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- The Market Herald notes that there has been no evidence of criminality by any party
In the ongoing public examination of the failed ASX-listed company Smiles Inclusive, stockbroking firm Morgans’ Executive Philip Lee and Chairman Tim Crommelin faced intensive questioning in the Victorian Federal Court today.
The central question today was whether Morgans used its own clients’ votes without their consent during an extraordinary general meeting (EGM), where voters sided with Smiles Inclusive’s Chairman, David Usasz, in favour of then-CEO Mike Tomney.
The implication was that Mr Usasz and Morgans could have colluded to gain greater control of the financially troubled company.
During the morning session, Mr Lee and Mr Crommelin jointly confirmed the following points:
- Mr Usasz had an existing relationship with Morgans;
- Mr Usasz was personal friends with Mr Evans, who headed an independent committee on Smiles’ Board that allegedly sided with Mr Usasz;
- Morgans’ Chairman Mr Crommelin personally knows Mr Evans;
- Some shareholders who voted in the EGM later complained they hadn’t voted; and,
- Morgans once loaned Mr Usasz $200,000 to pay back NAB.
The interest-free loan, Mr Lee affirmed, was not something Morgans usually did. In fact, it was the only time it’d ever happened, he told the court. But Mr Crommelin later disputed this, saying Morgans had done that many times since the 1980s.
“There are many companies that are in breach of their covenants with banks … it’s a common event from small companies like Smiles to [big companies like] Star Entertainment,” Mr Crommelin told the claimant’s counsel.
“In that case, the bank is working with management to keep the company alive … we made the decision that we would lend them some interim money … [so Smiles could] get more capital.”
Mr Usasz took the stand earlier in the week and said he struggled to recall events of nearly half a decade before.
Morgans’ Philip Lee today told examining counsel that Morgans was given forward notice of that EGM and its purpose.
“How involved was Morgans in seeking to influence the voting at the EGM?” Counsel asked.
“We were quite involved,” Mr Lee replied.
“We were very concerned with what was going on, the performance of the previous management, and as it evolved, we became very involved in backing the David Usasz Board because of their plan and we became very involved in recommending [how] clients vote.”
Mr Lee confirmed other Morgans’ staff members were present at the EGM but could not recall who was there. Mr Crommelin later confirmed he was one of them.
Morgans’ Chairman Mr Crommelin also had received tax advice from Mr Usasz when the latter worked for Pricewaterhouse Coopers.
Months after the EGM there were claims that key shareholders had been recorded as voting ‘yes’ when they claimed they had not voted at all. Both Mr Lee and Mr Crommelin pointed to a third-party company, WealthPlus, as possibly responsible for the technical error.
Mr Lee suggested the strange voting behaviour was due to a lag between data being created and its entry into a system.
The meeting was also attended by an extraordinarily high number of retail investors. Both Morgans executives were asked if they sought to influence voters – namely retail shareholders who were not within Morgans’ client base.
“We canvassed hard,” Mr Crommelin said, however he denied Morgans had solicited retail investors to attend.
Mr Evans’ independent committee position had become relevant earlier during similar questions put to Lee.
When asked if Morgans sought to influence the voting intentions of non-Morgans clients, Mr Lee only answered that Morgans’ distributed advice was in line with an ‘independent committee’ attached to the Smiles’ Board.
Mr Lee confirmed the head of that committee, run by one man, and Mr Usasz were friends.
“It’s not particularly independent then, is it?” Counsel asked. Lee said he could not meaningfully answer that question.
The hearing will continue throughout this week.
