The pressure of the looming royal commission into the collapse of HIH Insurance and intense regulatory scrutiny has sparked a bitter falling out between former senior executives and businessmen connected to the failed group. The latest row centres on property valuations in FAI Insurances, whose acquisition by HIH for $300 million has been singled out as a critical factor in the $4 billion collapse. Letters obtained by The Australian Financial Review contain allegations and warnings of the potential consequences of the scrutiny by the Australian Securities and Investments Commission and the liquidator, Mr Tony McGrath. A letter dated May 7 warns former FAI executives of the dangers of attracting attention. "What goes around comes around," Mr Brad Cooper, the head of Home Security International, a burglar alarm company floated by FAI, said in a letter addressed to a former FAI executive, Mr Frank Wolf, which alluded to concerns about FAI property valuations. "Understanding that people have different political agendas, I am aware of a number of comments made by you that have found their way back to me. It's a very small world." Mr McGrath has blamed the HIH collapse on under-reporting of insurance claim liabilities by management and overvaluing HIH assets. Mr Cooper's May 7 letter appeared to be sparked by anger over statements that he believed Mr Wolf and another former FAI property executive, Mr Avi Rubinstein, had made to the liquidator. Mr Cooper refers to allegations about a deal five years ago and says: "It is so obvious that you don't have any knowledge of the file, but have had conversations with the liquidator and others portraying these transactions to be inappropriate." After criticising FAI property valuations, Mr Cooper concludes: "Frank, this will no doubt be an area of great interest to the media, the liquidators, Arthur Andersen, ASICS [sic] ... and Morris [sic] Blackburn, who have contacted us regarding running a class action." Mr Cooper concludes the May 7 letter with: "Your rudeness and arrogance is a sad trait. Perhaps you may lose a little of your arrogance during the weeks ahead ..." Mr Wolf, who was an HIH consultant and now has an office in the Adler Corporation building, told the AFR through a spokeswoman that he had "no involvement whatsoever" in the leasing arrangements that Mr Cooper raised, but he believed these were perfectly in order and that the book values of all FAI properties were determined by independent valuers. "Mr Wolf was general manager, strategic planning, not general manager, property, and was not responsible for overseeing property valuations," Mr Wolf's spokeswoman said. Last Friday Mr Cooper wrote to the AFR to say that his May 7 letter addressed to Mr Wolf and a letter accompanying it addressed to former FAI chairman Mr John Landerer were merely a draft document sent to his lawyer for comment, and which Mr Cooper's secretary sent to Mr Wolf by mistake. In Friday's letter, dictated by Mr Cooper from a north shore hospital where he is being treated for a throat ailment, Mr Cooper says he did not see the May 7 letter in typed form, and his signature at the end of the letter was generated by computer. He did not respond to questions posed by the AFR. Following advice from his solicitors, he had not sent or authorised the sending of the letter. ASIC investigators searched Mr Cooper's offices last week, as they executed warrants over the homes and offices of former HIH directors and consultants. ASIC is investigating deals last year totalling $22 million between HIH and Mr Cooper's Home Security International, which operates as FAI Home Security. Mr Cooper now controls HSI, which was delisted from the Nasdaq stock exchange in May and is now independent of HIH. Mr Cooper also had a role as a property consultant, as broker for a proposal that the Packer family's Consolidated Press group put to the HIH board in the weeks before HIH collapsed, to acquire a major portion of the HIH property portfolio. "Mr Wolf became aware that Mr Cooper and Mr [Ben] Tilley put a proposal to the board after the fact, but is not aware of the details," Mr Wolf's spokeswoman said. A spokesman for Maurice Blackburn Cashman said he was unaware of any plan to run a class action on the lines described by Mr Cooper. Mr Wolf said he had no involvement in setting leases between FAI entities and was "not aware of any excessive rentals between those entities". Another former FAI executive said the May draft letter was merely indicative of a personal falling out between Mr Wolf and Mr Cooper. "It was company policy to insist that when FAI subsidiaries and associated companies needed office space, they should rent FAI properties," the former executive said. "Some people grumbled and said the rents were too high." with John Breusch and Andrew Main Feedback: ahepworth@mail.fairfax.com.au