John Williams (NSW, National Party) Share this | Hansard source

In the last week, Australians may have read about the goings on at a company called IOOF. This is a company that has $150 billion worth of funds under management and some 650,000 clients. It is the sixth biggest financial planning company in this country. But today there is a stain on IOOF. As if Australians have not been sickened enough by the dodgy financial practices of some at the CBA, Macquarie Private Wealth and the NAB, we now have very concerning allegations of insider trading, front running and even cheating on exams—and instead of reporting these instances to the corporate regulator, ASIC, it was suggested that a donation be made to a charity. IOOF's Research Division provides independent research for the groups 1,120 member-strong financial planning network on many listed stocks and research reports on thousands of managed funds. The planners read these reports and go out to advise their clients.

With any organisation, and particularly one as large as IOOF, one would expect the highest standards, the highest ethics and a reputation beyond reproach. Tonight I will provide evidence that at IOOF there was no internal control policy for the production, editing and dissemination of research reports; no conflict-of-interest policy relating to such reports; and no share trading policy. What is meant by 'front running'? It is described as 'a practice by market makers of dealing on advance information provided by their brokers and investment analysts before their clients have been given the information'.

Tonight I name the head of research at Bridges, Peter Hilton, as a person who allegedly engaged in front running when he conducted trades on at least 53 occasions over some 20 years. A major part of his role is the dissemination of research to the Bridges network, including recommendations to buy, sell or hold securities. I will give some examples. In 2009 there was a potential breach assessment report in the research unit. It was investigated by Rob Urwin, head of investigations. Mr Hilton was questioned on his trading activities, including management of some Questor funds. Questor is a subsidiary of IOOF. I quote from notes taken at a meeting between Rob Urwin, head of investigations, and Gary Riordan, group general counsel, with Peter Hilton. Mr Urwin said:

With regards to the toll trade, I explained that an update Research was sent to the network on 27 August 2009—Maintain Buy. Peter explained that the stock was already a BUY, so an unchanged recommendation ought not trigger the Front Running issue. I explained to Peter that a Research report was given to the network and it was based on update information. Peter was the author of the report. Shirlene placed an order to BUY Toll on the 26 August 2008. Peter advised that he assumed that the order would not be executed until after the embargo period had expired. I explained to Peter the process undertaken by the Responsible Executive of his or her delegate to review staff orders against the embargo list. I advised that it was impossible to put a hold on the order as the Research report has not been disseminated to the network.

As a result of that investigation and the questioning of Peter Hilton he was issued with a warning letter dated 19 May 2009. It was headed, 'First and final warning'. That letter, signed by Michael Carter, who is head of wealth management, said in part:

I have considered your response and it is deemed that your behaviour and actions warrant formal warning. In general if you are to continue in this role, your performance/behaviour needs to improve along with your ability to achieve set goals and demonstrate leadership qualities.

It then listed three expectations. Following that, this line was included:

Please be aware that failure to improve and maintain adequate improvement in the above areas may result in immediate termination of employment.

So this was considered a serious enough breach to warrant threatened dismissal by IOOF, but they did not report this to ASIC. Unbelievably, Peter Hilton was later promoted within the company.

I also have in my possession documents which are compliance breaches by him, where it is alleged he had junior staff cheat on training and compliance exams on his behalf. This results in a final warning, issued on 1 May 2014, where he is told that another breach would result in his dismissal. So that is two warnings to Mr Peter Hilton.

There also allegations of insider trading. I refer to an email from Andrew Boyd, human resources manager, to Danielle Corcoran and Rob Urwin on 22 May, 2009 titled 'Edward Youds—trading ETC'. ETC is the name of the company. I quote:

Darren Sheen and myself have just met with Edward and delivered his first and final warning related to the inappropriate share trading matter. Edward has reviewed and signed the warning and I have placed the document on his personal file. Rob Urwin will facilitate Edward's retraining of the various codes and policies and Edward will ultimately donate the proceeds of profit from the sale of the ETC shares to a charity.

A year later Youds left IOOF. Three minutes later, in another email that Rob Urwin sent to Gary Riordan, he said that he had organised a meeting with Michael Carter to discuss Peter Hilton, and 'ideally I want to go the same way as this example', which I and most people would take to mean a donation to charity or a final warning.

IOOF said on 22 June that it stood by its compliance record. Today it has backtracked and has engaged PwC to commence an independent review of the IOOF group regulatory breach, reporting policy and procedures, and it will inform APRA and ASIC of the outcome. Talk about closing the gate after the horse has bolted! ASIC is now investigating whether there are breaches.

I can show you a document where the chairman, Roger Sexton, and two directors of IOOF were alerted in early February this year that there were breaches of common law, insider trading, front running, false representation of model performance figures, research processes which are not ASIC compliant and breaches of ASIC regulatory guidelines and legislation. There is a black cloud hanging over IOOF.

Here are my questions to those in control of IOOF. To the chairman and directors: why did you not act when you were written to by the whistleblower and provided with the evidence of the breaches? You have been aware of some of them. To CEO Chris Kelaher: you were also given evidence about cheating and faulty research reports, but you allowed Peter Hilton to remain in his position until the media started asking questions. Peter Hilton was allegedly involved in illegal activity dating back to 1995. Why was he allowed to remain in his position and not be reported to ASIC? To Rob Urwin, head of investigations: you allowed this to stay internal. Is there anything else you want to tell us? I would like more details on the investigation you were talking about, which is board related, when you met with the whistleblower over a beer on 12 December. You said the following:

When you talk to someone in the research team, you're a close tight team. You don't just talk to the person that you want to talk to, you talk to everyone else as well. And you try and get inconsistencies in their stories. By the time you get to who you really want to talk to you've got a lot of mud going like that. And that's what I'm doing with this other one, and believe me, it's big. If you're still around mate when this one comes out.

The whistleblower said, 'Okay, but this investigation isn't research related.' Rob Urwin then said, 'It's board related. Sorry, mate.'

Danielle Corcoran, company secretary and head of human resources, has treated the whistleblower badly. She gave Peter Hilton a first and final warning, yet sacked the whistleblower.

To Tim Gunning: you now run Ord Minnett, which is controlled by IOOF. You went there after running Commonwealth Financial Planning during the scandal. I want to talk to you about media reports last year that you used a loophole to reap fees that would otherwise have been against the law under FoFA rules banning conflicted remuneration.

Earlier today in this place a motion calling on the federal government to establish a royal commission into the financial planning industry was defeated. I understand the reasons why the government did not support the motion, but I did support it because I have been advocating for it for five years or more. What I have detailed tonight and what has been detailed in Fairfax media articles in recent days reinforces the fact that the financial advice industry has not learnt its lesson. While these firms continue to flout the law, I will stand up in this place and highlight their wrongdoings.

A warning to these companies: do not do the wrong thing, because you have good, decent people working for you, who will no doubt tip off the media or send documents to my office like the documents which I have received this week. People work hard to save their money. They rely on good financial advice to invest their money safely, not for it to be gambled with. I find it amazing that, when someone is carrying out insider trading and makes a profit, it is not reported to ASIC—let's donate it to a charity and then suggest the next person does the same. This is wrong and these people need to lift their game. No doubt in the near future the Economics References Committee, chaired by Senator Dastyari, will be talking to these people and we can get some questions answered.