Whistleblower allegations of coal quality rigging and executive denials rocked TerraCom
The day a man who had worked at a Queensland coal mine for just five weeks was sacked, he made extraordinary allegations about fraud. Here’s how the TerraCom court saga started.
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The first time TerraCom realised that it had a whistleblower problem on its hands can be traced back to between July and August 2019.
General commercial manager Justin Williams, who was sacked later that day, met with the Queensland miner’s boss and chief financial officer at 8:30am on August 13.
Williams, having only worked at TerraCom for about five weeks, had alleged the company was rigging coal quality certificates in its favour.
He claimed his predecessor Tony Garmeister, was engaged in the practice with TerraCom’s testing partner ALS. Simply, the alleged ruse meant coal quality results were doctored to favour TerraCom.
Williams would claim Garmeister and ALS “engaged in the practice” with the knowledge of TerraCom’s CEO Danny McCarthy and CFO Nathan Boom, who deny the allegations against them.
The executives had some sense of Williams’ concerns going into the meeting; they heard “Williams was concerned about a practice he had observed between TerraCom and ALS,” the Australian Securities and Investments Commission alleges in court filings.
But Williams could never have known McCarthy emailed a recruitment agency, copying in Boom, on August 9 requesting assistance to replace Williams in the role of general manager commercial corporate, ASIC alleges in its statement of claim.
“[W]e recently recruited and filled the attached role, it isn’t working out and we will be putting him to sleep,” McCarthy allegedly instructed the recruiters.
At the W breakfast meeting, McCarthy and Boom told Williams he was being terminated as part of a reduction in high overheads, according to the regulator’s account.
“Williams stated that he did not accept that explanation and that he considered he was being terminated because of the issues he had raised about TerraCom’s practices.”
It was about to get worse.
“Williams said he had evidence of TerraCom’s illegal activity. McCarthy sought to forcibly grab Williams’ laptop bag,” the claim goes.
McCarthy and Boom don’t dispute the meeting, but deny trying to take the laptop and rejected the allegation Williams was being sacked because of his rigging claims. A meeting with another director (and TerraCom founder) Craig Ransley was brokered.
“The Chairman of TerraCom … has authorised me to meet with you at 1pm at W,” Ransley texted Williams that morning. But the then chair of TerraCom, former Leighton boss Wal King, denies he ever authorised the meeting, according to King’s defence.
This is when Williams told Ransley that Garmeister’s alleged conduct proceeded with McCarthy and Boom’s knowledge, ASIC alleges.
“Williams said he did not want to make a big deal about the matter and wanted to continue to work as he believed Blair Athol to be a valuable project and the practice being engaged in was harmful to TerraCom.
“Williams provided to Ransley a bundle of documents which he said supported his allegations and provided an explanation of how they related to his allegations.
“Ransley said that the termination had nothing to do with the issues Williams was raising.”
Williams told Ransley that day he would be taking the laptop to the Australian Federal Police. The AFP in previous statements have said they investigated the allegations and did not find sufficient evidence to support them.
Ransley was previously found not guilty of charges in 2017 relating to a probe conducted by the NSW Independent Commission Against Corruption, regarding the Doyles Creek Mine in the Hunter Valley. It was alleged that Ransley made three false and misleading statements to get the mine approved, but he has been exonerated.
Industry rocked by claims
The fake coal tests scandal that has afflicted the listed small cap miner since 2020 may never have been revealed, had it not been for an astonishing self-report by the $6bn testing company ALS to the ASX and a Fair Work case lodged by Williams.
TerraCom instructed its lawyers, Ashurst, to stand up an investigation into the claims – meaning also that legal privilege could be deployed to block release of certain communications and documents.
ASIC sued the miner in 2023 for flouting market disclosure rules. While it settled a part of the case for $7.5m with TerraCom relating to the treatment of Williams as a whistleblower, a civil trial wrapped up against the directors and King this week in the Federal Court. Judgment is reserved.
Leaning back in the witness box in Sydney, King, who was the boss of construction giant Leighton Holdings (now Cimic) until 2010, said he relied on advice from Ashurst and on other directors to alert him immediately if anything of “merit or substance” came to light about claims the company rigged coal quality results.
TerraCom released the first of three announcements about the claims in late February 2020, declaring allegations it colluded with listed company ALS to fake coal quality certificates to solicit better prices from their customers, largely from Korea and Japan, were “totally unfounded”.
Korea Midland Power is now suing ALS and TerraCom, while Korea South-East Power is suing ALS. Both matters are ongoing in the Federal Court. ALS has filed counter claims in both matters, while TerraCom has filed a counter claim in the Korea Midland Power action.
The ASX declined to publish a second TerraCom notice about the saga on March 10. So instead, the company ran it as an open letter to shareholders in newspapers.
It said it took allegations to do with McCarthy and Boom seriously and said “an independent forensic investigation was conducted and found no evidence of wrongdoing”.
A third statement, published to the ASX on April 3, repeated claims McCarthy and Boom were exonerated by the independent investigation, “found that the allegations against (TerraCom) were unfounded and neither had done anything wrong”.
“Since those allegations were made by (Williams), none of TerraCom’s customers have raised any concerns about the quality of supplies from TerraCom’s Blair Athol mine in Central Queensland,” the April 2020 market update said.
