Hih: Fodera Now Faces Seven Charges

Sydney Morning Herald

Wednesday November 9, 2005

Anne Lampe

The Director of Public Prosecutions has laid an additional charge against the former finance director of HIH Insurance, Dominic Fodera: authorising a prospectus containing a material omission.

The new charge is the same as that to which the former chief executive of the collapsed HIH, Ray Williams, pleaded guilty last March and for which he was subsequently jailed, with more than two years still to serve.

Fodera now faces seven charges under Corporations Law, with six charges laid two weeks ago of failing to act honestly as a director and company officer in the discharge of his duties and knowingly giving false and misleading information to directors and auditors in relation to a reinsurance arrangement.

Yesterday in Downing Centre Local Court the DPP asked that Fodera, 46, of Mosman, accept changed bail conditions.

Not only does he now need to notify the Australian Securities and Investments Commission of any change of address 24 hours in advance but he has been asked to relinquish his passport to ASIC. He can request its return if he submits a travel itinerary.

DPP lawyer Janet Austin told local court chief magistrate Derek Price that she did not think Fodera was a flight risk.

Mr Price ordered the matter back in court on February 7 next year.

The new charge relates to a complex transaction carried out in October 1998, when HIH was looking to take over FAI Insurance. The proposed acquisition was coded Project Vitamin.

HIH needed to raise money for the takeover and hit on the idea of raising $150 million via an issue of convertible notes.

The DPP's statement of facts, tendered to the court, claims Fodera misled investors by allowing a material omission from the prospectus for the note issue.

The prospectus provided that Societe Generale Australia, which co-underwrote the note issue, would to take up a priority allocation equivalent to $35 million. But the prospectus failed to disclose that HIH and SGA had also entered into a transaction in October 1998 referred to as a Total Return Swap (TRS), which effectively meant SGA's subscription of $35 milllion was fully secured and risk-free.

To ensure SGA's investment was risk-free, HIH would deposit with SGA a sum equivalent to the funds SGA put up.

Its subscription would thus be secured against any loss on the resale of the converting notes by recourse to that deposit. The DPP says this breached section 1311 (1)(a) of Corporations Law.

HIH hired SG Hambros Australia Ltd, owned by Societe General, to project manage the takeover. SG Hambros deputy managing director, Colin Richardson, was involved in the discussions.

On September 21, 1998, Mr Richardson met John Cooks and Pierre Katerdjian of SGA and briefed them on Project Vitamin, indicating there was likely to be a convertible note issue to pay for the FAI acquisition.

Lawyers advising on the scheme were Minter Ellison and its chief partner Leigh Brown, and Atanaskovic Hartnell.

A key document will be a letter written on October 1, 1998, under which "SG and HIH enter into a credit derivative described as a Total Return Swap.

"This effectively allows HIH to replicate in a synthetic manner the economic performance of the notes without having to buy them".

© 2005 Sydney Morning Herald

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