HIH Investigation Produces First Criminal Charges

July 3, 2003

The ongoing investigation into the collapse of Australia’s HIH Insurance Ltd. in March of 2001 with debts in excess of A$5.3 billion (U.S. $3.57 billion) has produced its first criminal charges against the bankrupt insurer’s former management team.

A report, prepared by a Royal Commission which examined the affair, had recommended that its findings be turned over to the prosecuting authorities both on a national level and to the State authorities in New South Wales, as HIH had been based in Sydney. The report cited 56 possible legal violations.

According to a report from Dow Jones Newswires three former executives of FAI, a company HIH acquired in 1998, appeared in court in Sydney on Monday to answer to “two counts of failing to act honestly in the exercise of their powers and discharge of their duties and one count of providing false and misleading information.” The acquisition of FAI for A$300 million (U.S.$202 million), and the assumption of its losses has been cited as a major factor in HIH’s collapse.

Two former executives, identified as finance director Timothy Mainprize and COO Daniel Wilkie, reportedly face all three counts, while reinsurance manager Stephen Burroughs faces only the first one. All the charges relate to reinsurance arrangements they participated in with General & Cologne Re Australia, whose ultimate parent is Warren Buffet’s Berkshire Hathaway. The allegations state that they failed to fully reveal the nature of the reinsurance agreements to FAI’s auditors.

In related actions the DJ reported that Rodney Adler, FAI’S former CEO and major shareholder, is scheduled to appear in court next week to face “separate charges of stock market manipulation and making false statements in relation to HIH shares.” An Adler associate, businessman Bradley Cooper, has reportedly reached a separate settlement with HIH’s joint liquidators, KPMG’s Tony McGrath and Alex Macintosh, which provides that he will pay an undisclosed amount of money to the liquidators in exchange for a discharge of all claims against him.

This may be only the beginning of a series of prosecutions related to HIH. Dow Jones also reported that the Australian government is continuing investigations, and has already established and funded a taskforce within the Australian Securities & Investments Commission to evaluate and file charges where warranted.

It will work closely with a separate investigative team established by the government of New South Wales, which is investigating HIH’s senior management for possible violations of the State’s Corporations Act and Crimes Act.

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