TerraCom only publicly responded to the allegations after former Financial Review journalist Liam Walsh reported the whistleblower’s claims.
ALS, however, was telegraphing a different story. It released a market update in February 2020 that said initial investigations into its coal certification procedures revealed a number of certificates of analysis were amended “without proper justification”.
ALS told the market four staff members of the coal superintending unit had been suspended pending the outcome of an ongoing investigation.
A little over four years later, King – along with McCarthy, Boom, Ransley and TerraCom itself – are reliving the allegations in the suit brought by the corporate cop, which says each of the men and TerraCom failed to “take reasonable steps” to ensure information in those public statements “was not false or misleading”.
Behind the double negative is the allegation that TerraCom and the named directors allowed the airing of bad information. TerraCom and the four men vigorously deny this.
ASIC argued that the report, produced by PwC, actually showed that out of a sample of 14 coal shipments, 12 showed inconsistencies that were ultimately in TerraCom’s favour. It is alleged TerraCom made about an extra $1m off the inflated shipments.
PwC investigates
ASIC has claimed that Garmeister declined to be interviewed by PwC and TerraCom declined a PwC request to interview someone at ALS. In his defence, Ransley said Ashurst had contacted Garmeister to discuss the coal quality testing process. He said Garmeister told Ashurst he denied any wrongdoing, including fraudulent activity.
“Mr Garmeister was not concerned about anything that happened during his employment at TerraCom,” Ransley’s defence said. “Mr Garmeister declined to participate in the investigation further because he was no longer employed by TerraCom and did not want to get caught up with the investigations and the allegations made by Williams.”
Ransley’s defence claimed in response to a request to interview someone from ALS, “TerraCom was not comfortable with PwC speaking to any external parties unrelated to TerraCom given the sensitive nature of the allegations made by Williams.”
PwC, which produced three drafts and a final report in December 2019, could not determine why the inconsistencies occurred.
Under cross-examination from ASIC’s barrister Michael Borsky KC this week, King agreed he “didn’t even look” at the report, let alone read it in any detail until just before the trial. This is despite agreeing the market updates and open letter – which ASIC argues conveyed TerraCom was exonerated – should be released. “(They were) substantially vetted by legal people,” King said. “I think the words were ‘it’s been legalled to death’. There was no reason to do anything other than let it go.”
Mr Borsky asked King, who authorised the investigation dubbed internally as “Project Rex” according to court documents, if TerraCom did everything it could to keep the PwC report confidential. King responded it did, and agreed TerraCom even “imposed constraints on (auditors) Ernst & Young” when it read the PwC report.
King also agreed that TerraCom equipped privilege to keep the PwC report away from ASIC.
Large parts of the PwC report are to this day redacted.
King did not accept Mr Borsky’s proposition that TerraCom was trying to keep the PwC report confidential because it was concerned if the report got out, it would be revealed that PwC had not, in fact, exonerated TerraCom. “I totally reject that,” he said.
He recalled how at one stage, EY and Ashurst lawyers disappeared for about an hour-and-a-half to look at the report, and when they emerged, King said EY confirmed “words to the effect there are no issues (and) we will produce an unqualified report”.
TerraCom told the ASX in November 2016, via its subsidiary Orion, it had acquired the Blair Athol coal mine in Queensland. This is the mine at the heart of ASIC’s case.
The regulator claimed from at least March 2019, TerraCom, McCarthy, Boom, Ransley and King were all aware several factors could affect the quality of the coal being mined at Blair Athol.
This included that most coal mined in the future would be near or under the water table, the energy levels of the coal were slowly declining, the moisture content of the coal was slowly increasing, the ash levels of the coal were slowly increasing and moisture was being added to the coal at the loading port.
In its court pleadings, ASIC alleged the Korea South-East Power company told TerraCom’s sales and marketing agent, Noble, that it had identified a “huge gap” in port analysis results between loading and unloading for the Hyundai Samcheonpo with a bill of lading date May 3, 2019.
That was on August 16, 2019.
Quality issues
As well, ASIC alleged global energy trader JERA – also a TerraCom customer – wrote to the miner on February 28, 2020 asking for samples of the coal for three cargoes with bill of lading dates November 30, 2019; December 25, 2019; and February 6, 2020 to be tested by Bureau Veritas.
JERA asked TerraCom whether it was aware of any certificates of analysis for cargoes delivered under TerraCom’s agreement that may have been amended without proper justification.
ASIC also claimed Korea East-West Power found a quality discrepancy in the net calorific value of the coal and sought to appoint an independent lab to test the coal. The Korean power company allegedly told this to Noble on March 12, 2020.
Including King, all four of the directors sued by ASIC said they “acted honestly, and, having regard to all of the circumstances of the case ought fairly be excused for the contravention” (which they deny).
Ransley stated “the PwC Report positively stated that PwC found no evidence”. Further, Ransley, and other directors, noted “a third party (Transcoal) had been engaged to handle TerraCom’s coal sale logistics”, and the quantum of the alleged wrongdoing was “non-material”.
Boom said he received an email from former TerraCom director Philip Forrest on January 13, 2020 which said: “You will see that the company and the executives are essentially exonerated in the PwC report”.
McCarthy said in his defence that: “His responsibilities within TerraCom did not include the conduct or management of the investigation into the allegations made by Mr Williams (whether by Ashurst, PwC or otherwise”.
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