ASIC sues TerraCom, directors over coal-testing whistleblower protections

The watchdog alleges TerraCom management and directors, including construction industry legend Wal King, misled the market by denying whistleblower allegations.

ASIC is taking legal action against coal miner TerraCom in a landmark case over whistleblower protections.

The corporate watchdog has targeted coal producer TerraCom, its senior management and former directors in its first ever action over laws protecting corporate whistleblowers.

The Australian Securities and Investments Commission said on Wednesday it had launched the civil penalty proceedings in the Federal Court against TerraCom, managing director Daniel McCarthy, chief commercial officer Nathan Boom and former directors Wal King and Craig Ransley.

ASIC deputy chair Sarah Court said the action related to “conduct that harmed a whistleblower” that had made allegations the company and its testing laboratory ALS falsified coal export quality certificates to meet customer requirements.

ASIC said its case alleges that the company officers and directors, as members of the TerraCom board’s disclosure committee, allowed “false and misleading statements” to be made to the market regarding the allegations – made by a former employee in a separate court case – that the company had pressured ALS to falsify testing results of its export coal.

TerraCom denied the allegations at the time, and said it had conducted an independent investigation that found the allegations were “unfounded”, telling shareholders that the whistleblower made the allegations only after he had been made redundant from the company.

TerraCom also took out newspaper advertisements in which it disputed the former commercial manager’s claims.

The allegations against Mr King, once one of the biggest names in the Australian construction industry, related to the allegedly false and misleading statements made to the stock exchange.

The corporate watchdog has alleged TerraCom management and directors, including construction industry legend Wal King, misled the market by denying whistleblower allegations. Picture: Britta Campion/The Australian

The legal action against the other three TerraCom directors includes allegations they “engaged in conduct that caused detriment to the whistleblower’s reputation, earning capacity and psychological and emotional state”.

TerraCom said it had engaged lawyers and would “vigorously defend the proceedings”.

The company fought a separate case in the federal court in 2021 to prevent ASIC from viewing the results of its own investigation into the whistleblower’s allegations, conducted by PwC, which Ms Court said now formed the basis of ASIC’s legal action.

Speaking to the Australian on Wednesday, Ms Court said ASIC’s case would allege that the PwC report did not “indicate that the allegations were unfounded”.

“What we allege is that this series of announcements made by TerraCom to the ASX effectively gave rise to a number of representations – including, for example, that the independent investigation that was referred to in these announcements had rejected all of the whistleblower allegations, had made a finding that the allegations were unfounded, and that it had excluded any involvement by the company in relation to these allegations,” she said.

“We say that’s not what the expert report concluded.”

ASIC also alleges that all four men failed in their duty to the company to take “reasonable steps” to act on the findings of the PwC report.

ALS later admitted that up to half of coal export certificates, over a period extending for more than 12 years, were “manually amended without justification”.

ASIC has not taken any action against ALS over the allegations, and has not taken any additional action against TerraCom.

Ms Court said that was largely because ASIC’s jurisdiction under the Corporations Act largely extended only to representations to the market, and the conduct of company directors.

She said the corporate watchdog was still considering whether it could refer the results of its investigations to other regulators, however, where the law allowed.

“We don’t have a remit to look at misleading conduct insofar as it relates to the coal quality certificates, per se, because they’re not a financial product,” she said.

“Now that we have finished this part of our investigation we are looking at the rest of the information and working out whether or not it is appropriate to refer the information we’ve gathered – to the extent we’re able to under the law – to the relevant regulator, who in this case would likely be the ACCC.”

Originally published as ASIC sues TerraCom, directors over coal-testing whistleblower protections