC going along with this? Is possible criminal behaviour by more than one director to be rewarded by no audit, no investigation? Is this another example of the negligence and incompetence of ASIC?
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Sounds like a reasonable case for either establishing a royal commission into ASIC or dismembering it and starting again. Or doing without it altogether. We're no good with it and no good without it doing its job properly.
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ASIC is losing all credibility and the evidence to the Senate Select Committee by the ASIC flunky highlights the incredible inertia the ordinary aggrieved shareholder or creditor has in getting ASIC to do anything.
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