New Tel: from cash to ash
DECEMBER 14, 2002
ON Wednesday, in offices just off the Pacific Highway in North Sydney, one
of the final acts in Australia's extraordinary dotcom boom was being played
out.
Peter Malone, the chief of New Tel, was being told he wasn't welcome in New
Tel's offices any more.
The administrators were in. "By the book" men in suits - the antithesis of
what the laissez faire, easy-money days of the dotcom boom was all about -
had locked down the building, and were asking Malone to hand over his laptop
and keys.
PricewaterhouseCoopers had been appointed the night before - called in by
Optus, which was owed more than $10 million - after a month-long attempt at
a rescue collapsed.
Malone tried to get into his office, but found his security card didn't
work. The dozen or so people left at New Tel - more than 200 had been sacked
in the past few weeks - shifted uncomfortably at the scene they had to
witness, defining the end of what had been an incredible ride. Malone is the
last of the new economy gurus. Like the others, he's shared a parabolic rise
and fall.
His stocks soared in 1999 as he convinced investors to part with more than
$100 million.
The turning point - in common with his new economy counterparts - came
during the April 2000 dotcom crash. Malone's been headed for a crash landing
ever since.
While this is clearly yet-another tale of the falsity of the telco and
internet boom - a speculative frenzy that made paper billionaires of stock
promoters for a short time - Malone isn't seeing it.
Like One.Tel's Jodee Rich, Solution 6's Chris Tyler and Spike Network's
Chris O'Hanlon, Malone's vision of being at the vanguard of a new way in
business brought him unstuck. For a short time, investors rewarded
executives like Malone - and it seems he has trouble letting go.
According to those around him, he still doesn't see what the fuss is all
about. This month's battles, he says, are a hiccup.
"Peter is a fairy-tale believer," says Peter Jermyn, a Perth-based
businessman who's known Malone since the 1980s, and who has lost several
million dollars on New Tel.
"He reads Cinderella at night, and is convinced he'll wake up with a glass
slipper on his foot. I don't think he's devious or crooked, but he just
totally believes in himself."
It's a theme reminiscent of Jodee Rich, who still refuses to accept
responsibility for the collapse of One.Tel despite the overwhelming evidence
the company was simply managed appallingly. New Tel and One.Tel have a lot
in common.
"Malone is an extraordinary character," Jermyn says.
"But his biggest weakness ishe can't divorce fantasy from reality.
"I spoke to him this week," Jermyn said, "and he says everything's going to
be OK, asking what's everyone panicking for."
There's plenty to worry about. There are obvious questions about where more
than $100 million in shareholders' funds and another $100 million or more in
cash flow went. And The Australian, which has tracked New Tel's demise, has
now learned of dubious trading in New Tel stock on the US Nasdaq exchange.
Malone's right-hand man in the US, Peter Germinario - who helped get New Tel
listed on the technology-focused Nasdaq - is at the centre of questionable
share trading ahead of an announcement that sent New Tel's share price
rocketing in January 2000.
Germinario was on the New Tel payroll, and one of Malone's closest
associates. Just days before the New Tel marketing machine revved up its
ambitious plans for China's internet market, Germinario exercised 500,000
options at 63c each.
The options weren't due to expire for three years. But he locked in the
stock and, according to sources, started selling just days later when New
Tel's shares soared more than 300 per cent.
The 63c shares rocketed to more than $3.50 when, on January 4, a speech by
New Tel chairman Harry
'Our deal was with New Tel. It doesn't matter to us where Peter Malone got
his money from.'
Sorensen - a Perth corporate establishment figure - was released to the
market.
More was also revealed about New Tel's alliance with a company purported to
be linked to the official Chinese news agency Xinhua, and how New Tel was in
a "unique position to access a market that is forecast to be worth over
$US12 billion (about $21 billion) by 2002".
New Tel had released some information about an alliance in November, but
this latest news lit thefuse on the stock.
Malone had just completed a series of whirlwind tours to China and the US.
It's not clear if he met RayDirks, New Tel's favourite broker in theUS.
But Dirks was well briefed on the China deal, had issued a series of
favourable "buy" reports on NewTel, and struck gold for New Tel's
shareholders when he appeared on CNN on January 3, 2000, trumpeting New Tel
as the "AOL of Asia" - a reference to the giant US media and internet
company.
Day traders were alerted, and the stock went berserk. As soon as it did,
Germinario started selling - as did New Tel director Mark Hake, an
Arizona-based fund manager. He told the Australian Stock Exchange he ceased
to be a substantial shareholder in February 2000, a month after the
company's extraordinary share price run.
Dirks, who in the early 1980s successfully defended an insidertrading charge
brought by the Securities Exchange Commission, was just one of New Tel's
spruikers in the US.
Others included Vivian Lewis,who's also based in Arizona and has close links
with Hake. She openly touted the stock to her subscribers on the back of
information she told investors had been supplied by Hake.
This in an email to her newsletter subscribers in early 2000: "Mark Hake's
managed accounts and this newsletter have owned (New Tel) ever since Mark
wrote up the stock for us. In addition to her personal stake in New Tel,
Vivian also owns more via a limited partnership run by Mark."
