Chris Bowen (Prospect, Australian Labor Party, Minister for Financial Services, Superannuation and Corporate Law) Share this | Hansard source

I thank the member for Werriwa for his question. When it comes to the proper functioning of markets and our public debate, it is more than a little important that the highest standards of integrity and honesty be maintained. Our legal framework for dealing with deceptive conduct in the business world is also vital to ensure that consumers and investors are fully informed in making financial decisions, because without access to truthful information the market simply would not function properly as poor economic decisions would be made. Investors, companies and consumers have the right to truthful information—much the same as citizens and voters have the right to that truthful information.

I was asked about concerns about the sale of certain insurance companies. The House may be aware of concerns relating to the tactics that surrounded the selling of FAI insurance to HIH, which played a very important role in the downfall of HIH. In 1997, Goldman Sachs Australia considered being a party to the purchase of FAI. After a thorough study of the business of FAI, the chairman of Goldman Sachs Australia concluded that the business was in bad shape and was worth very little. That chairman was Mr Malcolm Turnbull.

On 7 September 1998, Mr Turnbull sent a memorandum to Goldman Sachs executives in New York advising them that the assets of the business were worth very little. He said:

We estimate that the true net assets of FAI (that is, after write-downs and unwinding of reinsurance contracts) is approximately $20 million, compared with a stated book value of $220 million.

Fair enough. They did their work with due diligence and decided that it was not worth very much at all. But Mr Turnbull then agreed to help Mr Rodney Adler sell FAI insurance. In the process of finding a buyer, it would be common practice for FAI to appoint an independent valuation expert to give potential buyers some information about the value of the business. Mr Turnbull not only did not advise them to do this; he advised them not to do it. Mr Turnbull wrote to Mr Adler recommending against the appointment of an independent financial examination of FAI, stating, “It may not be in FAI shareholders’ interests to have such an investigation conducted and presented.”

On 11 January 1999—four months after Mr Turnbull argued that there was little value in the FAI business—on the basis of information provided by FAI and Mr Turnbull the insurance firm HIH purchased FAI for $295 million.

See this speech in context