Unlawful share trade by blue chip broker earns millions

Baillieu Holst director Stephen Macaw (right) and NewSat Limited CEO Adrian Ballintine (centre). Federal National Party senator John Williams has vowed to grill ASIC officials over the Baillieu Holst shares matter Photo: Alex Ellinghausen
Wuxi Plastic Surgery

A director of blue chip stockbroking firm Baillieu Holst unlawfully sold 17 million shares that earned millions of dollars for an entity associated with his brother.

But Fairfax Media can reveal the prestigious Collins Street firm was never punished by the Australian Securities and Investments Commission, despite the deal breaching Australia’s market integrity laws that ban the trading of unquoted securities.

Dealing in unquoted shares is outlawed to ensure fair trading and the timely disclosure of important information that may affect a company’s share price.

In a decision that has incensed its critics, ASIC allowed Baillieu Holst to handle the matter after the firm “self-reported” the breach. Under ASIC’s rules, Baillieu Holst could have been publicly sanctioned and fined $100,000.

Baillieu Holst has impeccable stockbroking pedigree and was formed after the 2012 merger of two of Victoria’s 19th century broking firms E.L & C Baillieu and F.W Holst. Although the firm was founded by the ancestors of former Victorian premier Ted Baillieu and still carries the famous family’s name, it has not had a Baillieu on the board since 1999.

Its breach of ASIC’s rules involves the trading of 17 million shares in the Melbourne satellite company NewSat, which has $400 million in US and French government-backed finance to fulfil its ambition of launching Australia’s first privately owned and operated satellite.

But as Fairfax Media revealed last month, NewSat’s questionable corporate governance and high spending — including its financial dealings with the motor yacht company of NewSat chief executive Adrian Ballintine — has led to a deteriorating relationship with its lenders.

Baillieu Holst director Stephen Macaw traded the 17 million NewSat shares to clients of the firm on the morning of 29 October 2013 at 52¢ apiece, generating $8.8 million for an offshore entity associated with his brother.

Fairfax Media has confirmed the NewSat shares had not been formally quoted as required under Australian law. NewSat only advised the market it had issued the 17 million shares seven hours after they already had been sold.

NewSat had promised the shares as a form of repayment to an offshore entity associated with Mr Macaw’s brother, Scott Macaw.

In July 2013, New Zealand-registered Orbital Capital made a secret 180-day, $5 million loan to NewSat to bridge a funding shortfall of $2.9 million.

As part of the deal – which was not disclosed to the market at the time – NewSat agreed to pay Orbital a fixed interest fee of $1.4 million, which was an extraordinary interest rate of 56 per cent.

To repay the loan and interest, NewSat agreed to provide Orbital with 17 million shares at a 25 per cent discount to their market value.

NewSat and Orbital agreed to end the loan deal early in late October 2013, a time the company’s share price was the highest it had been in months. With Baillieu Holst immediately selling the shares at 52¢ apiece, Orbital made a profit of $2.4 million in addition to its $1.4 million interest fee.

It is understood that the loan was negotiated directly between NewSat and Orbital and did not involve Baillieu Holst or Stephen Macaw, who had led NewSat’s equity raisings.

Orbital’s principal, Zurich businessman Christoph Dietsche, is on the board of a Danish company with Scott Macaw. Orbital was also associated with now defunct New Zealand company, Kiwi Deposit Building Society, which was co-directed by the Denmark-based Scott Macaw.

The unexpected selling of 17 million shares – which was about five times NewSat’s average daily trading volume at the time – was a disaster for shareholders, who saw the share price fall from 57¢ to 38¢ in less than two weeks.

To conceal the debacle, NewSat released a series of misleading statements to the Australian Securities Exchange and ASIC which failed to disclose that the Orbital shares had already been sold. “Our statements were an attempt to paper over a pile of shit,” a former senior NewSat executive told Fairfax Media recently.

But just as no regulatory action was taken against Baillieu Holst for breaching market integrity rules, NewSat has also not been asked to account for its statements. ASIC declined to answer questions about its actions.

Federal National Party senator John Williams has vowed to grill ASIC officials over the Baillieu Holst shares matter when they appear before a parliamentary committee on Friday. Greens leader Christine Milne said the case reinforced a perception that “it seems that there are two laws in Australia, one for the big end of town and one for everyone else”.

NewSat legal counsel Bill Abbott said on Tuesday that in hindsight it would have been advisable to have advised the market that Orbital had immediately sold the shares. But he added that he was busy ensuring “the legalities got in place as soon as humanly possible”.

Prior to trading the shares, Baillieu Holst’s Stephen Macaw is believed to have been assured by NewSat that he was legally able to do so. However, he failed to check whether NewSat had actually submitted all the paperwork to make the share trade legal.

In a statement, Baillieu Holst said it took immediate action once it became aware an “administrative error” had been made. This included reporting the breach to ASIC, engaging external lawyers to conduct a review and taking “appropriate action” internally.

The firm said neither it nor Stephen Macaw had a conflict of interest in relation to its role raising capital for NewSat. It said NewSat had its own relationship with entities associated with Scott Macaw that provided finance.

“To the extent that these entities used Baillieu Holst as a broker, they did so on normal commercial terms and with appropriate disclosure by Stephen Macaw to Baillieu Holst management.”

Scott Macaw’s Kiwi Deposit also traded NewSat shares and held $2 million worth of them at the time it went out of business in April 2013. Kiwi Deposit also has an outstanding $440,000 loan to Mr Ballintine’s yacht company.

Kiwi Deposit ran into trouble in New Zealand in 2012 when ASB bank moved to terminate its relationship and close dozens of accounts. A senior ASB executive told New Zealand’s High Court of his bank’s concerns about certain Kiwi Deposit transactions, including a US$ 1 milion transfer from a Tunisian company to an Islamic bank in the United Arab Emirates via a Kiwi Deposit account.

with Mark Hawthorne and Lucy Battersby

The original release of this article first appeared on the website of Wuxi Plastic Surgery Hospital.