She recommended New Tel as a "strong buy", and told investors not to worry
about disinformation being spread about New Tel and its China deal.
Indeed, almost as soon as New Tel's supposedly ground-breaking deal in China
was announced, doubts about the transaction with Xinhua Holdings emerged.
Xinhua News Agency - the mouthpiece for China's leaders - denied any links
with New Tel.
Malone planned to raise $200 million on the back of the deal. But investors
soon grew wary, and the placement never took place.
Xinhua Holdings was simply a shell company that boasted directors with
connections to the Xinhua agency, but little else.
Nonetheless, one of the men from Xinhua Holdings, An Zhou, has remained on
New Tel's board. New Tel paid at least $4.1 million to Xinhua Holdings, and
issued tens of millions of shares.
Nothing has come of it.
Where has the money gone?
Apart from a river of funds flowing to Hong Kong, there's been the
first-class travel. Expenses at Malone's small office in Perth have been
running at $800,000 a month. And his 79-year-old father, Francis, was on the
payroll for $30,000 in an unexplained role.
Salary and bonuses to Malone afforded him a $400,000 Aston Martin, on which
he spent another $200,000 having it stretched 15cm.
Of course, none of this adds up to the huge sums New Tel managed to raise.
A lot went in transactions to related parties of the directors.
Director Domenic Martino, a friend of Malone's for the past 20 years, earned
enormous fees for his accounting firm Deloitte Touche Tohmatsu. Martino is
chief executive of Deloitte in Australia, and helped collect more than $4
million in 2000 and 2001 for the company. Another $400,000 is still owing.
Martino resigned from New Tel in February.
Deloitte helped work on the China project, and boasted it was instrumental
in "developing the strategy, business plan, and implementation plan for New
Tel in China".
How Deloitte helped get the deal so spectacularly wrong has never been
explained.
Then there are the dealings with Mark Hake. Annual accounts indicate New Tel
lent $467,727 to US company Fitness Age - of which Hake was a director. The
2001 financial reports indicate New Tel wrote off this loan, raising a
provision in the accounts for the entire amount.
Core New Tel activities, like telecommunications, weren't Malone's strong
point.
Investments in other entities include an unlisted US company called Your
Health, in which New Tel sank $4.9 million.
After failing to commercialise any products, the company transferred its
"intellectual property" to Radiant Nutritionals, and New Tel landed a 45 per
cent stake.
Malone became chairman of the New York-based group.
The last word is that the company is "continuing to develop, amongst other
things, non-invasive and natural pharmaceutical alternatives to traditional
Western medicine".
Another New Tel director in 2001 was lawyer Paul Evans. He's a partner in
Freehills, which earned $1.17 million in fees in 2001, on top of $740,000 in
2000.
Evans resigned from New Tel in August 2001.
The flow of funds out of New Tel has left shareholders angry, and lawsuits
relating to the collapse of the company are being prepared.
Australia's corporate watchdog, the Australian Securities and Investments
Commission, is investigating New Tel (and has interviewed Malone) over its
suspicion that the company may have traded while insolvent.
The Weekend Australian has learnt that ASIC is paying close attention to the
extraordinary share trading in New Tel shares.
But for all that, Malone remains seemingly unperturbed.
Indeed, even as the administrators from PWC copied hard drives and documents
and examined New Tel's anaemic cash-flow statements this week, Malone was at
Sydney's five-star Westin hotel hosting a dinner for about a dozen people,
including Robin Armstrong from Findlay Stockbrokers, who helped raise
millions for New Tel.
Also there were Melbourne-based corporate crook Richard Steggall and his
father, Neil - their criminal reputation exposed in the past month as they
attempted to come up with a rescue plan for New Tel.
And Joe Tuomo was there, too. Tuomo is a partner with wealthy Melbourne
businessman Mario Salvo in rental car business Delta.
Tuomo wouldn't speak to The Weekend Australian, but from all reports he
wasn't there to wish Malone well.
Tuomo and Salvo, worth more than $100 million, want answers from Malone.
New Tel acquired Delta's telephony offshoot early this year, issuing a $4
million convertible note.
Tuomo and Salvo are now standing in the queue with the other creditors.
But in the money-go-round that has characterised the junior end of the
telecommunications sector, Tuomo and Salvo say they kicked in $1.6 million
as part of Malone's attempts to buy another telephone company, Digiplus.
Then the wheels fell off. The acquisition collapsed as Malone started to
realise that the days of easy finance were finished for telcos.
It's another sorry tale for New Tel shareholders, and testament to the kind
of deals Malone did.
First, he paid Digiplus a non-refundable $1 million deposit, so that's gone.
Then he paid a further $4 million - and now Digiplus chief Mike Robinson
says he does not have to give it back.
Tuomo and Salvo have begun legal action in the NSW Supreme Court to recover
what they say is their $1.6 million share.
"Our deal was with New Tel," Robinson says. "It doesn't matter to us where
Peter Malone got his money from."
If he's right, Malone will add the debt he owes Tuomo and Salvo to what's
becoming a long list. |
